Are the HUD mortgage insurance programs subsidized housing?

Do they restrict a property to low income tenants or control rents?

     HUD mortgage insurance programs are not restricted to low income tenants nor do they control rents charged. The programs, as part of the National Housing Act, were designed to provide financing for new construction or substantial rehabilitation of multifamily projects, in the case of Section 220 and 221 Program insurance.
     The Section 223(f) insurance program was created to assure the availability of mortgage capital for the acquisition or refinance of existing multifamily properties.  All of these programs involve market rate consideration in underwriting unless they are restricted by requirements associated with other funding sources. 


What Maximum Term Prepayment Loans are available?
     Prepayment Loans of 35 years or less for Section 223 and 40 years or less for Sections 220 and 221 are permissible, however, all debt must be amortized within the term of the loan. Shorter amortization periods increase annual debt service requirements, which decrease the amount a property can borrow based on debt service coverage.

Are HUD insured loans assumable?
     HUD insured loans are assumable through a Transfer of Physical Assets process with HUD, provided the new owner and its principals are acceptable to HUD (0.05% of the original loan amount due at application submittal).


What is the underwriting interest rate and when is the final rate fixed?
     Interest rates usually are not fixed prior to the issuance of a HUD commitment; however, the rate cannot exceed the rate stated in the HUD commitment. In order to reduce the possibility that rising interest rates might hinder proceeding under a HUD commitment, Secore Financial Corporation will submit the application to HUD at a rate slightly higher than the anticipated final rate. Rates typically will be fixed following the issuance of the commitment and after the requirements for rate lock have been met. 


What debt service coverage is typical for approved transactions?
     Refinance or acquisition transactions will require a minimum debt service coverage, including a deposit to the replacement reserve, ranging from 1.1 lx to 1.20x. New construction and substantial rehabilitation transactions will require a minimum debt service coverage, including a deposit to replacement reserve, ranging from 1.11x to 1.20x.


Are there income limitations?
     HUD mortgage insurance programs do not dictate income limitations. The borrower, however, must certify to abide by fair housing practices. 


How long does it take? 
     With the implementation by HUD of its Multifamily Accelerated Processing (MAP), processing time has been reduced.  Please see our progam specific term sheets for additional information. 


Does HUD require an operating deficit escrow?
     For new construction and substantial rehabilitation projects, the requirement for an operating deficit escrow is dependent upon underwritten rent-up assumptions. Typically, in the case of refinance, acquisition or substantial rehabilitation (when significant tenant displacement does not occur), an operating deficit escrow is not required.


What ownership structure is required?
     Except in those rare instances where an individual is the borrower, HUD requires that the borrower (or borrowing entity) be a single asset mortgagor.  Often, the owning entity is structured as a Limited Partnership with a 1% corporate General Parter and 99% Limited Partners.


Are there financial reporting requirements?
     HUD will require audited HUD financial statements submitted in an electronic format on an annual basis.


What level of environmental investigation is required?
     HUD performs an in-house environmental review and typically requires lead based paint and asbestos reports if the property was constructed prior to 1978. In addition, new properties cannot be located in a 100 year flood plain (with very few exceptions), in airport landing paths, located near oil or chemical holding tanks, etc.

**Terms outlined above reflect Notice H 2010-11 (HUD Multifamily Risk Mitigation) issued on July 6, 2010**