Section 201 | |
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201.01 | |
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Requirements
You must:
- Evaluate 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). market area, identifying its strengths and weaknesses.
- Take these characteristics into account when structuring 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. .
201.02 | |
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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.
that:
- is prepared by a qualified, state-licensed or -certified appraiser;
- conforms to the requirements in the USPAPUSPAPUniform Standards of Professional Appraisal Practice ; and
- meets any governmental regulations in effect when 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. was originated, including the Financial Institutions Reform, Recovery, and Enforcement Act of 1989; and
- ensure all:
- Potential Red Flags for Mortgage Fraud and Other Suspicious Activity were considered; and
- unresolved red flags were reported per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 308: Compliance.
Requirements
You must:
- Provide the appraiser all documents needed to accurately assess 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). value.
- Ensure the appraiser:
- completely and accurately describes 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 the market;
- provides an opinion 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).
market value, supported by
- market data,
- logical analysis, and
- sound professional judgment; and
- uses an industry standard form of 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 appropriate for the size and structure 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. .
When selecting an appraiser, you must document that the appraiser is licensed or certified, as appropriate, per applicable state law.
When using an appraiser, you must ensure the appraiser (whether third-party or in-house):
- acts independently;
- does not participate in 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. approval; and
- is not a member of the loan origination or underwriting staff.
201.02B | |
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Requirements
You must:
- update any 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. if the Appraisal DateAppraisal DateEffective date of value in the Appraisal. is more than 6 months before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. ; and
- require a new 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. if the Appraisal DateAppraisal DateEffective date of value in the Appraisal. is more than 12 months before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. .
Guidance
For 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. dated less than 12 months before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , you may obtain an updated 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 complies with USPAPUSPAPUniform Standards of Professional Appraisal Practice guidelines, dated within 6 months of the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. .
201.02C | |
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Requirements
You must ensure the appraiser provides an opinion of the market value, on an “as is” basis, of:
- each separate ProjectProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. per Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership; and
- the aggregate market value of all ProjectsProjectsMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 102.01: Single Borrower Ownership. .
You may also request the appraiser provide an opinion 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). market value on an “as completed” basis, but you must only use an “as completed” 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. for the opinion of 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. if all of the following conditions apply:
- less than 12 months have passed between the Borrower'sBorrower'sPerson who is the obligor per the Note. acquisition 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 the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. ;
- for any capital improvements made after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower.
to be considered in an “as completed” 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.
, they must be:
- Immediate Repairs listed in the PCAPCAAssessment of the Property's physical condition and historical operation. ; or
- improvements identified by the BorrowerBorrowerPerson who is the obligor per the Note. , if you agree the improvements will add PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value;
- all capital improvements are included in either the
- Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing: the Borrower’s agreement to fund the Completion/Repair Escrow, and perform Completion…, or
- Rehabilitation Reserve AgreementRehabilitation Reserve AgreementBorrower’s agreement to undertake identified Rehabilitation Work, the terms for funding the Rehabilitation Work, and the disbursement of funds from the Rehabilitation Reserve Account (e.g., Form 6222 or Form 4523). ;
- sufficient funds to complete all capital improvements are deposited into either the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents.
or the Rehabilitation Reserve AccountRehabilitation Reserve AccountCustodial Account established by the Lender and funded by deposits from the Borrower per the Rehabilitation Reserve Agreement to fund the Rehabilitation Work.
:
- for capital improvements identified as Immediate Repairs, the funds must cover any higher funding percentage you require; and
- for capital improvements identified by the BorrowerBorrowerPerson who is the obligor per the Note. , the funds must cover the estimated cost (including an allowance for cost overruns); and
- all capital improvements are required to be completed in a timely manner:
- those identified by the BorrowerBorrowerPerson who is the obligor per the Note. must be completed within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. ; and
- for others identified as Immediate Repairs, a shorter time period may be required by Part II, Chapter 4: Inspections and Reserves, Section 404: Completion/Repairs.
201.03 | |
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Requirements
Your Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 201: Market and Valuation. must not exceed 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. , as reduced by any adjustments you deem necessary accounting for PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). deficiencies that cannot be cured within 6 months after the Appraisal DateAppraisal DateEffective date of value in the Appraisal. .
