HUD Releases Guide on
Preserving Section 236 Properties
HUD’s Office of
Recapitalization has published
Preservation Options for Section 236 Properties, a guide
outlining the options that owners have to preserve Section 236
properties as affordable housing. HUD encourages owners to take action
this year because all Section 236 loans will mature in the next three
years. Upon maturity, property owners may convert units to market rate
or take other actions that result in the loss of affordable homes to low
income households. The guide describes existing incentives to
recapitalize Section 236 properties in order to preserve their
affordability.
Section 236 was created
in 1968 to enlist the private market in developing affordable rental
homes. Private lenders made 40-year market-rate loans that were either
insured by HUD or financed by a state Housing Finance Agency. HUD
provided the owner with an interest reduction payment (IRP) that
subsidized the owner’s mortgage down to a 1% interest rate. The IRP was
fully funded to flow each month to the mortgage lender for the entire
40-year term. Through a regulatory agreement or use agreement, the owner
agreed only to rent to households with incomes at or below 80% of the
area median income and to limit rents to HUD-approved, cost-based rents.
Eventually, many properties received additional assistance in the form
of Rent Supplement (Rent Supp), Rental Assistance Payment (RAP), and/or
a Section 8 Project-Based Rental Assistance (PBRA) contracts.
The guide describes an
owner’s financing options, including refinancing to raise capital,
prepaying the original Section 236 loan, decoupling the balance of an
IRP from the original mortgage and applying the IRP subsidy stream to a
new loan as part of a prepayment and refinancing transaction, and
finding relief from balloon payments due on some flexible subsidy loans.
The guide also describes rental assistance options, including renewing
expiring Section 8 contracts with a potential increase for contract
rents, providing Tenant Protection Vouchers to residents, and converting
properties to PBRA or Project-Based Vouchers under the Rental Assistance
Demonstration’s Component 2.
The guide also discusses
the option of prepaying the Section 236 loan, which not only enables the
owner to leverage new debt to make capital improvements but also usually
triggers eligibility for tenants to receive Enhanced Vouchers (EVs).
With an EV, residents have the right to remain in their unit with the
voucher covering the cost between what the household was paying for rent
and the new market-based rent.
Some Section 236 loans
can be prepaid “as-of-right” without HUD approval. These are usually
called Section 219 prepayments. Owners must deliver a prepayment notice
to each tenant between 150 and 270 days prior to prepayment. Rents
cannot be increased for 60 days after prepayment.
Owners of Section 236
properties that were originally developed by nonprofits, as well as some
properties with both Rent Supp contracts and Section 221(d)(3)
mortgages, cannot prepay without HUD approval. These are usually called
Section 250(a) prepayments. Owners must give residents 150-day advance
notice. Low income residents will continue to pay Section 236 rents
because a new Section 250(a) Use Agreement will take the place of the
original Section 236 Regulatory Agreement and remain in effect through
the end of the original mortgage term.
Preservation Options for
Section 236 Properties
is at
http://bit.ly/1qAdYdP
More information about
Section 236, Rent Supp, RAP, and Project-Based Section 8 is on page 4-19
of NLIHC’s
2016 Advocates’ Guide at:
http://bit.ly/1WhSAWx
More information about
Tenant Protection Vouchers and Enhanced vouchers is on page 4-44 of
NLIHC’s
2016 Advocates’ Guide at:
http://bit.ly/1MZ9PtL
Want to know more about the
Section 236 Program, Contact me.
Alvin
L. Sutherlin
Housing
Consultant
Post
Office Box 162
Mount
Rainier, MD 20712-0162
ALVINL.SUTHERLIN@VERIZON.NET
Office
Address: 4104-29th Street
Mount
Rainier, MD 20712-1820
301-277-3465
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