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Multifamily Mortgage
Risk-Sharing Program (Section 542(c))
If your FHA
Project Number has the following designation “xxx-98xxx”
your loan was financed under HUD Multifamily Mortgage Risk-Sharing
Program (Section 542(c)).
Summary:
Section 542(c) enables the U.S. Department of Housing and Urban Development
(HUD) and State and local Housing Finance Agencies (HFAs) to provide new
risk-sharing arrangements to help those agencies provide more insurance and
credit for multifamily loans.
Purpose:
The Program
provides new insurance authority independent of the National Housing Act.
Section 542(c) provides credit enhancement for mortgages of multifamily housing
projects whose loans are underwritten, processed, serviced, and disposed of by
HFAs. HUD and HFAs share in the risk of the mortgage. The program was originally
designed as a pilot to assess the feasibility of risk-sharing partnerships
between HUD and qualified State and local HFAs in providing affordable housing.
Eligible
Activities:
Participating qualified State and local Housing Finance Agencies may originate
and underwrite affordable housing loans including new construction, substantial
rehabilitation, refinancing, and housing for the elderly. The program provides
full FHA mortgage insurance to enhance HFA bonds to investment grade. HFAs may
elect to share from 10 to 90 percent of the loss on a loan with HUD. The HFA
reimburses HUD in the event of a claim pursuant to terms of the risk sharing
agreement.
An HFA must be
approved by HUD to participate in this program. To be eligible the HFA must:
(1)
carry the designation of "top tier" or its equivalent as evaluated by
Standard & Poor's or another nationally recognized rating agency; or
(2)
receive an overall rating of "A" for the HFA for its general obligation
bonds from a nationally recognized rating agency; and
(3)
otherwise demonstrate its capacity as a sound, well-managed agency that
is experienced in financing multifamily housing; and
(4)
have at least 5 years experience in multifamily underwriting; and
(5)
be a HUD-approved multifamily mortgagee in good standing.
Eligible
Borrowers:
Eligible mortgagors include investors, builders, developers, public entities,
and private Non-profit corporations or associations may apply to a qualified HFA.
Eligible
Customers:
Individuals, families, and property owners may be eligible for affordable
housing.
Section 8
Contract Renewal:
Projects’ loans
financed under Multifamily Mortgage Risk-Sharing Program (Section 542(c)) are
considered “exempt from debt-restructuring” and defined by HUD as
“exception projects.” - References;
1.
Section 8 Renewal Policy Guide, Chapter 5, Option Three, Referral to OAHP,
Eligibility, Section 5-1, E;
2.
“Exception Projects”: Exception projects are projects that are either
not an “eligible multifamily housing project” under Section 512(2) of MAHRA, or
are “exempt from
debt-restructuring” under Section
514(h) of MAHRA (Refer to Chapter Six).
3.
Section 8 Renewal Policy Guide (GUIDE), Chapter 6, Option Four, Renewal
of Projects Exempted from OAHP, ELIGIBILITY, Section 6-1;
4.
Specifically, the following projects are identified by the statute as “exception
projects.”
a.
State or Local
Government financing.
Projects for which the primary financing or mortgage insurance was provided by a
unit of State government or a unit of general local government (or an agency or
instrumentality of either) and
is not insured under the National Housing Act.”
b.
Definition.
Under the GUIDE, Section 524(b) of MAHRA defines “exception
projects” as those Section 8
Contracts that may be renewed at rents above market. Projects fitting this
characteristic may renew under Option Two (2) as an “exception project.”
c.
Projects defined
as an “exception”
project, which is exempt from debt-restructuring (Option 3), pursuant to Section
514 of Multifamily Assisted Housing Reform and Affordability Act (MAHRA), and
Rent Comparability Study (RCS) Market Rent Potential is less than current rent
potential, Owners have the right to renew their Section 8 Contracts under Option
2; willing
to cut the rents to comparable market rents.
Considering the
above, the key questions to ask are;
1.
Was the existing loan financed under Section 542(c) Housing Finance
Agency (HFA) Risk Sharing-Existing?
2.
Was the project primary financing provided by a unit of State government
or a unit of general local government?
3.
The existing loan was NOT insured under the National Housing Act? – (loan
monthly statement does NOT include MIP, and Annual Audited Financial Statement
does NOT include MIP payments)?
4. If
answers to above are “YES” you may choose to renew your Section 8 Contract under
Option Two of the GUIDE.
If you have any
question regarding your Section 542(c) Housing Finance Agency (HFA) Risk
Sharing-Existing Loan, contact me and I will assist you in preparing a Proposal
for renewal of your Section 8 Contract under Option Two.
Alvin L. Sutherlin
Housing Consultant
Post Office Box 162
Mount Rainier, Maryland 20712-0162
Voice Number: 301-277-3465
Overnight Mail:
4104-29th Street
Mount Rainier, Maryland 20712-1820
alvinl.sutherlin@verizon.net
http://www.hud-consultant.com
http://hud-consultant.com/References.html
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