Chapter 7

Multifamily Affordable Housing Properties

Section 701

Generally
701.01

Description

Requirements

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. is a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). that is encumbered by a regulatory agreement, land use restriction agreement, extended use agreement, or similar restriction (an Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower…) that

  • limits rents that can be charged to tenants, or
  • imposes income limits on tenants.

An Affordable Preservation Transaction is any transaction involving 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. that:

  • currently has rent or income restrictions meeting the eligibility criteria of 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. , but the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is potentially at risk of being lost from the affordable housing inventory through conversion to market-rate housing;
  • is not receiving new LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. ; and
  • is being acquired or refinanced, but excludes a 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. paying off the initial construction loan.
701.02

Eligible Lenders

Requirements

You must be approved in writing to 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. MAHMAHProperty 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. 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. .

Section 702

MAH Property Eligibility
702.01

Eligible Characteristics and Underwriting

Requirements

You must ensure that 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. has rent or income restrictions that meet or exceed 1 of the following:

  • 20% @ 50%:  at least 20% of all units have rent or income restrictions in place making them affordable to households earning no more than 50% of AMI as adjusted for family size.
  • 40% @ 60%:  at least 40% of all units have rent or income restrictions in place making them affordable to households earning no more than 60% of AMI as adjusted for family size (except for New York City, where at least 25% of all units have rent or income restrictions in place, making them affordable to households earning no more than 60% of AMI as adjusted for family size).
  • HAP contract:  at least 20% of all units are subject to a project-based HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract.
  • Special Public Purpose:  the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code).
    • is subject to an Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower… imposed by a government entity, containing other rent and/or income restrictions,
    • has rent or income restrictions that meet or exceed 20% @ 80%:  at least 20% of all units have rent or income restrictions in place making them affordable to households earning no more than 80% of AMI as adjusted for family size,
    • has rent not exceeding 30% of the adjusted AMI, and
    • meets a noteworthy special public purpose.
  • Sponsor-Initiated Affordability:  the BorrowerBorrowerPerson who is the obligor per the Note. may voluntarily self-impose rent and income restrictions to preserve or create multifamily affordable housing.  These restrictions must:
    • require the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). to have
      • rent and income restrictions that meet or exceed 20% @ 80%:  at least 20% of all units have rent and income restrictions in place making them affordable to households earning no more than 80% of AMI as adjusted for family size, and
      • restricted unit rent limits not exceeding 30% of the adjusted AMI;
    • be placed on record against the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). by executing the Sponsor-Initiated Affordability Agreement (Form 6490);
    • be in place at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). by the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
    • require the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). to comply with the Sponsor-Initiated Affordability Agreement (Form 6490) within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
    • remain in place during the 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. term; and
    • be certified annually by the BorrowerBorrowerPerson who is the obligor per the Note. and monitored by an Administering AgentAdministering AgentThird-party compliance monitoring company. for compliance with the Sponsor-Initiated Affordability Agreement (Form 6490).

Guidance

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. may also:

  • be subject to FHAFHAFederal Housing Administration  Risk Sharing;
  • be financed using tax-exempt BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. ;
  • receive LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. under Section 42 of the Internal Revenue Code, and its related U.S. Treasury regulations;
  • be subject to inclusionary zoning (e.g., targeting certain income levels or employees of certain firms or institutions, etc.) or resale restrictions; or
  • receive other state, local or federal subsidies which are conditioned on the affordability of some or all of the units in the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , including Rural Housing Service (RHS) Section 515 Loans, and Loans insured under Section 202 or Section 236 of the National Housing Act. 

Requirements

You must:

  • Reflect the impact of the rent or income restrictions in your underwriting.
  • Maintain a copy of the applicable Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower… or PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). restrictions in your Servicing FileServicing FileFile for each Mortgage Loan serviced by the Lender. .

Operating Procedures

For any PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with Sponsor-Initiated AffordabilitySponsor-Initiated AffordabilityVoluntary rent and income restrictions recorded against the Property by the Borrower to preserve or create multifamily affordable housing. , the BorrowerBorrowerPerson who is the obligor per the Note. must execute the:

  • Sponsor-Initiated Affordability Agreement (Form 6490);
  • Modifications to Multifamily Loan and Security Agreement (Sponsor-Initiated Affordability Restrictions) (Form 6271); and
  • Payment Guaranty (Pricing Incentive Recapture) (Form 6020.PIR).

To commit and 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. a 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. that qualifies as Special Public Purpose or Sponsor-Initiated AffordabilitySponsor-Initiated AffordabilityVoluntary rent and income restrictions recorded against the Property by the Borrower to preserve or create multifamily affordable housing. , refer to:

702.02

Ineligible Characteristics and Underwriting

Requirements

You must not underwrite or price the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). as 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. if it:

  • has less than 3 years of rent or income restrictions remaining on the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower…; and
  • is expected to transition to market rents during the term of the 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. ; or
  • has 3 or more years of LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. restrictions remaining, but the BorrowerBorrowerPerson who is the obligor per the Note. intends to enter into the Qualified Contract Process (per Section 42 of the Internal Revenue Code) within 3 years after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .
Section 703

Property Income and Underwriting
703.01

Underwritten NCF

Requirements

You must use the following table to calculate Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis and the applicable products and features in Part III. .

