U.S. DEPARTMENT OF HOUSING & URBAN DEVELOPMENT
FHA Multifamily MAP Training
May 30, 2012
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U.S. DEPARTMENT OF HOUSING & URBAN DEVELOPMENT
AGENDA –morning
8:45-9:15am … Pre-test. Introduction, overview of
agenda and training objectives.
9:15 -10:00am …Processing/MF FHA 101
10-10:15am … Break
10:15am-12:15pm … Case study
12:15 pm – 1:30pm… Lunch
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U.S. DEPARTMENT OF HOUSING & URBAN DEVELOPMENT
AGENDA –afternoon
1:30-3:15pm … Case study
3:15-3:30pm … Break
3:30-4:45pm … Post-training Exam
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U.S. DEPARTMENT OF HOUSING & URBAN DEVELOPMENT
MF FHA 101
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Basics of FHA financing
•
Overview of Processing
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MF DEVELOPMENT – OUR MISSION
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BUILD COMMUNITIES
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SUPPORT AFFORDABLE HOUSING
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PROVIDE LIQUIDITY to CAPITAL MARKETS
U.S. DEPARTMENT OF HOUSING & URBAN DEVELOPMENT
History
•
2000-present MAP
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MULTIFAMILY INSURED LOAN ENDORSEMENTS
OVER THE LAST TEN YEARS
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
2000
2001
2002
2003
2004
2005
2006
Includes risk share and basis FHA loans. Source: Multfifamily Housing.
2007
2008
2009
2010
2011
Endorsements in billions of dollars
$14.0
PORTFOLIO OF FHA-INSURED MULTIFAMILY APARTMENTS,
BY PROPERTY TYPE
Total Insured Portfolio:
931,000 apartments as
of November 29, 2010
Insured only
456,084
49%
Insured - Subsidized
20,148
2%
Insured - Assisted Subsidized
138,273
15%
Insured - Assisted
316,736
34%
Source: HUD databases
MULTIFAMILY LOAN PORTFOLIO BY LOAN VALUE
Total Insured Portfolio:
$43-Billion as of
November 29, 2010
Insured only
$30,947,000,000
72%
Insured - Subsidized
$85,000,000
0%
Insured - Assisted Subsidized
$1,211,000,000
3%
Source: HUD databases
Insured - Assisted
$10,815,000,000
25%
FHA PROGRAM BASICS
•
MAP (Multifamily Accelerated Processing):
NC/Sub Rehab, Refinance/Acquisition,
Supplemental Loans for Apartments
TAP (Traditional Application Processing):
for Other including co-ops, mobile home parks,
lender identity of interest
__________________________________________
• LEAN/Health Care:
Assisted Living, Board & Care, Nursing Homes,
Hospitals
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FHA PROGRAM BASICS
New Construction / Substantial Rehab:
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Sections 220 for Mixed Use, 221(d)(4), 231 for
Elderly, 241(a) Improvements/Additions
Section 221(d)(3) -- to be suspended in FY13
Two stages of processing:
•
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Pre-application
Firm
FHA PROGRAM BASICS
Refinance / Acquisition of Existing Properties:
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Sections 223(a)(7) for already FHA-insured, 223(f)
One stage processing only:
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No Pre-application
FHA PROGRAM BASICS
What about elderly, age-restricted housing?
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221(d)(4) & 223f: May restrict Head of Households
(HOH) to 62+; cannot exclude children
•
231: All residents must be 62+ and/or disabled
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No FHA MF program may restrict HOH or residents
to 55+ (otherwise OK under Fair Housing’s “Hsg for
Older Persons Act”)
ADVANTAGES OF FHA FINANCING
•
•
•
•
•
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Permanent, fixed rate, long term, fully amortizing
Construction/permanent loan combined
Useable in “C” Markets
Can be combined with other resources, e.g., Section 8,
LIHTC (note: new “Tax Credit Pilot”)
High Leverage, especially with Builder’s/Sponsor’s Profit
& Risk Allowance (BSPRA) for NC/SR (note: new Risk
Mitigation standards, especially for Large Loans)
Non-Recourse (note: Regulatory Agreement #50
provision for “bad boy carve-out”)
DISADVANTAGES OF FHA FINANCING
•
With increased volume, long processing times (e.g.
between 88 and 1,178 days from engagement letter to
closing on transactions closed in the last few years by a
typical lender)
•
With increased volume and Risk Mitigation, uncertainty
about results on deals and relationships with HUD Offices
•
About 60 - 75% NC/SR, 85 - 90% existing property deals are
approved; National Loan Committee is approving 90%
DISADVANTAGES OF FHA FINANCING
•
•
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Mortgage Insurance Premium (MIP)
Note increases proposed for FY13 Firm Commitments:
NC/SR: from .50% to .70%
a7’s: from .45% to .50%
223f’s, all others: .45% to .60%
No increase if with LIHTC or Project Based Section 8
Audited Annual Financial Statements, REAC inspections,
possibility of enforcement, semi-annual HUD approval to
pull $ out, R4R
Potentially more restrictive repair requirements (e.g.
smoke detectors, Fair Housing and Accessibility
requirements)
OVERVIEW OF PROCESSING – WHO’S WHO
Borrower: What/who are they dealing with?
