Post on 03-Aug-2020
New HUD Mortgage Insurance Premiums (MIP)
Rental Assistance Demonstration (RAD)Lessons Learned
National Council of Housing Market AnalystsApril 19, 2016
New HUD MIP
• New MIP highlights:ØDirectly reduces the debt burden, or increases proceeds, for new FHA-‐insured mortgages.
ØEffective April 1, 2016ØExisting Firm Commitments can be re-‐issued to take advantage of the new MIP rates.
ØClosed loans are unaffected.ØExisting MIP rates will apply to projects which do not meet the defined criteria.
New HUD MIP
• Green/Energy Efficient Projects, including Affordable & Market Rate Projects:Ø.25% MIP, reduced from .45%-‐.70%ØMust be certified to one of several HUD Approved Green building standards
ØMust ultimately achieve and maintain an Energy Star score of 75 or better using EPA's Portfolio Manager (annual reporting after completion). • Properties under 20 units are exempt from the Portfolio Manager scoring requirement
New HUD MIP
• “Broadly Affordable” Projects Ø.25% MIP, reduced from .45%ØBroadly Affordable is defined as either:
a) 90% or more Section 8, Project Based contract (15 years or more remaining), or b) 90% or more LIHTC/restricted and rents at least 10% below market (15 years or more remaining)
New HUD MIP
• “Affordable” Projects (neither Green nor Broad)Ø.35% MIP, reduced from .45%ØOwners must accept Section 8 VouchersØAffordable includes:
a) Inclusionary zoning projects with at least 10% of units at 80% AMI or less for at least 30 years, orb) 10%-‐90% Section 8, Project Based contract (15 years or more remaining), orc) 10%-‐100% LIHTC/restricted (15 years or more remaining) [no requirement for below-‐market rents]
New HUD MIPHUD Approved Green Standards
v Enterprise Green Communities CriteriavU.S. Green Building Council's LEED-‐H, LEED-‐H Midrise, LEED-‐NC,
or LEED for Existing Buildings: Operations & Maintenancev ENERGY STAR certificationv EarthCraft House; EarthCraft Multifamilyv Earth Advantage New HomesvGreenpoint Rated New Home; Greenpoint Rated Existing Home
(Whole House or Whole Building label)vNational Green Building Standard (NGBS) vPassive Building Certification or EnerPHit Retrofits certification
from the Passive House Institute US (PHIUS), International Passive House Association, or the Passive House Institute
v Living Building Challenge Certification from the International Living Future Institute
vOther industry-‐recognized green building standards, in the sole discretion of HUD's Office of Multifamily Production.
$1.92B $66,317/unit
57,966 88,98228,952
185,000 units
75,000 units
RAD and HUD Mortgage Insurance
• Why does RAD work with Mortgage Insurance?ØSection 8 HAP for 40 years: Two 20-‐year contractsØOCAF rent adjustmentsØSeller take-‐back mortgagesØGround or ground/building lease, up-‐front payments
ØTax credits: short-‐term bonds and 4% creditsØ$35,000-‐$100,000/unit of rehabØInterim Income
RAD and HUD Mortgage Insurance
• Underwriting CriteriaØ1.11 DSC if 90%+ Section 8; 1.15 DSC if notØ97% -‐ 95% OccupancyØSyndicatorsare often the limiting factor on loan, will only go to 1.15 or 1.20 DSC
ØLow Interest rates & Mortgage Insurance Premium• Today’s rate on 221d4: 3.70% + .25% MIP• Today’s rate on 223f: 3.20% + .25% MIP
RAD and HUD Mortgage Insurance
• RAD Processing at HUDØDedicated HUD staff in Ft. Worth, Chicago, and Atlanta (no longer Seattle).
ØStill some work sharing, so find out who all the HUD team members are ASAP
ØCommunication is a challenge
• Baltimore City• 40-‐year old
building• 15-‐stories• Elderly & NED• 99% Section 8• 130% LIHTC Basis
boost• Ground Lease• RE Tax Abatement
Sample Budget -- 221d4 Rehab & 4% LIHTC
Uses 350 Units $/Unit TotalHard Costs 96,000 33,600,000 Contingency & FF&E 10,500 3,675,000 Architect 2,500 875,000 Construction Period Interest 4,100 1,435,000 Other Soft Costs 11,800 4,130,000 Acquisition 72,000 25,200,000 Total HUD Mortgageable Costs 196,900 68,915,000 Developer's Fee 7,143 2,500,000 Add'l Non-mortgageable Costs 14,000 4,900,000 Working Capital Escrow (refundable) 1,572 550,200 Total Project Costs 219,615 76,865,200
Sources $/Unit TotalFHA Mortgage 78,600 27,510,000 LIHTC Proceeds 72,000 25,200,000 Seller Note 68,857 24,100,000 Deferred Developer's Fee 158 55,200 Total Construction Sources 219,615 76,865,200
RAD and HUD Mortgage Insurance
• HUD Hot ButtonsØFunctional Obsolescence: built in the 1950’sØScattered Sites: each parcel must have 5 unitsØFair Housing: accessibility and MPS for elderlyØOccupancy Regime: Elderly and NEDsØEnvironmental Issues: UST, flood plain, lead, asbestos
ØAdditional Testing: terra cotta sewer lines, etc.ØAll RAD deals pay Davis-‐Bacon wages (223f and 221d4)
RAD and HUD Mortgage Insurance
• HUD Hot ButtonsØElderly: Section 231 vs Section 8ØGround and Building Leases: Waive Paragraph B; limited indemnifications
Ø“As is Value” at market rents and expenses used for Replacement Cost Mortgage
ØPurchase Price (could be greater than as is value) used for Seller take-‐back and LIHTC basis
ØSeller take-‐back at compound interest to be in LIHTC basis; OK for public debt
RAD and HUD Mortgage Insurance
• HUD Hot ButtonsØAny project receiving RAD units is a RAD project; must meet site and neighborhood standards
ØAHP loans acceptable if same term as HUD mortgage and sign subordination agreement; can close after HUD closing
ØPILOT; runs with HA is OK but need legal opinionØRelease of the DOT, timing issues