REQUIRED UNDERWRITTEN NCF
(MULTIFAMILY AFFORDABLE PROPERTY)

Item

Function

Description
CALCULATION OF NET RENTAL INCOME

1

  

GROSS RENTAL INCOME – the least of:

 

  • rents permitted under any federal, state, or local subsidy program applicable to the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , as adjusted for AMI, family size, and number of bedrooms in a unit, and reductions for the applicable utility allowances1;
  • rents permitted under any restrictive covenants, subordinate financing requirements, or an Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower… recorded on the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ; or
  • actual rents in place for occupied units, plus the lesser of
    • market rents, or
    • permitted rents, described above for vacant units based on a current rent roll (multiplied by 12).2

Rent from non-project based Housing Choice Vouchers must not exceed the average rent for comparable units without non-project based Housing Choice Vouchers.

 

You must include incremental HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract income per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 707.01: Properties with Both HAP Contracts and LIHTC Units.

2

PLUS

To the extent deducted as an operating expense, rents for other non-revenue units (e.g., model units deducted in the “model apartment” operating expense in the “general and administrative” category, or actual rent from employee units deducted in the “employee” operating expense in the “payroll and benefits” category).
 

EQUALS

GROSS POTENTIAL RENT (GPR)1

3

MINUS

Physical vacancy – applicable actual rents for vacant units and MAHMAHProperty 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. unit type (e.g., 20% @ 50%, 40% @ 60%, or HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract) based on a current rent roll (multiplied by 12).3

4

MINUS

Concessions – the aggregate amount of forgone residential rental income resulting from incentives granted to tenants for signing leases, such as free rent for 1 or more months, move-in allowance, etc.).3

5

MINUS

Bad debt – the aggregate amount of unpaid rental income determined to be uncollectable:  include any adjustments to other income for bad debt.3
 

EQUALS

NET RENTAL INCOME (NRI)2, 3, 4

1 For Properties with HAP contracts, you

 

  • may use newly approved rents if they are effective by the first day of the month after the Mortgage Loan Origination Date, even if the rents exceed trailing GPR, but
  • may not use rents based on
    • an agreement to enter into a HAP contract (AHAP),
    • commitment to enter into a Housing Assistance Payment contract (CHAP), or
    • a "comfort letter".

 

2 You may underwrite HAP contract rents up to:

 

  • 5% above market rents if the MAH Property is located in an Eligible MSA; or
  • 10% above market rents if the MAH Property is located in a Strong Market, provided the Property's
    • HAP contract expires after the Maturity Date, and
    • current and average 3-year physical occupancy is greater than or equal to 95%.

 

3 The total of Items 3, 4, and 5 must equal the greater of

 

  • the GPR including any permitted HAP contract rent increases multiplied by the percentage difference between
    • the trailing 3-month net rental collections (annualized), and
    • trailing GPR excluding any HAP contract rent increases not in effect before the Mortgage Loan Origination Date; or
  • either
    • 5% of GPR, including any permitted HAP contract rent increases, or
    • 3% of GPR, including any permitted HAP contract rent increases, if:
      • the Property is located in a Strong or Nationwide Market per Form 4660;
      • for a Property without a HAP contract, the actual rents for restricted units are at least 10% below comparable market rents; and
      • the economic vacancy (i.e., the total of Items 3, 4, and 5) is supported by current and 3 years of historical economic vacancy data.

 

4 You must assess the NRI, including any declines, and make adjustments per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis.

CALCULATION OF OTHER INCOME5

6

PLUS

Actual other income (except premiums and corporate premiums) generated through ongoing operations. The income must:

 

  • be stable;
  • be common in the market;
  • exclude one-time extraordinary non-recurring items; and
  • be supported by prior years.

You must assess the individual month other income within the prior full-year operating statement or, at a minimum, an operating statement covering at least the trailing 6 months (annualized).

 

If there are fluctuations, you may use other income that exceeds the trailing 3-month other income (annualized), as long as it does not exceed the highest 1-month other income used in the trailing 3-month other income calculation.

5 If premiums or corporate premiums are applicable for a particular MAH Property, inclusion of premium income is permitted consistent with Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis.

CALCULATION OF COMMERCIAL INCOME

7

PLUS

Actual income from occupied commercial space (and parking revenue for commercial spaces, if applicable).

8

MINUS

10% of the actual commercial income.6

6 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI.

9

PLUS

Laundry and vending, parking, and all other income per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis.
 

EQUALS

EFFECTIVE GROSS INCOME (EGI)

CALCULATION OF OPERATING EXPENSES

10

MINUS

Line-by-line stabilized operating expenses.  Stabilized operating expenses are the expenses during normal ongoing PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). operations, not affected by lease-ups, rehabilitation, or other short-term positive or negative factors.  Non-recurring, extraordinary operating expenses must not be included.

 

You must assess:

 

  • the past operating history;
  • the appraiser’s expense analysis;
  • all information available to you (including PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). contracts, utility bills, real estate tax assessments, insurance policies, and comparable assets); and
  • the BorrowerBorrowerPerson who is the obligor per the Note. ’s budget (in the case of an acquisition).

You must analyze historical operations at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and apply an appropriate increase over the prior year’s operations in determining an estimate.

11

MINUS

PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). management fee equal to the greatest of:

 

  • 4% of EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II: Property, Section 202 and the applicable products and features in Part III. 7;
  • actual property management fee (exclude any portion of a non-arm’s-length property management fee that is subordinated to the 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. ); or
  • market property management fee.

7 Minimum management fee may be 3.5% of EGI (rather than 4% of EGI) if the:

 

  • underwritten management fee is at least $300 per unit;
  • actual management fee is equal to or less than the underwritten management fee; and
  • market management fees support the underwritten management fee for similarly sized MAH properties.

