Section 542(c))

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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)).


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.



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