2003.07

Permanent Loan Final Underwriting

2003.07A

Generally

Requirements

Before converting, you must complete the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. final underwriting.

Topic You must...
DSCR and LTV Ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). complies with the committed DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Preferred Equity payments. and LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.  .
Eligibility

Ensure:

 

  • The BorrowerBorrowerPerson who is the obligor per the Note. :
    • does not change;
    • remains eligible; and
    • still owns the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
  • The Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. :
    • do not change; and
    • have not reduced their direct or indirect ownership interest and control over the BorrowerBorrowerPerson who is the obligor per the Note. or the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
  • There is no material adverse change in the condition, financial or otherwise, of 
    • the BorrowerBorrowerPerson who is the obligor per the Note. , 
    • any GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ,
    • any Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , or 
    • the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
Construction Loan Status

Ensure the BorrowerBorrowerPerson who is the obligor per the Note.

 

  • is current on the construction loan payments and not in default, and
  • has not been delinquent during the previous 12 months.
Certification of Rent Roll On the permanent Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , certify with the BorrowerBorrowerPerson who is the obligor per the Note. there has been no material adverse change in the Certification of ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership.  Rent Roll.
Equity Contributions

As of the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. , obtain a BorrowerBorrowerPerson who is the obligor per the Note. certificate, or other Fannie Mae-accepted evidence, that all funds reflected on the Borrower'sBorrower'sPerson who is the obligor per the Note. sources and uses of funds statement were: 

 

  • received, including all equity contributions; and
  • properly invested in the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
LIHTC Reservation or Allocation If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is eligible for LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , verify the Borrower'sBorrower'sPerson who is the obligor per the Note. IRS Form 8609 issued by the state housing finance agency reflects the required LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. amount.

Guidance

Fannie Mae may defer the requirement to obtain IRS Form 8609 before conversion based on factors such as whether:

  • the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). financials exceed the pro-forma underwriting per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ;
  • all other conversion criteria were met;
  • the BorrowerBorrowerPerson who is the obligor per the Note. certified the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). complies with the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. requirements;
  • you and the tax accountant approved the cost certification;
  • the BorrowerBorrowerPerson who is the obligor per the Note. submitted the cost certification to the state, with no anticipated significant adjustments;
  • the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor contributed at least 90% of their equity, with the remaining 10% withheld for any minor adjustments to the 
    • PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). tax depreciable basis, 
    • adjusters, or 
    • developer fee;
  • the sources and uses of funds are in balance, and all required funds were received to complete and lease-up the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
  • you have documentation confirming the IRS Form 8609 application and the state’s acknowledgement of receipt;
  • you expect to receive the IRS Form 8609 timely post-conversion;
  • you will monitor receipt of IRS Form 8609 as a post-closing matter and deliver a copy to Fannie Mae; and
  • the BorrowerBorrowerPerson who is the obligor per the Note. has experience complying with IRS Form 8609 in the specific state. 
2003.07B

Stabilized NCF

Requirements

You must:

  • Confirm the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). will qualify for the full CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. by
    • evaluating its performance, and
    • assessing whether it meets the projected 
      • income, 
      • expenses, and 
      • NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and….
  • Use the Forward Loan Conversion Analysis (Form 4212) to
    • annualize the certified project rent rolls,
    • compare pro forma and actual operating expenses, and
    • calculate the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). stabilized NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… per 
  • Submit the Forward Conversion Analysis Summary (Form 4618) that verifies your Chief Underwriter’s involvement and agreement with the analysis.

The permanent Mortgage Loan Delivery PackageMortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. documentation must include:

  • the percentage of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). occupied units categorized by
    • bedroom configuration,
    • square footage, and
    • rent type (low income or market rate) delineating any Section 8 or other subsidized rental program tenants;
  • the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). actual Effective Gross IncomeEffective Gross IncomeOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. for each of the previous 3 months, including only rental income and permitted other income from the units less any 
    • rent concessions, 
    • reductions, 
    • inducements, or 
    • forbearance; and
  • rental income by rent type (low income or market rate).

You must use the following table to calculate stabilized NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and….

STABILIZED NCF
Item Function Description
1  

For each of the most recent trailing 3 months before conversion:

 

  • determine the Gross Potential RentGross Potential RentOn an annual basis or any specified period, the total actual and potential rent for a Property per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. from an executed Certification of ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership.  Rent Roll; and
  • confirm that at least 90% of the units were physically occupied by a Qualified TenantQualified TenantParty occupying a dwelling unit in a Property in full compliance with a lease. with an acceptable LeaseLeaseWritten agreement between an owner and the tenant of a Property stipulating the conditions for possession and use of real estate for a specified period of time and rent. .
  EQUALS GROSS POTENTIAL RENT
2 MINUS
  • Economic vacancy using the higher of
    • original Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, or
    • actual annualized trailing 3-month operating statements.1
  • Include: 
    • concessions if they
      • are prevalent in the market, or
      • were used to achieve initial stabilization and will remain; and
    • a re-leasing cost allowance if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has short term leases.
3 PLUS For an MAH PropertyMAH PropertyProperty encumbered by a regulatory agreement, land use restriction agreement, extended use agreement, or similar restriction that limits rents that can be charged to tenants, or imposes income limits on tenants. , include annualized other income per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 703.01: Underwritten NCF.
4 PLUS Commercial income per Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).
  EQUALS EFFECTIVE GROSS INCOME
5 MINUS

Line-by-line operating expenses using the higher of:

 

  • actual annualized trailing 3-month operating statements; or
  • original Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, adjusted by substituting the following actual expenses, if known:
    • real estate taxes;
    • property liability and other insurance; and
    • management fees.
6 MINUS Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF).
  EQUALS STABILIZED NCF
1 Assess if there was any decline in NRI per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis.
2003.07C

Final Permanent Mortgage Loan Amount

Requirements

You must ensure the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount is less than or equal to the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. .

Operating Procedures

Steps Actions
1 You must determine the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount using the Forward Loan Conversion Analysis (Form 4212).
2 If the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). actual stabilized NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… before permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. is less than the original Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, reduce the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount to comply with the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Preferred Equity payments. and LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.  .
3 If the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount in Step 2 is less than the Forward Commitment Confirmation Mortgage Loan amount, verify the BorrowerBorrowerPerson who is the obligor per the Note. has secured a source of funds, whether debt or equity, to cover the difference.
4

Ensure any additional debt the BorrowerBorrowerPerson who is the obligor per the Note. incurs to cover the difference in Step 3, is only secured by a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). if

 
5

If the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount in Step 2 results in a loan curtailment,

 

  • the BorrowerBorrowerPerson who is the obligor per the Note. must close the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. at the reduced amount, and
  • you must DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. at the reduced amount.
6

If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). qualifies for additional financing beyond the Forward Commitment Confirmation Mortgage Loan amount, submit via DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. :

 

  • a request for additional financing;
  • your conversion documentation; and
  • a comparative analysis showing the stabilized NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… is greater than the original Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting.
A new pre-conversion AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. is not required if the pre-construction Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. and permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount comply with the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. maximum LTVLTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.  .
7

Any increase in the permanent Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. amount approved by Fannie Mae will:

 

  • be limited to the Maximum Loan Amount Increase percentage per the Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ;
  • be made on the currently available terms and conditions; and
  • not be approved simply because construction costs, cost overruns, or change orders were higher than expected.
2003.07D

Third-Party Reports

Requirements

You must obtain third-party reports per Part III, Chapter 20: Forward Commitments, Section 2003.03C: Third-Party Reports.