In addition to favorable changes that include better loan parameters, lower MIP rates, and increased repair per unit allowance for the HUD/FHA 223(f) program, the January 2016 updates to the Multifamily Accelerated Processing (MAP) Guide provides many other advantages for loan processing. Additional changes include underwriting on Equity Bridge Loan terms, underwriting to lower vacancies, and changes to underwriting of HAP renewals, all of which cut the time required to approve loan applications and to assure consistent application of program requirements and credit standards across all HUD processing offices.
Equity Bridge Loans
The new MAP guidance provides better loan parameters for both the HUD/FHA 223(f), that is a program for refinancing and purchases, and the HUD/FHA 221(d)(4) that is a program that is for new construction and substantial rehabilitation of multifamily apartments.
HUD allows equity bridge loans as an obligation of the project ownership, a single asset entity, that was not previously allowed. This loan may not be secured as a lien on the property. The loan term may be as long as the construction or rehabilitation period, but must be paid off prior to:
- 100% of completion of repairs for 223(f) transactions, or at final endorsement for 221(d)(4) transactions by private or for-profit lending institutions
- No later than 10 years following 100% completion of repairs on 223(f) transactions, or final endorsement on 221(d)(4) transactions
Underwriting of HAP Renewals
The revised 2016 HUD MAP Guide also changed underwriting of the Housing Assistance Payments Contract (HAP) renewals. Achievable tax credit rents need to be discounted a minimum of 10% to the current market rents, in order to underwrite to lower vacancies. HUD allows underwriters to use 97% occupancy and 3% vacancy for HUD assisted properties with HAP contracts on 90% or greater of units, or 90% or greater of the units set aside as LIHTC units. If 80% of the units are set aside for LIHTC, with attainable tax credit rents of at least 10% below that of the market rents, HUD allows underwriters to use 95% occupancy, and 5% vacancy. If a borrower has a project that has 20% of units or above that are market rate, or LIHTC units without a 10% minimum discount to market rate, 93% is the maximum underwritten occupancy allowed to be utilized, with a vacancy of 7%.
There are numerous projects that currently have year to year, 5-year, 10-year, and 15 to 20- year HAP contracts in place. When refinancing a current HUD/FHA property, the project ownership needs to enter into a new 15-year rental assistance contract to qualify for subsidized loan terms of 90% maximum LTV and a minimum Debt service Coverage of 1.11x. A Rent Comparable Study is part of the renewal and is utilized to justify requested rents. Please note that if the borrower orders a Rent Comparable Study to be done, the same Firm is not allowed to complete the appraisal on the transaction. If the Rent Comparable Study is ordered by the Lender, then both can be completed by the same Firm. The Rent Comparable Study (RCS) for the HAP Section 8 renewal has to be submitted with the HUD/FHA Loan Application from the Lender.
With so many beneficial changes to the 2016 MAP Guide, obtaining HUD loan approvals is now faster than ever before. If you are ready to kick off the loan application process, contact LSG Lending Advisors today.
Read more about beneficial changes to HUD loan programs from the 2016 Updated MAP Guide here.