Chapter 3
| Section 301 | |
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Requirements
A Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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. is secured by a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). that will undergo at least $8,000 per unit of Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. . This Chapter does not apply to PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with a lesser amount of rehabilitation work.
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Product Description |
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| Minimum Per Unit Cost for Rehabilitation Work |
$8,000 per unit:
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| Rehabilitation Timing |
The Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. must be completed as follows:
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| Completion/Repair Escrows | For Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. identified in a PCAPCAAssessment of the Property's physical condition and historical operation. , if you require full or partial funding of a Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. , any higher funding amount you require above the estimated cost of Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. must be funded. |
| Mezzanine Financing | If the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. is funded through Mezzanine FinancingMezzanine FinancingSubordinate debt financing provided to a direct or indirect owner of a Borrower that is secured by a pledge of the direct or indirect equity interest in the Borrower held by the owner, and not by a Lien on the Property. , you must also comply with Part III, Chapter 16: Mezzanine Financing and Preferred Equity. |
| Section 302 | |
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Requirements
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For all Moderate Rehabilitation Mortgage Loans... |
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Rent or Income Restrictions |
For Multifamily Affordable HousingMultifamily Affordable HousingProperty 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. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , you must ensure that the rents expected to be charged after Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. is completed are consistent with any rent or income restrictions. |
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Tenants, Guests, and Employees |
You must identify and mitigate any risks that the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. may have during the renovation period on
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Guidance
For all Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. , you should consider the following questions about the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. :
- Are at least 60% of the budgeted improvements for interior unit upgrades?
- Are the projected cost estimates reasonable and sufficient to complete the entire scope of work?
- Does the budget, including the sources, uses, and schedule, provide adequate capital availability during the term of the work?
- Are construction contracts guaranteed maximum price contracts that specify a completion date?
- Given the scope of work, is a fully-funded Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. or Rehabilitation Reserve AccountRehabilitation Reserve AccountCustodial Account established by the Lender and funded by deposits from the Borrower per the Rehabilitation Reserve Agreement to fund the Rehabilitation Work. appropriate?
- Is the Sponsor'sSponsor'sPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). net worth and liquidity adequate to fund any unexpected cost overruns or operating deficits?
- Does the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). have demonstrated experience with the scope of work in the same or similar real estate markets?
- Does the BorrowerBorrowerPerson who is the obligor per the Note. have sufficient economic incentive to complete the entire scope of work, including the feasibility of achieving projected post-rehabilitation rents sufficient to meet the target effective gross income?
- Should a 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. execute a Completion Guaranty (Form 6018) that covers a portion or the entire scope of the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. ?
- Should additional collateral (e.g., deposits into the Rehabilitation Reserve AccountRehabilitation Reserve AccountCustodial Account established by the Lender and funded by deposits from the Borrower per the Rehabilitation Reserve Agreement to fund the Rehabilitation Work. that are greater than the budget for the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. , operating deficit reserve, Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. , etc.) be required?
Requirements
If the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. will cost more than $20,000 per unit and includes structural additions or modifications, then in addition to the other requirements in this Chapter, you must obtain a rehabilitation work evaluation report from either the PCA ConsultantPCA ConsultantIndividual or firm conducting a PCA and preparing a PCA Report. or a licensed architect or engineer.
This rehabilitation work evaluation report must include:
- a review and evaluation of 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 scope of Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. ; and
- all significant construction contracts related to the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. .
The report must also address, and you must evaluate, the following:
- Is the planned Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. structurally sound and physically feasible?
- Is the estimated cost of the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. reasonable?
- Will the work be completed within the Borrower’sBorrower’sPerson who is the obligor per the Note. scheduled time frame, but not later than 36 months after the anticipated Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ?
- Will the work comply with all zoning, building, and fire code regulations?
- Is there any additional work that is not already planned but that should be undertaken?
Requirements
You must ensure that the BorrowerBorrowerPerson who is the obligor per the Note. :
- Executes a Modifications to Multifamily Loan and Security Agreement (Rehabilitation Reserve – Moderate Rehabilitation) (Form 6222) that identifies the planned scope of the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property.
on the Rehabilitation Work Schedule, including
- all of the Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. items,
- estimated costs,
- allowance for cost overruns, and
- completion dates.
- Completes a budget for the planned Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. .
- Funds a Rehabilitation Reserve AccountRehabilitation Reserve AccountCustodial Account established by the Lender and funded by deposits from the Borrower per the Rehabilitation Reserve Agreement to fund the Rehabilitation Work.
with the:
- entire budgeted amount (or a higher amount that you require) for all Rehabilitation WorkRehabilitation WorkAggregate repairs, replacements, or improvements (including all Completion/Repairs) required to be performed and completed within a specified time period after the Mortgage Loan Origination Date for a Moderate Rehabilitation Property. that is not identified as Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. by the PCAPCAAssessment of the Property's physical condition and historical operation. ; and
- estimated cost (or a higher amount that you require per Part II, Chapter 4: Lease Audits, Inspections, and Reserves, Section 405: Completion/Repairs) for Completion/RepairsCompletion/RepairsRepairs or capital item replacements and deferred maintenance: identified per the Property Condition Assessment; and required per the Completion/Repair Schedule, or Completion/Repair Agreement. .
| Section 304 | |
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Requirements
Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. Supplemental Mortgage LoansSupplemental Mortgage LoansMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae. must comply with Part III, Chapter 14: Supplemental Mortgage Loans, except as modified by this Section.
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Supplemental Mortgage Loans |
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Origination Date |
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Loan Term |
Must be coterminous with the Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. 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. . |
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Completed Rehabilitation Work |
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Site inspection |
You must perform a site inspection if the qualifying work was not completed pursuant to a Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing: the Borrower’s agreement to fund the Completion/Repair Escrow, and perform Completion… or a Rehabilitation Reserve AgreementRehabilitation Reserve AgreementBorrower’s agreement to undertake identified Rehabilitation Work, the terms for funding the Rehabilitation Work, and the disbursement of funds from the Rehabilitation Reserve Account (e.g., Form 6222 or Form 4523). . This requirement may be satisfied if the most recent asset management site inspection was conducted after the required work was completed at 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). . |
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Rate Lock |
Are not eligible for the Streamlined Rate Lock option. |