If less than 12 months have passed between the Borrower'sBorrower'sPerson who is the obligor per the Note. acquisition 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 the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , your Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 201: Market and Valuation. must not exceed the lower 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. , or
- sum 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). acquisition price per the title company settlement statement;
- cost of capital improvements or repairs that increase 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).
value, if
- completed and fully paid, or
- sufficient funds for completion are deposited in the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. or reserve account; and
- actual acquisition costs, not exceeding 3% of the acquisition price, including:
- Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. ;
- arm's length acquisition fee (generally 1% - 2%) paid to an unrelated PersonPersonLegal person, including an individual, estate, trust, corporation, partnership, limited liability company, financial institution, joint venture, association, or other organization or entity (whether governmental or private). if documented in the Settlement Statement;
- third-party report fees;
- BorrowerBorrowerPerson who is the obligor per the Note. -paid legal fees incurred on your behalf;
- title search and title insurance fees;
- survey fees;
- real estate and stamp taxes;
- deed-recording fees; and
- credit report charges.
Guidance
Actual acquisition costs should exclude any prepaid operating expenses or deposits applied toward future operating expenses or PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). improvements, including:
- prepaid or escrowed
- real estate taxes, or
- insurance premiums;
- prepaid
- utilities,
- 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. interest, including any interest rate buydown expense,
- rents, or
- security deposits;
- funded
- Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. ,
- Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. ,
- Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate. The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. cost,
- operating or Restabilization Reserve, or
- BorrowerBorrowerPerson who is the obligor per the Note. -controlled PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operating or capital accounts;
- fees included in the Gross Note RateGross Note RateInterest rate stated in the Loan Documents.
, including any
- Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. , or
- broker fee;
- acquisition fees paid to a BorrowerBorrowerPerson who is the obligor per the Note. -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
- 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. , pre-paid BondBondTax-exempt or taxable multifamily revenue bonds, or other tax-exempt or taxable bonds, issued to finance 1 or more Credit Enhancement Mortgage Loan Properties. -related and compliance monitoring fees.
Section 202 | |
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Guidance
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. may
- differ significantly across assets, and
- will be driven by particular PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). circumstances.
Therefore, when calculating 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). 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. , you should:
- Use objective measures to determine the revenue generated and the expenses incurred.
- Use the best information available, including historical performance and anticipated operations.
- Use best efforts to obtain operating statements for the prior 3 years.
- Obtain the prior full-year operating statement or, at a minimum, one covering the trailing 6 months (annualized).
- Consider 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). can achieve 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. within 12 months after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , absent unexpected market conditions or other unforeseen events.
You may:
- Rely, for acquisitions only, on the Borrower'sBorrower'sPerson who is the obligor per the Note. budgeted operating statements.
- Calculate 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. more conservatively, if warranted by particular PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). circumstances.
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. for all 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. unless another table is provided in the applicable Part III chapter based on the specific product.
REQUIRED UNDERWRITTEN NCF (CONVENTIONAL LOANS) |
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Item |
Function |
Description |
CALCULATION OF NET RENTAL INCOME |
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1 |
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GROSS RENTAL INCOME – actual rents in place for occupied units, plus market rents for vacant units based on a current rent roll (multiplied by 12). 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 Stabilized Residential OccupancyStabilized Residential OccupancyPercentage of Property units physically occupied by Qualified Occupants, per Part II, Chapter 1: Attributes and Characteristics, Section 105.02: Qualified Occupants as adjusted for the applicable Part III products and features. by Qualified TenantsQualified TenantsParty occupying a dwelling unit in a Property in full compliance with a lease. .
