Chapter 8

Cooperative Properties

Section 801

Description

Requirements

A Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. is a multifamily residential property owned by a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. .

Section 802

Eligible Mortgage Loans

Requirements

Fannie Mae will only purchase a CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. 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. if each shareholder or other equity owner in the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. is granted the right to occupy a unit in the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). under a proprietary lease or other occupancy agreement.

You must:

  • Examine the organizational documents of the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. .
  • Ensure that the terms of these documents allow you to originate a Loan secured by 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). in compliance with the GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
  • Review the composition and experience of the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. ’s Board of Directors or managers.
802.01

Basic Conditions

Requirements

You must ensure for all the following:

  • 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 a fixed rate.
  • Any commercial lease is determined to be a Material Commercial LeaseMaterial Commercial LeaseLease, sublease, license, concession, grant, or other possessory interest for commercial purposes comprising 5% or more of the Property's annual EGI, or relating to: solar power, thermal power generation, or co-power generation, or the installation of solar panels or any other… based on 5% or more of total gross income calculated on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. .
  • 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 located in a Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. Eligible Market per Form 4660.
  • 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 an overall condition of 2 or better, as shown on the Comprehensive Assessment Addendum tab of the MBAMBAMortgage Bankers Association Standard Inspection Form.
802.02

Financial Conditions

Requirements

You must ensure all of the following:

  • You have reviewed at least 3 years of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). financial operations.
  • 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). financial operations achieved at least a 0.90 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. on an Actual Cooperative Property BasisActual Cooperative Property BasisFinancial analysis or valuation of a Cooperative Property conducted based on its actual operating performance. for 2 of the previous 3 years.
  • The Board of Directors or managers of the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. approve any increase in the Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. prior to closing; and any scheduled annual increase cannot exceed 10%.
  • A Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. may not own interests to occupy or lease more than 40% of the units in the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. , unless the following criteria are met:
    • You deem the financial strength, experience, qualifications, and credit history of the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization.  acceptable, per the applicable provisions for Key PrincipalsKey PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. in Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals or Part III, Chapter 9: Small Mortgage Loans.
    • The Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. consistently demonstrates sound financial operations and market acceptability.
    • There is no ongoing litigation between the Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. and the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. .
    • The aggregate annual rental income from the Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. -owned units is greater than the aggregate annual Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. on those units.
802.03

Property Management Conditions

Requirements

You must ensure all of the following:

  • Except for Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $9 million. , 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 be managed by a professional property management firm that currently manages:
    • at least 3 other CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). in the same market as 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). ;
    • a minimum of 350 Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. units in the aggregate; and
    • another Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. of similar size to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
  • For Small Mortgage LoansSmall Mortgage LoansMortgage Loan with an original loan amount less than or equal to $9 million. , 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 more than 25 units must be managed by a property management firm with at least 3 years of experience managing a Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. of similar size.

Guidance

The BorrowerBorrowerPerson who is the obligor per the Note. may manage 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). securing a Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. with 25 units or less.

802.04

Other Considerations

Guidance

A CooperativeCooperativeMultifamily residential property owned by a Cooperative Organization. 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. does not have to comply with the following:

Section 803

Underwriting
803.01

Financial Operation

Requirements

As part of your underwriting analysis, you must:

  • Examine the year-to-date operational budget.
  • Collect, review, and analyze audited financial/operating statements for the last 3 years of operations.
  • Ensure that the average Cooperative Maintenance Fee Accounts ReceivableCooperative Maintenance Fee Accounts ReceivableCooperative Maintenance Fees due the Cooperative Organization that are more than 30 days past due. for the last 3 years is less than 3% of the annual Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. .
  • Ensure that the Cooperative Operating ReserveCooperative Operating ReserveLiquid funds, including loan proceeds, controlled by the Cooperative Organization to cover operating and capital expenses, and comprised of unrestricted cash, less the sum of accounts payable. at closing is at least 10% of the annual Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. .
803.02

Property Valuation

Requirements

You must obtain an 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.  per Part II, Chapter 2: Valuation and Income that provides a value of the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. for determining the LTV RatioLTV RatioRatio 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.  per Form 4660.

Guidance

You may obtain an 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. per Part II, Chapter 2: Valuation and Income that provides a value of the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. on a Cooperative Gross Sellout ValueCooperative Gross Sellout ValueValue based upon the sum of the gross sales prices of all units (subject to discounts on rent restricted units) plus the aggregate UPB of all existing Mortgage Loans (prior to any proposed refinancing) secured by a Lien on the Cooperative Property. basis.

803.03

Subordinate Debt

Requirements

You must ensure that any existing debt secured by a LienLienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on a Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization.  complies with Part III, Chapter 14: Supplemental Mortgage Loans, Section 1402: Supplemental Mortgage Loans.  You must also calculate the

Section 804

Income Analysis
804.01

Cooperative Market Rental Basis NCF (Underwritten NCF)

Requirements

You must review the projected operations of the Cooperative PropertyCooperative PropertyMultifamily residential property owned by a Cooperative Organization. on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. (as reflected in 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. ).