If the MAH Property is located in a Strong Market or Eligible MSA and the Mortgage Loan's original UPB is greater than $6 million, the minimum management fee may be the greatest of

 

  • 2.5%,
  • $300 per unit,
  • the actual management fee, or
  • market management fees for similarly sized MAH properties.

12

MINUS

Real estate taxes based on the greatest of:

 

  • actual future tax bill(s) covering a full calendar year;
  • prior full year’s taxes multiplied by 103% (the 3% trending is not required for trailing 12-month or year-to-date annualized expenses); or
  • in California, the greater of the 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 or the assessed value, multiplied by the millage rate, plus any special assessments.

You must consider any automatic reassessment upon acquisition in the next 12-month period.

12

continued

 MINUS

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). has real estate tax abatements, exemptions, deferrals, or payments in lieu of taxes (PILOTs), you may use a reduced real estate tax payment if they will:

 

  • be in effect at closing (or at conversion in the case of a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property per Part XV of the DUS Guide, subject to certain conditions. ), per written documentation from the state or local tax assessor;
  • survive a foreclosure on the 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. such that Fannie Mae or a subsequent owner will retain the abatement, exemption, or deferral benefit as long as the rent, income, or other restrictions are maintained (i.e., it is tied to the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and not the owner); and
  • if governed under the California Welfare Tax Exemption Program, meet the following:
    • if a refinance, the BorrowerBorrowerPerson who is the obligor per the Note. must be in and remain in compliance with the California Welfare Tax Exemption program; or
    • if an acquisition or a Transfer/AssumptionTransfer/AssumptionTransaction resulting in a change in the ownership of the Borrower or Property. where the AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… with ControlControlPossessing, directly or indirectly, the power to direct or cause the management and operations of an entity (e.g., through the ownership of voting securities or other ownership interests, or by contract). of the BorrowerBorrowerPerson who is the obligor per the Note. (which is typically a non-profit entity), or the non-profit entity itself, is changing you must:
      • escrow at least 6 months of full real estate taxes at closing which will be released after confirming that the California Welfare Tax Abatement is approved and in place at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
      • ensure that the BorrowerBorrowerPerson who is the obligor per the Note. has demonstrated experience with the California Welfare Tax Abatement Program; and
      • ensure that the BorrowerBorrowerPerson who is the obligor per the Note. is and remains eligible for the California Welfare Tax Abatement Program.

12

continued

 MINUS

If governed under the Florida affordable housing property exemption (per Section 196.1978(1) of the Florida Statutes),

 

  • for a refinance, the BorrowerBorrowerPerson who is the obligor per the Note. must initially be in compliance, and remain in compliance, with the Florida affordable housing property exemption; or
  • for an acquisition or a Transfer/AssumptionTransfer/AssumptionTransaction resulting in a change in the ownership of the Borrower or Property. , you must:
    • confirm the BorrowerBorrowerPerson who is the obligor per the Note. applies to the county taxing authority within 60 days after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
    • escrow full taxes until you confirm the Florida affordable housing property exemption is approved and in place at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ; and
    • after confirmation, refund the escrowed taxes to the BorrowerBorrowerPerson who is the obligor per the Note. .

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). benefits from real estate tax abatements, exemptions, or deferrals that will not survive a Foreclosure EventForeclosure EventAny of the following: Foreclosure under the Security Instrument; any other exercise by the Lender of rights and remedies (whether under the Security Instrument or under applicable law, including Insolvency Laws) as holder of the Mortgage Loan and/or the Security Instrument, as a result of…, then you may use a reduced real estate tax payment only if:

 

  • upon reapplying for the original underwritten tax abatement or an alternative tax abatement, Fannie Mae or a subsequent PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). owner would qualify for the tax abatement;
  • the rent or income restrictions at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). are maintained; and
  • you have ensured that:
    • if a qualified non-profit entity is required to participate in the ownership structure of the 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. in order to qualify for the tax abatement, exemption, or deferral, a sufficient number of qualified non-profits currently operate in the market (at least 3 for an MSAMSAGeographic delineation for a metropolitan area determined by the U.S. Census Bureau. with a population of less than 1 million and at least 5 for an MSAMSAGeographic delineation for a metropolitan area determined by the U.S. Census Bureau. with a population of 1 million or greater), and in the event of a foreclosure, could serve in the replacement ownership structure to qualify for the tax abatement, exemption, or deferral; and
    • the original or alternative tax abatement, exemption, or deferral has
      • been established in the state’s statutes,
      • been in effect for at least 10 years, and
      • the LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. conducted all appropriate due diligence and confirmed that there is no material risk that the tax abatement, exemption, or deferral legislation will be repealed or revised in a manner that would affect the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s ability to continue to qualify for the tax abatement, exemption, or deferral.

12

continued

 MINUS

If the timeframe for the real estate tax abatement, exemption, or deferral is shorter than the 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. term, you must consider

 

  • a Bifurcated Mortgage LoanBifurcated Mortgage LoanSingle Senior Mortgage Loan that is evidenced by 2 Notes with the same payment and collateral priority. structure (i.e., 2 notes secured by a single first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. ),
  • an amortization schedule that accommodates the elimination of the abatement, or
  • providing clear justification and support in the refinance analysis.

For a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with a tax abatement, the Modifications to Multifamily Loan and Security Agreement (Tax Abatement or Exemption) (Form 6251) must be executed even if you do not underwrite the tax abatement.