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 located in New York City and subject to the J-51 Tax Incentive Program where the BorrowerBorrowerPerson who is the obligor per the Note. has decontrolled rent-stabilized units (a Decontrol EventDecontrol EventFor Properties located in New York City, an event that causes a property or unit to be removed from rent control but subject to rent-stabilization pursuant to New York City rent stabilization laws. ), you must adjust the current rents to reflect no rent decontrol benefits:
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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). |
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EQUALS |
GROSS POTENTIAL RENT (GPR) |
3 |
MINUS |
Premiums (e.g., identifiable additional income from furnished units or short term leases) and/or corporate premiums (e.g., identifiable additional income from corporate units, housekeeping services, etc.). |
4 |
MINUS |
Physical vacancy – market rents for vacant units based on a current rent roll (multiplied by 12).1 |
5 |
MINUS |
Concessions - the aggregate amount of forgone residential rental income from incentives granted to tenants for signing leases, such as free rent for 1 or more months, move-in allowance, etc.1 |
6 |
MINUS |
Bad debt - the aggregate amount of unpaid rental income determined to be uncollectable, including any adjustments to other income for bad debt.1 |
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EQUALS |
NET RENTAL INCOME (NRI)2 |
1 The total of Items 4, 5, and 6 must equal the greater of
2 NRI must reflect projected operations for the underwriting period.
a. You must assess the NRI using these parameters and fully support any changes:
b. You must assess declines in NRI using these parameters:
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CALCULATION OF OTHER INCOME |
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7 |
PLUS |
Actual other income (except premiums and corporate premiums) generated through ongoing operations. The income must:
You must assess the individual month's 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), provided it does not exceed the highest 1-month other income used in the trailing 3-month other income calculation.
When determining the other income, you must
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CALCULATION OF COMMERCIAL INCOME |
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8 |
PLUS |
Actual income from leased and occupied commercial space per Part II, Chapter 1: Attributes and Characteristics, Section 109: Commercial Leases. |
9 |
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. |
10 |
MINUS |
10% of the actual commercial space income (total of Items 8 plus 9).3 |
11 |
PLUS |
Commercial parking income (e.g., public parking) that does not exceed actual trailing 12-month collections.3 |
3 If net commercial income is greater than 20% of EGI, then reduce to 20% of EGI. |
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12 |
PLUS |
Premiums, provided that the income must:
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13 |
PLUS |
Corporate premiums, provided that this income must:
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14 |
PLUS |
Laundry and vending. |
15 |
PLUS |
Parking - income from residential parking/garage spaces. |
16 |
PLUS |
All other income, including the following:
The following must not be included:
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EQUALS |
EFFECTIVE GROSS INCOME (EGI) |
CALCULATION OF OPERATING EXPENSES | ||
17 |
MINUS |
Line-by-line stabilized operating expenses.
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 a
Non-recurring, extraordinary expenses must not be included.
You must access:
You must:
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17(a) |
MINUS |
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 fee equal to the greatest of:
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4 Minimum property management fee may be 2.5% of EGI (rather than 3% of EGI) provided that the:
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17(b) |
MINUS |
Real estate taxes based on the greatest of:
You must:
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, deferrals, or PILOTsPILOTsPayment In Lieu Of Taxes. , they must:
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17 (b) continued | MINUS |
If the timeframe for the real estate tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes. 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, or begins phasing out or expires within 5 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. , you must consider:
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17(c) |
MINUS |
Insurance equal to:
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17(d) |
MINUS |
Utilities, including the following:
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17(e) |
MINUS |
Water and sewer. |
17(f) |
MINUS |
Repairs and maintenance, including the following:
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17(g) |
MINUS |
Payroll and benefits, including the following:
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17(h) |
MINUS |
Advertising and marketing, including the following:
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17(i) |
MINUS |
Professional fees, including the following:
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17(j) |
MINUS |
General and administrative, including the following:
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17 (j) continued | MINUS |
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17(k) |
MINUS |
Other expenses, including the following:
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 market rate residential rent for that unit is $900, then deduct $1,200 ($1,000 - $900 = $100 x 12 months) as an other expense.
Do not include the following:
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18 | MINUS |
For a CondominiumCondominiumStatutorily established Property ownership regime where Condominium Documents designate: individual units for separate ownership; and common areas for shared use and joint ownership by the unit owners. PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). or a Shared Use PropertyShared Use PropertyProperty subject to Shared Use Documents: benefiting the Property by granting the right to use Essential Elements on common areas created by, or other properties subject to, the Shared Use Documents, and/or burdening the Property by: subjecting it to: property-use or other…:
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19 |
MINUS |
Ground rent for any Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. or any master lease. Ground LeaseGround LeaseContract for the rental of land, usually on a long term basis. bonus rent and/or escalations 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. must be considered when calculating 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. and analyzing refinance risk. |
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EQUALS |
UNDERWRITTEN NOI |
20 |
MINUS |
Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense, including a
Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense must be included whether the escrow is funded or not. |
|
EQUALS |
UNDERWRITTEN NCF |
202.02 | |
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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 202: Income Analysis, as adjusted for the applicable products and… per the following table.
