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.