13

MINUS

Insurance equal to:

 

  • the quoted expense, for insurance policies with a bona fide written quote from a reputable broker for a new 12-month policy; or
  • 110% of the current expense, for insurance policies with a remaining term of less than 6 months.

14

MINUS

Utilities, water and sewer, repairs and maintenance, payroll and benefits, advertising and marketing, professional fees, general and administrative, ground rent, and all other expenses per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis.
 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

15

MINUS

Replacement ReserveReplacement ReserveCustodial Account established by the Lender and funded by deposits from the Borrower over the term of the Mortgage Loan to fund the replacement of capital items at the Property. expense perPart II, Chapter 2: Valuation and Income, Section 202.01: Underwritten Net Cash Flow (Underwritten NCF).
 

EQUALS

UNDERWRITTEN NCF
703.02

Underwriting
703.02A

Not-for-Profit (IRC §501[c][3]) Borrower may be a Multi-Asset Borrower

Requirements

Although a single-asset entity is preferred, a not-for-profit BorrowerBorrowerPerson who is the obligor per the Note. may be a multi-asset entity.

If the not-for-profit BorrowerBorrowerPerson who is the obligor per the Note. is a multi-asset BorrowerBorrowerPerson who is the obligor per the Note. , you must analyze the Borrower'sBorrower'sPerson who is the obligor per the Note. other assets and general financial condition per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 302: Borrower Organizational Structure.

703.02B

Appraised Value and Underwriting Value

Requirements

In addition to the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified appraiser stating an opinion of the market value of the Property as of a specific date, supported by the presentation and analysis of relevant market information. requirements in Part II, Chapter 2: Valuation and Income, Section 201.02: Appraisal, you must:

  • Include 2 separate opinions of the Appraised ValueAppraised ValueAppraiser’s opinion of the market value of the Property documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted by the Guide. based on:
    • Restricted ValueRestricted ValueAppraised Value assuming a Property's Affordable Regulatory Agreement is in effect.  from the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower…, using
      • comparable multifamily rental properties,
      • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s submarket,
      • properties with similar rent or income restrictions, and
      • any tax abatements or exemptions.
    • Unrestricted ValueUnrestricted ValueAppraised Value assuming a Property's Affordable Regulatory Agreement is not in effect. from the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s income and expenses without the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower… (e.g., market rents, occupancy, and operating expenses), using
      • comparable multifamily market rate rental properties,
      • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s submarket, and
      • full taxes if rental income restrictions are required by a tax abatement or exemption.
  • Ensure that each Appraised ValueAppraised ValueAppraiser’s opinion of the market value of the Property documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted by the Guide. is based on a market cap rate without any upward or downward adjustment for:
    • special financing (other than adjusted cap rates for Credit Enhancement Mortgage LoansCredit Enhancement Mortgage LoansMortgage Loan underwritten and serviced by the Lender and financed by the issuance of Bonds where Fannie Mae is providing a Credit Enhancement Instrument. ); or
    • tax credit benefits.
  • Determine the appropriate Appraised ValueAppraised ValueAppraiser’s opinion of the market value of the Property documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted by the Guide. for the Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II: Property, Section 201. per Part II, Chapter 2: Valuation and Income, Section 201: Market and Valuation.
703.02C

Market Study

Requirements

If the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is subject to a HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract that will expire before the 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. Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. , you must include a market study (which can be part of the AppraisalAppraisalWritten statement independently and impartially prepared by a qualified appraiser stating an opinion of the market value of the Property as of a specific date, supported by the presentation and analysis of relevant market information. ) that:

  • is prepared by a qualified real estate professional; and
  • identifies the absorption rate, lease-up period, and rent level for comparable market rate rental properties in the submarket.
703.02D

Affordable Regulatory Agreement Restrictions

Guidance

To underwrite the 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. as 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. , the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower… restrictions should remain in effect for the term of the 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. .

Requirements

When the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower… restrictions have 3 or more years remaining but will expire before the 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. Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. , you must provide support to underwrite to the MAHMAHProperty 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. PreservationPreservationRenewal or continuation of rent, income and/or occupancy restrictions on multifamily rental housing eligible as an MAH Property, but is potentially at risk of being lost from the affordable housing inventory through conversion to market-rate housing, and is not receiving new LIHTCs. standards in the Form 4660Form 4660Multifamily Underwriting Standards identifying Pre-Review Mortgage Loans and containing the minimum underwriting requirements (e.g., debt service coverage ratio, loan to value ratio, interest only, underwriting floors, etc.) for all Mortgage Loans. , taking into account factors such as:

  • restricted rents below market rate rents;
  • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ’s history of operating as 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. ;
  • the BorrowerBorrowerPerson who is the obligor per the Note. ’s history and experience owning and operating MAHMAHProperty 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ;
  • the BorrowerBorrowerPerson who is the obligor per the Note. ’s intention to renew the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower…;
  • the amount of time between the Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. and when the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower… restrictions expire;
  • market strength; and
  • how the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). compares to comparable market rate properties in terms of occupancy, condition, and amenities if the BorrowerBorrowerPerson who is the obligor per the Note. intends to convert the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). to market rate rents and if no rent advantage exists.

See Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 702.01: Eligible Characteristics and Underwriting regarding self-imposed restrictions.