Item |
Function |
Description |
---|---|---|
1 |
|
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. per Part II, Chapter 2: Valuation and Income, Section 202.01: Underwritten Net Cash Flow (Underwritten 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, including amortization, and the greater of the
|
When calculating 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 202: Income Analysis, as adjusted for the applicable products and… 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. with an interest-only period, you must use the same level debt service payment, including amortization, regardless of the length of the interest-only period.
The Underwriting Interest Rate Floor, if applicable, is the lowest interest rate you may use to determine 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.
If the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. is below the required Underwriting Interest Rate Floor, per Form 4660, you must use the Underwriting Interest Rate Floor to establish the permitted 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.
All underwriting TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). requirements must be 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. .
Section 203 | |
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Requirements
You must prepare an exit strategy analyzing the Borrower'sBorrower'sPerson who is the obligor per the Note. ability to refinance 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. in the year after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. (e.g., use the projected 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 202: Income Analysis and the applicable products and… in year 11 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. with a 10-year term), by calculating a:
- “reversion” cap rate, which is the expected capitalization rate able to be supported per the projected 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 202: Income Analysis and the applicable products and…; and
- Refinance Interest RateRefinance Interest RateMaximum interest rate that could be supported based on the UPB, required DSCR, and projected Net Cash Flow for the first year following the Maturity Date. .
203.01 | |
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Requirements
For Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. 1, use 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. . For all subsequent Loan YearsLoan YearsPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. , you must derive proforma 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 202: Income Analysis and the applicable products and… as follows:
Factor | For... | Use... |
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Income Growth Rate |
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2%. |
All other 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. | the growth rates published in DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. for 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). . | |
Economic Vacancy | All 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. | the underwritten economic vacancy rate. |
Real Estate Taxes | California PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). |
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Non-California PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). |
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Real Estate Tax Abatements, Exemptions, Deferrals, or PILOTs | All 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. |
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Management Fee | All 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. | the underwritten rate. |
Replacement Reserves | All 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. | the underwritten value. |
Insurance and Other Expenses |
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3%. |
All other 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. | the growth rates published in DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. for 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). . |
You must estimate 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. UPBUPBUnpaid Principal Balance at the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. as follows:
For... | Use... |
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Amortization |
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DSCR | The minimum TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. for the applicable product or features, per Form 4660. |
LTV | The maximum TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 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. for the applicable product or features, per Form 4660. |
Guidance
Since these base assumptions are indicative only, you may use more conservative estimates if warranted by circumstances particular 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). .
In most cases, the combined effect of principal amortization and 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 202: Income Analysis and the applicable products and… growth should result in a refinancing at the minimum 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. and maximum 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. for TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2, using a reasonable interest rate.
You should consider the following refinance parameters:
- A target reversion capitalization rate at least 2.0% greater than the initial capitalization rate used for determining Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 201: Market and Valuation. .
- A Refinance Interest RateRefinance Interest RateMaximum interest rate that could be supported based on the UPB, required DSCR, and projected Net Cash Flow for the first year following the Maturity Date. at least 2.25% greater than the current 10-year Amortizing Nationwide Underwriting Floor rate, per Form 4660.
203.02 | |
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Guidance
If you determine the base assumptions do not appropriately estimate 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). 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 202: Income Analysis and the applicable products and… over 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 may present an alternative risk analysis using assumptions that deviate from the base assumptions.
You should:
- specifically identify and support any deviations with reliable evidence and historical and projected market trends; and
- state your conclusions and discuss any mitigating factors, such as the
- strength of the SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or the submarket,
- 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). characteristics, or
- 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). operating history and performance.
Income and Expense Growth Rates: Income and expense trending should incorporate projected market rates based upon general economic, market, and submarket conditions from reliable sources. For example:
- Rents on recently signed leases should only be used for estimating income growth in Loan YearsLoan YearsPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. 1 and 2.
