Section 302

Underwriting

Requirements

For all Moderate Rehabilitation Mortgage Loans...

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.

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

 

  • the health and safety of tenants, guests, or employees at any time, and
  • tenant displacement, and consider a relocation plan to minimize the effects of the displacement.

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?