703.02E

35-Year Amortization

Requirements

If you use a 35-year amortization term, the:

  • PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). must have LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. with at least 8 years remaining in the initial 15-year compliance period; and
  • minimum MAHMAHProperty 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. 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. term must equal the greater of
    • the remaining initial compliance period, or
    • 10 years.
703.02F

LIHTC Income Averaging

Guidance

When a SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). elects LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the… for a PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). with new LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , you should consider:

  • Will LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the… impact other non-LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. regulatory agreements?
  • Is LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the… compatible with other funding and subsidy source requirements, including any project-based HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract?
  • Has LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the… been approved by the
    • state agency, and
    • LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor or syndicator?
  • Will the on-site PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). management staff have sufficient experience?
  • Will the unit mix be impacted, including
    • unit parity,
    • multi-building election,
    • floating units, and
    • market rate units?
  • What is the rent advantage, especially for units above 60% of AMI?
  • For a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property per Part XV of the DUS Guide, subject to certain conditions. ,
    • is the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). not a resyndication of a property previously developed or preserved using LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. and subject to an existing extended use agreement, or
    • if the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is a resyndication, have you confirmed the property has completed its extended use period?
  • Does the market study include capture rates for each unit designation supporting LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the…?

Requirements

You must identify and mitigate any risks from electing LIHTC Income AveragingLIHTC Income AveragingInternal Revenue Code Section 42 election allowing LIHTC property owners to rent units to households earning up to 80% of AMI, provided a minimum of 40% of the residential units are both rent-restricted and occupied by households with a maximum income up to an average of 60% of AMI, and the…. 

703.02G

Initial LIHTC Equity

Requirements

For any 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. with new LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , you must ensure at least 20% of the aggregate LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity that the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor or syndicator must contribute into the limited partnership is received on or before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

703.02H

Developer Fees

Guidance

You should analyze the development budget, including the

  • developer fee due the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or any AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key…, and
  • any deferred developer fee (i.e., the portion of the developer fee shown as a source in the sources and uses statement).

If the deferred developer fee is greater than 50% of the total developer fee, you should confirm there are sufficient

  • hard and soft contingency budgets, and
  • projected surplus cash flows to repay the deferred developer fee within the initial compliance period.
703.02I

Rent-Stabilized Units

Guidance

Refer to Part II, Chapter 2: Valuation and Income, Section 205: Rent-Stabilized Properties regarding rent-stabilized 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. units.

Section 704

Subordinate Financing
704.01

Interest Rate and Payments

Requirements

You must ensure that the subordinate loan has:

  • a fixed rate;
  • interest payable on a current basis; and
  • no deferrals, except as described in this Section.
704.02

Loan Term

Requirements

A fully amortizing subordinate loan may mature at any time regardless of the:

  • Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the 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. or any Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. ; or
  • expiration date of the Fannie Mae Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. .

You must ensure that any subordinate loan that does not fully amortize or is not fully forgiven by the loan document terms, including any Soft Financing, does not mature before 90 days after the earlier of the:

  • final Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. of the 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. or any Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. ; or
  • expiration date of the Fannie Mae Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. for the 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. or any Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .
704.03

Collateral

Guidance

You may secure the subordinate loan with a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). if:

  • the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. is subordinated to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. per Sections 704.08 - 704.11 of this Chapter; and
  • the granting clause of the security instrument creating the subordinate LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. is the same as that of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. .
704.04

Credit Support

Requirements

You must ensure that the 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. secured by the 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. obtains the same credit support and collateral as any subordinate loan, including any

  • recourse to the BorrowerBorrowerPerson who is the obligor per the Note. or third-party GuarantorGuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other guaranty related to the Mortgage Loan. , or
  • additional collateral.
704.05

Soft Financing

Requirements

To be considered Soft Financing, the subordinate loan must comply with all of the following:

Term For All Soft Financing...
Payments
  • Any payments due must be payable only from the surplus 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: Property, Section 202 and the applicable products and features in Part III). remaining after all other payments (due and owing) are made on the 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. or any Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .
  • No more than 75% of the surplus 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: Property, Section 202 and the applicable products and features in Part III). must be available for payments on all Soft Financing unless the note is payable to the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key…, or the:
    • PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). has LIHTCsLIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. ;
    • note is payable to the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). ; and
    • the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… owns or controls more than 50% of the interest in the BorrowerBorrowerPerson who is the obligor per the Note. or the Borrower'sBorrower'sPerson who is the obligor per the Note. general partner or managing member.
Events of Default
  • No action or condition results in an event of default unless the BorrowerBorrowerPerson who is the obligor per the Note. fails to
    • comply with required affordability restrictions, or
    • pay P&IP&IPrincipal and interest when surplus 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: Property, Section 202 and the applicable products and features in Part III). is available.
  • Failure to pay P&IP&IPrincipal and interest due to lack of surplus 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: Property, Section 202 and the applicable products and features in Part III). must not be an event of default.
Remedies

Acceleration must only be for noncompliance with required affordability restrictions.

 

For example, for loans subject to the Tax Credit Exchange Program per Section 1602 of the American Recovery and Reinvestment Tax Act of 2009, repayment must only be required for noncompliance with required affordability restrictions.
Subordination Subordination must comply with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.08: Subordination Agreement.

 

Guidance

Soft Financing may have:

  • a nominal interest rate (e.g., 1% or 2%);
  • interest that does not accrue;
  • principal payments that do not fully amortize the subordinate loan over its term; or
  • a loan term significantly longer than the 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. term, with the subordinate loan either
    • being forgiven over time or at its maturity date, or
    • due only upon the sale of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). .
704.06

Subordinate Lender

Requirements

If the Lender type is...

 Then...