You must ensure the Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. NCFNCFOn an annual basis or any specified period, the total Net Operating Income, minus the full amount underwritten for Replacement Reserve expense, regardless of whether deposits will be made (per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and… includes the minimum economic vacancy and Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per the applicable Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. calculation in Part II, Chapter 2: Valuation and Income or Part III, Chapter 9: Small Mortgage Loans.

804.02

Cooperative Market Rental Basis DSCR (Underwritten DSCR)

Requirements

You must calculate 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, Chapter 2: Valuation and Income, Section 203: Income Analysis, as adjusted for the applicable products and… per the following table.

UNDERWRITTEN DSCR
(COOPERATIVE PROPERTIES – COOPERATIVE MARKET RENTAL BASIS)

Item

Function

Description

1

 

Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. as calculated on a Cooperative Market Rental BasisCooperative Market Rental BasisFinancial analysis or valuation of a Cooperative Property conducted as if it were operated as a conventional multifamily property subject to applicable rental restrictions. .

2

DIVIDED BY

Annual debt service 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. amount.

 

You must base debt service on a level debt service payment, including amortization, and the greater of

 

  • the actual note rate, or
  • the required Underwriting Interest Rate Floor per Form 4660.

If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has subordinate debt, the debt service must include P&IP&IPrincipal and interest  to cover the maximum principal amount of the outstanding subordinate debt.
804.03

Actual Cooperative Property NCF

Requirements

You must use the following table to calculate Actual Cooperative Property NCF.

REQUIRED ACTUAL COOPERATIVE PROPERTY NET CASH FLOW

Item

Function

Description

CALCULATION OF NET RENTAL INCOME

1

 

GROSS RENTAL INCOME – current scheduled monthly Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for all units (multiplied by 12).

2

PLUS

Income from Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. -owned units equal to the lesser of

 

  • actual rents in place for occupied units, plus market rents for vacant units, or
  • an equivalent Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. based on similar units in the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). (multiplied by 12).

3

PLUS

Proposed increase in annual Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. income.

 

EQUALS

GROSS POTENTIAL RENT (GPR)

4

MINUS

Vacancy – included at Fannie Mae’s sole discretion for any Pre-Review Mortgage LoanPre-Review Mortgage LoanMortgage Loan that is not delegated to you and requires Fannie Mae’s approval before Rate Lock. .

 

EQUALS

NET RENTAL INCOME (NRI)

CALCULATION OF OTHER INCOME

5

PLUS

Actual other income (including any flip fees, sales fees, or any special assessments collected for operational expenses) as described in the applicable Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. calculation detailed in Part II, Chapter 2: Valuation and Income, or Part III, Chapter 9: Small Mortgage Loans.

CALCULATION OF COMMERCIAL INCOME

6

PLUS

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

7

PLUS

Actual income from STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… units.

8

MINUS

Commercial income economic vacancy – included at Fannie Mae’s sole discretion for any Pre-Review Mortgage LoanPre-Review Mortgage LoanMortgage Loan that is not delegated to you and requires Fannie Mae’s approval before Rate Lock. .  A 10% vacancy rate must be applied to any STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… income.1

1 If net commercial income is greater than 20% of EGI on a Cooperative Market Rental Basis, then reduce to 20% of EGI on a Cooperative Market Rental Basis.
  EQUALS EFFECTIVE GROSS INCOME (EGI)

CALCULATION OF OPERATING EXPENSES

9

MINUS

Line-by-line stabilized operating expenses, including management fee and insurance.  Stabilized operating expenses are the expenses during normal ongoing PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operations, not affected by short-term positive or negative factors.  Non-recurring, extraordinary expenses must not be included.

 

You must assess:

 

  • past operating history;
  • market expenses;
  • actual service contracts in place; and
  • 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). budget.

All expenses associated with STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… should be underwritten in their respective expense line items.

10

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 assessed value or 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, multiplied by the millage rate, plus any special assessments.

If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has real estate tax abatements, exemptions, or deferrals, they must:

 

  • be in effect at closing, per written documentation from the state or local tax assessor; and
  • survive a foreclosure 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. such that Fannie Mae or a subsequent owner will retain the abatement, exemption, or deferral benefit (e.g., it is tied to the operation of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and not the identity or structure of the owner).

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 Loan Document obligations. ),
  • an amortization schedule that accommodates the elimination of the abatement, or
  • providing clear justification and support in the refinance analysis.

11

MINUS

All other expenses as described in Underwritten NCFUnderwritten NCFNet Cash Flow as adjusted by the Lender per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. calculation detailed in the applicable Part II, Chapter 2: Valuation and Income, or Part III, Chapter 9: Small Mortgage Loans, except for property insurance and management fees.

 

For STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer…:

 

  • any taxes or fees imposed by the local jurisdiction; and
  • if applicable, the difference in actual lease STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… income and the Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for similar units in the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with a term of more than 30 days.

For example, if actual lease STRSTRProperty permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer… income for a unit is $1,000 and the comparable Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for that unit is $900, then deduct $1,200 ($1,000 - $900 = $100 X 12 months) as an other expense.

