703.02

Underwriting

703.02A

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 Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. requirements in Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation, you must:

  • Include 2 separate opinions of the Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. based on:
    • Restricted ValueRestricted ValueAppraised Value assuming an Affordable Regulatory Agreement or Private Affordability Agreement is in effect. from the Affordable Regulatory AgreementAffordable Regulatory AgreementRecorded or unrecorded regulatory, land use, extended use, restrictive covenant, or similar agreement or restriction that is imposed by a Public Entity, placing rent, income, or other affordability restrictions on the use or occupancy of the Property, but which does not include a HAP Contract. , the Sponsor-Initiated Affordability Agreement (Form 6490), or any Private Affordability AgreementPrivate Affordability AgreementRecorded or unrecorded regulatory, land use, extended use, restrictive covenant, agreement, or restriction that is imposed by any non-Public Entity, placing rent, income, or other affordability restrictions on the use or occupancy of the Property. , using
      • comparable multifamily rental properties,
      • the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). submarket,
      • properties with similar rent or income restrictions, and
      • any Tax AbatementsTax AbatementsAny abatement, reduction, lessening, exemption, or deferral of real estate or other taxes levied against a Property, including any PILOT. or programs that reduce the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). assessed value; and
    • Unrestricted ValueUnrestricted ValueAppraised Value assuming an Affordable Regulatory Agreement or Private Affordability Agreement is not in effect. from the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). income and expenses without the Affordable Regulatory AgreementAffordable Regulatory AgreementRecorded or unrecorded regulatory, land use, extended use, restrictive covenant, or similar agreement or restriction that is imposed by a Public Entity, placing rent, income, or other affordability restrictions on the use or occupancy of the Property, but which does not include a HAP Contract. , the Sponsor-Initiated Affordability Agreement (Form 6490), or any Private Affordability AgreementPrivate Affordability AgreementRecorded or unrecorded regulatory, land use, extended use, restrictive covenant, agreement, or restriction that is imposed by any non-Public Entity, placing rent, income, or other affordability restrictions on the use or occupancy of the Property. (e.g., market rents, occupancy, and operating expenses), using
      • comparable multifamily market rate rental properties,
      • the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). submarket, and
      • full taxes if rental income restrictions are required by a Tax AbatementTax AbatementAny abatement, reduction, lessening, exemption, or deferral of real estate or other taxes levied against a Property, including any PILOT. or programs that reduce the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). assessed value.
  • Ensure each Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. 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 financed by a Bond issuance where Fannie Mae provides credit enhancement by a Credit Enhancement Instrument, or an MBS for Bonds. ); or
    • tax credit benefits.
  • Determine the appropriate Appraised ValueAppraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. for the Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation.
703.02B

Market Study

Requirements

If a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 or TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 3 Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. is secured by a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with a HAP ContractHAP ContractAn agreement providing a HUD Section 8 rental subsidy for the Property in the form of a: project-based voucher contract (PBV), or project-based rental assistance contract (PBRA). expiring 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 Mortgage Loan amounts 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 Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. ) that:

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

35-Year Amortization

Requirements

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

  • PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). 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/or
    • a new HAP ContractHAP ContractAn agreement providing a HUD Section 8 rental subsidy for the Property in the form of a: project-based voucher contract (PBV), or project-based rental assistance contract (PBRA). covering at least 95% of the units under the:
      • Rental Assistance Demonstration (RAD) program; or
      • Capital Repairs Program per the Section 8 Renewal Policy Guidebook available on HUD’sHUD’sU.S. Department of Housing and Urban Development website; and
  • MAHMAHProperty that: complies with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 702: MAH Property Eligibility; and is underwritten per Part III, Chapter 7: Multifamily Affordable Housing Properties. 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. must be a first LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. 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. with a minimum term equal to the greater of
    • the remaining initial LIHTCLIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. compliance period, or
    • 10 years.
703.02D

LIHTC Average Income

Requirements

You must identify and mitigate any risks from the Borrower’sBorrower’sPerson who is the obligor per the Note. electing LIHTC Average IncomeLIHTC Average IncomeInternal 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 … per the Internal Revenue Code.

Guidance

When a BorrowerBorrowerPerson who is the obligor per the Note. elects LIHTC Average IncomeLIHTC Average IncomeInternal 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 … per the Internal Revenue Code for a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). 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 Average IncomeLIHTC Average IncomeInternal 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 … 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 Average IncomeLIHTC Average IncomeInternal 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 … compatible with other funding and subsidy source requirements, including any HAP ContractHAP ContractAn agreement providing a HUD Section 8 rental subsidy for the Property in the form of a: project-based voucher contract (PBV), or project-based rental assistance contract (PBRA). ?
  • Has LIHTC Average IncomeLIHTC Average IncomeInternal 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 … 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 real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per 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. ,
    • is the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). not a re-syndication of a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). 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 real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is a re-syndication, have you confirmed the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has completed its extended use period?
  • Does the market study include capture rates for each unit designation supporting LIHTC Average IncomeLIHTC Average IncomeInternal 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 …?
703.02E

Initial LIHTC Equity

Requirements

For any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per 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 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. .

703.02F

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.
703.02G

Rent-Stabilized Units

Guidance

Refer to Part II, Chapter 2: Valuation and Income, Section 207: Rent-Stabilized Properties regarding rent-stabilized MAH PropertyMAH PropertyProperty that: complies with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 702: MAH Property Eligibility; and is underwritten per Part III, Chapter 7: Multifamily Affordable Housing Properties. units.