Public / Quasi-Public / Not-for-Profit Lender

A subordinate loan provided by a public, quasi-public, or not-for-profit LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. may

 

  • be Soft Financing, or
  • require mandatory payments of P&IP&IPrincipal and interest , or interest-only.

Private Lender

You must ensure that any subordinate financing originated by a private, for-profit LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. is Soft Financing per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.05: Soft Financing.
704.07

Developer's Notes

Requirements

You must ensure any developer note or advance due the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or an AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… is Soft Financing per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.05: Soft Financing.

704.08

Subordination Agreement

Requirements

You, the BorrowerBorrowerPerson who is the obligor per the Note. , and the subordinate LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. must enter into either:

  • Fannie Mae form Subordination Agreement (Affordable) (Form 6456), if the subordinate LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. is a government entity; or
  • Fannie Mae form Subordination Agreement (Conventional) (Form 6414), if the subordinate LenderLenderPerson approved by Fannie Mae to sell or service Mortgage Loans. is not a government entity.
704.09

Lien Priority and Title Insurance Policy

Requirements

You must ensure that:

  • The LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. securing the subordinate loan remains, at all times, subordinate to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. securing the Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. or Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan underwritten and serviced by the Lender and financed by the issuance of Bonds where Fannie Mae is providing a Credit Enhancement Instrument. , including any refinancing of the Pre-Existing Mortgage LoansPre-Existing Mortgage LoansMultifamily residential real estate loan secured by Liens against the Property having higher priority than the Lien securing the Subordinate Loan purchased by Fannie Mae. .
  • The Subordination Agreement is recorded in the land records immediately after the subordinate security instrument is recorded.
  • The title insurance policy reflects the recordation of the Subordination Agreement.
704.10

Form of Subordinate Loan Documents

Requirements

You must confirm that the subordinate loan documents:

  • comply with this Chapter;
  • include the specific provisions required by the Subordination Agreement; 
  • do not require the BorrowerBorrowerPerson who is the obligor per the Note. to maximize rents at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). (even if the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). is subject to an Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower…); and 
  • are not in the form of subordinate BondsBondsTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. .
704.11

Prepayment

Requirements

The BorrowerBorrowerPerson who is the obligor per the Note. may not prepay or redeem the subordinate loan without Fannie Mae’s consent.

704.12

LIHTC Equity Bridge Loans

Requirements

The LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity bridge lender must not be on ACheckACheckLender due diligence performed for the Borrower, Key Principal, and Principal using the ACheck application. , and the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity bridge loan must be fully repaid with the final LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity payment associated with the Property'sProperty'sMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). placed-in-service date.  If the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity bridge loan is not repaid with the final LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity installment, the unpaid portion must be Soft Financing per Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 704.05: Soft Financing.

LIHTC Equity Bridge Loan Requirements
Term Maximum of 24 months.
Repayment Must be completely repaid on or before the final LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity payment associated with the Property'sProperty'sMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). placed-in-service date.
Amount Maximum of 80% of aggregate LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. equity contribution.
Funding Conditions No performance hurdles or PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). performance benchmarks tied to bridge loan payments.
Note
  • Non-recourse to BorrowerBorrowerPerson who is the obligor per the Note. .
  • Fixed or variable rate.
Guaranty (Repayment or Completion) Must be subordinated to any GuarantyGuarantyPayment Guaranty, Non-Recourse Guaranty, or other guaranty by a Guarantor for the Mortgage Loan. in favor of Fannie Mae.

 

Bridge Loan Collateral Types (multiple types allowed) Bridge Lender Affiliated with You or LIHTC Investor Bridge Lender Unaffiliated with You, LIHTC Investor, or Sponsor Bridge Lender Affiliated with Sponsor
Assignment of Rights to Capital Contribution from LIHTC Equity Investor Acceptable Acceptable Unacceptable
Assignment of Development Fee Acceptable Acceptable Acceptable
Subordinate Security Instrument

Unacceptable

 Unacceptable Unacceptable
Assignment of General or Limited Partnership Interests Acceptable if Bridge Lender has LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. experience Acceptable if Bridge Lender has LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. experience
  • Acceptable for general partnership Interests
  • Unacceptable for limited partnership Interests
Subordination Agreement Conventional Form Conventional Form Affordable Form
Section 705

Restrictive Covenants and Affordable Regulatory Agreements

Requirements

For MAHMAHProperty 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). and non-MAHMAHProperty 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). , the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower…, except for a HUD Use AgreementHUD Use AgreementContract between HUD and the Borrower identifying Property use restrictions and default remedies for HUD programs such as Housing Assistance Payments and Rental Assistance Demonstration. , must be subordinated to the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. if the agreement:

  • grants rights, remedies, or powers similar to that of a secured creditor to any aggrieved party;
  • impairs the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. rights or priority of the LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. of the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. ;
  • contains any BorrowerBorrowerPerson who is the obligor per the Note. obligations other than the affordability restrictions; 
  • contains any rights or remedies to enforce the affordability restrictions other than specific performance or injunctive relief; or
  • does not terminate upon 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. foreclosure.

To subordinate the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower… to the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind.

  • use an approved Subordination Agreement, or
  • for a subordinate loan, use Subordination Agreement (Affordable) (Form 6456).