• Existing debt, partners, the IRS, lenders, the project
• Single asset mortgagor, management agents, tenants
Your friendly lender:
• Correspondents, originators, [underwriters], construction
loan admin, servicing
• Marketing, advertising, borrower contacts, structuring/
slotting, pre-screening, engagement
Overview of Processing – Who’s Who
Your Friendly Local HUD Office: What they are doing . . .
• Screening, publishing queue listing
• Cashing check (soon to be pay.gov) or sending a letter
• HUD Technical Review
Programs
Valuation
EMAS
Labor Relations
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A&E
Env.
Legal
Loan Approval – Issuing a Firm
Cost
Asset Mgt
FHEO
Mortgage Credit
WHAT WE DO IN UNDERWRITING:
QUESTIONS WE ASK:
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Will they pay us back?
Will enough people live here?
When will they do so?
How much will they pay for doing so?
Will HUD approve it?
Given specific program requirements -- e.g., 223f
repair limits, Remaining Economic Life, DSCR/LTV’s,
commercial income standards, environmental
requirements -- will it “pencil out?”
Borrower, lender: Can we make money at this?
DETERMINING INSURABLE MORTGAGE AMOUNT:
VALUE, DEBT SERVICE COVERAGE, COST
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Net Operating Income (NOI) = “Rental Income” less “Expenses.”
So what to consider in determining these? See 2264 Section F.
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“Rental Income” = Estimated total potential “project income” +
estimated “ancillary project income” X residential occupancy %
= “Effective Gross Income” (EGI)
Subtract total residential & ancillary project expenses
= “Net Residential Rental Income”
If commercial income involved, factor it in also, same approach
with total potential commercial income X commercial occupancy
%, less commercial expenses.
= “Net Commercial Income”
•
•
“Net Residential” + “Net Commercial” = NOI
DETERMINING INSURABLE MORTGAGE AMOUNT:
VALUE, DEBT SERVICE COVERAGE, COST
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Value = Net Operating Income
Cap Rate
•
Example:
NOI = $678,500_____
Cap Rate = 6.75% or .0675
= $10,051,851
If 223(f) market rate, mortgage cannot exceed 83.3% of value.
So:
$10,051,851 X 83.3% (or .833) = $8,373,100 max. ins. Loan
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Value = “Criterion 3” on HUD- 92264A
DETERMINING INSURABLE MORTGAGE AMOUNT:
VALUE, DEBT SERVICE COVERAGE, COST
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DSC mortgage = Net Operating Income X Program Limit
(Interest rate + MIP + “Initial Curtail Rate”)
•
Example:
NOI = $678,500 X 83.3%
(4.5% + .45%MIP + 1.5802% Initial Curtail)
=
NOI = $678,500 X .833
(.045 + .0045 + .015802 Initial Curtail) = $8,655,000
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Debt Service = “Criterion 5” on HUD- 92264A
DETERMINING INSURABLE MORTGAGE AMOUNT:
VALUE, DEBT SERVICE COVERAGE, COST
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Cost-limited mortgage = Mortgageable Costs X Program Limit
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Mortgageable Costs = Fixed Costs + Variable Costs (e.g., fees)
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Example: It costs $100 in fixed costs to build a project and 8% of
the total costs are variable costs. The mortgage amount is 90%
of the total costs. How much is the mortgage?
MORE ARITHMETIC – BASIC ALGORITHM FOR THE
REPLACEMENT COST FORMULA WORKSHEET
Total Cost = $100 (Fixed) + 8% (variable) of Total Cost
TC – 8%TC = $100
92%TC = $100
TC = $100
.92
= $108.69
Mortgage = 90% of TC = $97.82
Replacement Cost = “Criterion 3” on 2264-A
“Lowest of” criteria = controlling mortgage amount
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SOME OTHER IMPORTANT PROGRAM
REQUIREMENTS THAT MAY IMPACT UNDERWRITING
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Davis-Bacon for NC/SR
“Statutory Limits” = “Criterion 4” on 2264-A
• Section 223f repair costs less than $6500/unit X HCP
(new policy under review)
• Commercial limits by Program and Net Rentable
Area, EGI
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More conservative DSC/LTV for Large Loans >$40M
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Reserve for Replacement $ determined by PCNA
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Current MAP Guide, e.g. Chapter 9 Environmental
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After the Firm Commitment is issued
BACK TO THE LENDER
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Borrower Acceptance
Good Faith Deposit
Rate Lock
Prep Closing Docs
Submit Closing Docs, HUD reviews, ENDORSEMENT!!
Construction Loan Administration
Transition to Asset Management
COMING POLICIES (TO BE DISCUSSED ON TUESDAY)
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Underwriting (a)7’s
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PCNA/R4R requirements
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MAP Guide Revision 2
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Rental Assistance Demonstration (RAD) lending
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Lender/underwriter tiering regulation
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1ST CASE STUDY: 10:15AM-12:15PM
1. Get in teams, introduce each other, and ensure team is familiar with case
2.“A” Team presents the loan, focusing on strengths and weakness, and issues they
analyzed; “B” Loan Committee Team asks questions
3. Loan Committee deliberates (apart from “A” team), votes, briefly writes up
decision (approve, approve with conditions, or disapprove), hands written decision
to a monitor
4. All teams/groups reconvene in main conference room; leaders of “B” teams
acting as loan committees will be prepared to state reasons for their team’s
decision
5. HUD Trainer moderates further discussion, conducts summary presentation
6. Final questions from participants
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