 

EQUALS

UNDERWRITTEN NET OPERATING INCOME (UNDERWRITTEN NOI)

12

MINUS

Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense – included at Fannie Mae’s sole discretion for any Pre-Review Mortgage LoanPre-Review Mortgage LoanMortgage Loan that is not delegated to you and requires Fannie Mae’s approval before Rate Lock. .

 

EQUALS

ACTUAL COOPERATIVE PROPERTY NET CASH FLOW (ACTUAL COOPERATIVE NCF)
804.04

Actual Cooperative Property DSCR

Requirements

You must calculate the Actual Cooperative Property DSCR per the following table.

ACTUAL COOPERATIVE PROPERTY DSCR

Item

Function

Description

1

 

Actual Cooperative NCF per Part III, Chapter 8: Cooperative Properties, Section 804.03: Actual Cooperative Property NCF.

2

DIVIDED BY

Annual debt service 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. amount.

 

You must base debt service on a level debt service payment at the actual note rate, including amortization.

 

Use interest-only payments only for a full-term interest-only 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. .

 

If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has subordinate debt, the debt service must include P&IP&IPrincipal and interest to cover the actual UPBUPBUnpaid Principal Balance  of the outstanding subordinate debt.  Use interest-only payments only for full-term interest-only subordinate debt.
Section 805

Limited Equity Cooperative Properties

Requirements

In addition to the rest of this Chapter, you must ensure that Limited Equity Cooperative PropertiesLimited Equity Cooperative PropertiesCooperative Organization that has income, rent, or equity build-up restriction (not including any transfer taxes), which may be dictated by a governmental entity, a third-party capital provider, or its own organizational documents. meet the following:

  • Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. :  You must ensure that:
    • monthly Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. are not more than 90% of comparable unit market rents; and
    • if there are restrictions from the HUDHUDU.S. Department of Housing and Urban Development or others, then both HUDHUDU.S. Department of Housing and Urban Development and the Limited Equity Cooperative PropertyLimited Equity Cooperative PropertyCooperative Organization that has income, rent, or equity build-up restriction (not including any transfer taxes), which may be dictated by a governmental entity, a third-party capital provider, or its own organizational documents. ’s Board of Directors or managers must approve all Cooperative Maintenance FeeCooperative Maintenance FeePeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. increases before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. .
  • Cooperative Operating ReserveCooperative Operating ReserveLiquid funds, including loan proceeds, controlled by the Cooperative Organization to cover operating and capital expenses, and comprised of unrestricted cash, less the sum of accounts payable. :  You must require a reserve equal to at least 6 months of P&IP&IPrincipal and interest  payments 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. .
  • HUDHUDU.S. Department of Housing and Urban Development IRPIRPInterest Reduction Payment Loan:  You must require an IRPIRPInterest Reduction Payment reserve equal to 2 months of IRPIRPInterest Reduction Payment payments for the life of the IRPIRPInterest Reduction Payment Loan.  The funds in the IRPIRPInterest Reduction Payment reserve may only be used to compensate for late IRPIRPInterest Reduction Payment payments.
  • Actual Cooperative Property NCF:  You must calculate Actual Cooperative Property NCF per Part III, Chapter 8: Cooperative Properties, Section 804.03: Actual Cooperative Property NCF, but the following exceptions apply:
    • Economic vacancy:  Use the greater of
      • 5%, or
      • the highest level experienced by 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). during the last 3 years.
    • Actual operating expenses:  Equal to 103% of the previous year's operating expenses.
    • Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. :  Use the greater of
      • the scheduled Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. per unit as determined by a PCAPCAAssessment of the Property's physical condition and historical operation. , or
      • $250 per unit per year.
  • Unit Turnover:  Total unit turnover must not be greater than 20%.
  • Escrows:  You must require monthly deposits for real estate taxes, insurance, and the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. .
  • Cooperative Property SponsorCooperative Property SponsorPerson who invested in, converted, or is converting a residential rental apartment building to a Cooperative Property and continues to own unsold shares in the Cooperative Organization. :  There must be no SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). -owned units.
  • 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 experience:  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). management firm must have Limited Equity Cooperative PropertyLimited Equity Cooperative PropertyCooperative Organization that has income, rent, or equity build-up restriction (not including any transfer taxes), which may be dictated by a governmental entity, a third-party capital provider, or its own organizational documents. management experience.  If HUDHUDU.S. Department of Housing and Urban Development restrictions are in-place, the firm must also have a history of successfully complying with HUDHUDU.S. Department of Housing and Urban Development restrictions and reporting requirements.

Guidance

You should consider the following:

  • Cooperative Operating ReserveCooperative Operating ReserveLiquid funds, including loan proceeds, controlled by the Cooperative Organization to cover operating and capital expenses, and comprised of unrestricted cash, less the sum of accounts payable. :  You may include a similar reserve held by another independent lender if the funds are released to you.
  • Actual Cooperative Property NCF:  3% trending is not required for trailing 12-month or year-to-date annualized operating expenses.
  • Unit Turnover:  Unit turnover occurs when a shareholder or tenant chooses to vacate a unit or terminate a lease during the past 3 years.