Guidance

The rights, remedies, and powers of a secured creditor would typically include:

  • the ability to appoint a receiver;
  • the right to collect rents directly from the mortgaged property;
  • the right to take possession of the mortgaged property;
  • limitations on transferring title to you or to a subsequent transferee by foreclosure or deed in lieu;
  • no requirement to give you notice of violations of or amendments to the Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower…; and
  • the ability to remove or replace the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). manager without your prior consent.
Section 706

ROAR Loan
706.01

Generally

Requirements

You must ensure any ROAR LoanROAR LoanReduced Occupancy Affordable Rehabilitation Loan :

  • is a 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. or Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan underwritten and serviced by the Lender and financed by the issuance of Bonds where Fannie Mae is providing a Credit Enhancement Instrument. using a Credit Enhancement InstrumentCredit Enhancement InstrumentAgreement between Fannie Mae and a Bond Trustee where Fannie Mae provides credit enhancement of a Credit Enhancement Mortgage Loan, Bonds issued to finance a Credit Enhancement Mortgage Loan, or an Interest Rate Hedge Agreement; and if applicable, a Bond liquidity facility. ;
  • has a fixed rate;
  • has a minimum 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 of $5 million; and
  • is secured by 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. that:
    • currently has Stabilized Residential OccupancyStabilized Residential OccupancyPercentage of Property units physically occupied by Qualified Occupants, per Part II: Property, Section 104.02 as adjusted for the applicable Part III products and features. , but will likely experience tenant displacement significant enough to lower the Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II: Property, Section 202, as adjusted for the applicable products and features in Part III. , calculated using the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. , below the required 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. set forth in Form 4660Form 4660Multifamily Underwriting Standards identifying Pre-Review Mortgage Loans and containing the minimum underwriting requirements (e.g., debt service coverage ratio, loan to value ratio, interest only, underwriting floors, etc.) for all Mortgage Loans. ; and
    • will undergo repairs, replacements, or improvements costing $10,000 per unit or more (based on the total number of residential units at the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ), or qualifies as a Moderate Rehabilitation PropertyModerate Rehabilitation PropertyProperty that will undergo at least $8,000 per unit of Rehabilitation Work. .
706.02

Timing

Requirements

Within 18 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.

  • the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. must be completed, and
  • Restabilized Residential OccupancyRestabilized Residential OccupancyAchievement of Underwritten NCF for 3 consecutive months after completion of the ROAR Work. must be achieved.
706.03

General Underwriting

Guidance

In addition to complying with Part III, Chapter 3: Moderate Rehabilitation Mortgage Loans, you should also review and evaluate:

  • the reasonableness of the estimated cost of the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. and the completion schedule;
  • whether the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. can be completed and the Restabilized Residential OccupancyRestabilized Residential OccupancyAchievement of Underwritten NCF for 3 consecutive months after completion of the ROAR Work. achieved within 18 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ;
  • the BorrowerBorrowerPerson who is the obligor per the Note. ’s experience in developing or rehabilitating properties similar to the ROAR Property;
  • the tenant relocation plan, including budget and schedule;
  • the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. budget, including monthly sources and uses during the rehabilitation period;
  • any construction risks;
  • the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investors’ financial strength, experience, and reputation; and
  • the projected rent levels relative to market rents.
706.04

Additional Underwriting and Loan Documents

Requirements

You must underwrite the ROAR LoanROAR LoanReduced Occupancy Affordable Rehabilitation Loan per the following table.

Topic Description

Underwritten NCF

GPRGPROn an annual basis or any specified period, the total actual and potential rent for a Property (per Part II: Property, Section 202 and the applicable products and features in Part III). must comply with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 703.01: Underwritten NCF; Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis and the applicable products and features in Part III. can be based on the Restabilized Residential OccupancyRestabilized Residential OccupancyAchievement of Underwritten NCF for 3 consecutive months after completion of the ROAR Work. and normalized operating expenses achievable within 18 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

Appraisal

The AppraisalAppraisalWritten statement independently and impartially prepared by a qualified appraiser stating an opinion of the market value of the Property as of a specific date, supported by the presentation and analysis of relevant market information. must include an opinion of the value of the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). on both an “as is” and an “as completed” basis that incorporates the ROAR WorkROAR WorkAggregate repairs, replacements, or improvements being performed at the ROAR Property. to be completed after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. .

Occupancy During ROAR Work

Physical Occupancy:  minimum of 50%; and

Economic Occupancy:  minimum of 50%.

Minimum DSCR During ROAR Work

Using the ROAR Stressed NCFROAR Stressed NCFMinimum Underwritten NCF projected to occur during the ROAR Work period at a ROAR Property. , actual fixed interest rate, and maximum loan amount based on the “as completed” value

 

  • 0.75 on an amortizing basis, or
  • 1.00 on an interest-only basis, if applicable.

Rehabilitation Reserve Agreement

Required.

Key Principal Guaranties

The Key PrincipalKey PrincipalAny Person 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 who may be required to provide a Guaranty. must execute a

 

  • Completion Guaranty (Form 6018), and
  • an operating deficit guaranty.

Letter of Credit

Any Letter of CreditLetter of CreditLetter of Credit approved by Fannie Mae per Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit. must:

 

  • comply with Part I, Chapter 2: Mortgage Loan, Section 204: Letters of Credit; and
  • equal at least 125% of the difference between the maximum 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 based on
    • the “as completed” value, and
    • the “as is” value.

Additional Credit Support

May be required.