- Rent projections greater than the Base Assumption Income Growth Rate should not be used beyond Loan YearLoan YearPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. 4.
- When improvements in market economic occupancy or sustained market rental rate increases are widely anticipated, growth trends above the Base Assumption Income Growth Rate may be supported.
- Projections of income growth resulting from PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). renovations or improved operations should be limited to the first 3 Loan YearsLoan YearsPeriod beginning on the date of the Note and ending on the last day of the month that is 12 full months after the date of the Note, and each successive 12-month period thereafter. .
- When 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). is subject to a scheduled reassessment or a tax abatement phase-in period, tax expense should be adjusted appropriately.
- If a tax abatement, exemption, deferral, or PILOTPILOTPayment In Lieu Of Taxes.
begins phase out or expires more than 5 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents.
, consider if the increased expense within 10 years after the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents.
may affect the Borrower'sBorrower'sPerson who is the obligor per the Note.
ability to refinance, and warrants
- a lower 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,
- faster amortization, or
- a reduced interest only period.
- When you expect to incur costs for tenant improvement allowances and leasing commissions, or to realize rent increases from the rollover of tenants, commercial income should be adjusted appropriately.
Economic Vacancy: 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 submarkets with depressed economic conditions due to temporary demand or supply issues may be modeled to reflect the economic vacancy projected by a reliable source. If you expect a decrease in vacancy to achieve stabilized levels, you should consider
- the anticipated timing, and
- effect of decreased economic vacancy on projected income growth over the same time period.
Section 204 | |
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Requirements
You must:
- examine the risk of allowing cash out to the BorrowerBorrowerPerson who is the obligor per the Note. (see Form 4660 for a description of cash out transactions); and
- for New ConstructionNew ConstructionProperty recently developed/constructed with any certificates of occupancy received within 12 months before the Commitment Date. , consider 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 relative to 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). total development cost basis.
Guidance
When underwriting a cash out transaction you should consider:
- the amount of hard equity remaining 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). , excluding prior permanent financing costs, such as interest or prepayment premium;
- the length of time the BorrowerBorrowerPerson who is the obligor per the Note. has owned 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). ;
- 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). effective age and current physical condition;
- any improvement in asset quality over the ownership period;
- any improvement in 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). operations (i.e., its 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 202: Income Analysis and the applicable products and…) or value over the ownership period;
- if 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). value increased due to an increase in 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 202: Income Analysis and the applicable products and…, rather than a decrease in the capitalization rate; and
- for New ConstructionNew ConstructionProperty recently developed/constructed with any certificates of occupancy received within 12 months before the Commitment Date. , 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). total development costs basis:
New Construction | |
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For... | The Property's total development cost basis includes... |
Land |
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Hard Costs |
Expenses for:
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Soft Costs |
Fees for:
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Construction Financing Costs |
Expenses for:
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HUD or LIHTC New Construction | Amount supported by the Cost CertificationCost CertificationIndependent third-party audit report itemizing the Property's construction and development costs, including a statement of eligible and qualified basis, submitted to the state housing finance agency to obtain IRS Form 8609(s). . |
Cash Out Transaction Support | |
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Factor... | Should... |
Cash Out Proceeds | Be commensurate with the length of the ownership period. |
Property Condition | Have improved or been good over the ownership period. |
Property NCF | Have improved over the ownership period. |
Property Value | Have increased due to higher 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 202: Income Analysis and the applicable products and… over the ownership period. |
Section 205 | |
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Guidance
For Rent-Stabilized PropertiesRent-Stabilized PropertiesProperty where rent increases on more than 50% of the residential units are limited by state or local statutory controls, not by an Affordable Regulatory Agreement. (e.g., located in New York State), you should:
- underwrite PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). income based on current rents;
- exclude any potential rent increase for units converting to market rate from the projected 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 202: Income Analysis and the applicable products and… in the refinance risk analysis;
- assess and stress the cap rate used to determine 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 201: Market and Valuation. , and consider obtaining 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. before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. ;
- for fund SponsorsSponsorsPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). or other SponsorsSponsorsPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). requiring minimum investment returns, consider whether the Sponsor'sSponsor'sPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). interests are aligned with the limited rent increases allowed under the law; and
- fund the Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. to maintain 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). physical condition.