Underwriting Fee

You must:

 

  • charge the BorrowerBorrowerPerson who is the obligor per the Note. an underwriting fee equal 3 basis points of the 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; and
  • pay that amount to Fannie Mae.
Section 707

HAP Contract Properties
707.01

Properties with Both HAP Contracts and LIHTC Units

Requirements

For a 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. secured by 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. or a Credit Enhancement Mortgage LoanCredit Enhancement Mortgage LoanMortgage Loan underwritten and serviced by the Lender and financed by the issuance of Bonds where Fannie Mae is providing a Credit Enhancement Instrument. , if the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). has both HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contracts and LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. units, you must underwrite the 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. using 1 of the following options.

Choice

Requirements

Option 1

Underwrite the rents from HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract units using the lowest of

 

  • market rents,
  • HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract rents, or
  • applicable LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents.

Applicable LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents are the lower of

 

  • maximum allowable LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents minus utility allowances, or
  • actual rents in place for occupied units subject to a LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. Affordable Regulatory AgreementAffordable Regulatory AgreementRegulatory, land use, extended use, or similar agreement or recorded restriction limiting rents, imposing maximum income restrictions on tenants, or placing other affordability restrictions on the use or occupancy of the Property (whether imposed by a government entity or self-imposed by a Borrower….

Option 2

Underwrite the rents from HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract units using the additional income above the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents (LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. overage) if:

 

  • at least 20% of the Property'sProperty'sMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). units are subject to a project-based HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract;
  • the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract rents are less than or equal to market rents;
  • the weighted average LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. unit rents are least 10% below market;
  • the 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. is located in a market or submarket with 90% or greater economic occupancy, both for market rate and MAHMAHProperty 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ; and
  • the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). has experience and success owning and operating properties with HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contracts.

If the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract expires before the 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. Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. , you must ensure the Property'sProperty'sMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II: Property, Section 202, as adjusted for the applicable products and features in Part III. is greater than or equal to

 

  • 1.05 based on the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents, and
  • 1.10 based on the LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. rents after the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract expires.
707.02

Restabilization Reserve

Requirements

For all TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 and TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 3 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 must establish a Restabilization Reserve 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. that has a HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract if the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract term (excluding any annual or incremental government appropriation conditions) expires before the 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. Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. .

The Restabilization Reserve must:

  • equal the monthly 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. P&IP&IPrincipal and interest , multiplied by the greater of
  • remain in place until
    • the PropertyPropertyMultifamily residential property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). achieves underwritten occupancy for 90 days at market rate rents, or
    • the HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contract is renewed with an expiration date after the 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. Maturity DateMaturity DateDate all amounts due and owing under the Mortgage Loan become fully due and payable per the Loan Documents. .

You may eliminate the Restabilization Reserve if the:

  • weighted average LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. unit rents are at least 10% below market;
  • 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. is located in a market or submarket with 90% or greater economic occupancy, both for market rate and MAHMAHProperty 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 property securing the Mortgage Loan and including the land (or Leasehold interest in land), Improvements, and personal property (as defined in the Uniform Commercial Code). ; and
  • SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). has experience and success owning and operating properties with HAPHAPHUD project-based Section 8 rental subsidy in the form of a Housing Assistance Payment contract. contracts.
707.03

HAP Contract Review Sheet

Requirements

Before you 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 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. , you must:

  • complete the Section 8 Housing Assistance Payments (HAP) Contract Review Sheet and Certification (Form 6422); and
  • confirm that all conditions for approval are met.
Section 708

Refinancing Section 236 Properties – IRP is Maintained

Requirements

For Fannie Mae to consider the cash flow from an IRPIRPInterest Reduction Payment , the BorrowerBorrowerPerson who is the obligor per the Note. must decouple the IRPIRPInterest Reduction Payment from the existing Section 236 note and mortgage by

  • prepaying the Section 236 Loan, and
  • having the IRPIRPInterest Reduction Payment transferred to a new 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. (which will be then considered a Section 236 Loan for purposes of continuing the IRPIRPInterest Reduction Payment ).
708.01

No Additional Proceeds

Requirements

If the BorrowerBorrowerPerson who is the obligor per the Note. is not seeking additional proceeds based on the IRPIRPInterest Reduction Payment , you must exclude the amount of the IRPIRPInterest Reduction Payment from the 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.  and Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II: Property, Section 202, as adjusted for the applicable products and features in Part III. .

708.02

Additional Proceeds from Mortgage Loan

Requirements

If the BorrowerBorrowerPerson who is the obligor per the Note. is seeking additional proceeds from the 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. based on the IRPIRPInterest Reduction Payment , then you must ensure that:

  • The 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. has equal monthly payments of P&IP&IPrincipal and interest .
  • The portion of the 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. sized based on the Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 202: Income Analysis and the applicable products and features in Part III. meets Fannie Mae's 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.  and Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II: Property, Section 202, as adjusted for the applicable products and features in Part III. requirements without considering the IRPIRPInterest Reduction Payment cash flow.
  • The portion of the 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. sized based on the IRPIRPInterest Reduction Payment cash flow has an Underwritten DSCRUnderwritten DSCRRatio of Underwritten Net Cash Flow to the annual debt service for a Mortgage Loan amount based on a level debt service payment with the applicable amortization, and calculated per Part II: Property, Section 202, as adjusted for the applicable products and features in Part III. of at least 1.00.
  • The financing structure reflects the remaining term of the IRPIRPInterest Reduction Payment through a bifurcated note or amortization structure.

In a Forward CommitmentForward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property per Part XV of the DUS Guide, subject to certain conditions. transaction, if the IRPIRPInterest Reduction Payment is decoupled from the original Section 236 Loan, you do not need to ensure principal amortization during the construction phase.

708.03

Additional Proceeds from Other Sources