MAP UNDERWRITING

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MAP UNDERWRITING

• This session will help you understand the basics
  of
• -How MAP Works-HUD and Lender Responsibilities

2
MG

• Throughout this presentation you will
• see references to MG.
• These are MAP Guide references.

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Why MAP? What is MAP?

• Multifamily Accelerated Processing
• Implemented in 2005
• Designed to establish consistent National
  procedures for both Lenders and HUD Staff
• Processing Timeframes Improve Efficiency
• Predictability Lenders Underwrite HUD Reviews

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Tour the MAP Guide

• Chapter 1 Introduction
• Chapter 2 Lender Approval Process
• Chapter 3 Eligible Programs
• Chapter 4 Application Requirements
• Chapter 10 Management Analysis
• Chapter 11 Lender Underwriting

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Eligible Programs

• New Construction/Substantial Rehab
• 221(d)(3) Apartments (Non-Profit)
• 221(d)(4) Apartments (Profit Motivated)
• Section 220 Apartments (Urban Renewal)
• Section 232 ALFs or SNFs
• Section 231 Apartments for elderly only
• Added March 27, 2007 (Mortgagee Letter
  2007-05). Guidelines have not yet been added to
  the MAP Guide.

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• Refinance or Acquisition/Refinance
• Section 223(f) Apartments
• Section 232/223(f) ALFs or SNFs

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• Projects not eligible for processing under MAP
  must be processed under Traditional Application
  Processing (TAP) procedures and may be processed
  under Fast Track Procedures.
• Projects eligible for processing under MAP may be
  processed under TAP but may not be processed
  under Fast Track Procedures.

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Application Requirements, Lender Underwriting,
and HUD Review

• Chapters 4 and 11

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Preliminary Discussions

• Lenders may have preliminary, informal
  discussions with the HUD Underwriter regarding
• Whether there are competing applications in HUDs
  pipeline in the same area
• Environmental Concerns
• MAP Procedures
• (MG 4.2.A)

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Development Team

• A Development Team must be acknowledged by HUD
  for each transaction. (MG
  2.1.C 4.2.B)
• The Development Team Consists of
• Underwriter Must be a full time employee of the
  Lender and have received approval from Lender
  Quality and Monitoring (MG
  2.3.F)

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Development Team (continued)

• Appraiser Must be a Certified General Appraiser
  licensed in the State in which the project is
  located (MG 7.3.A)
• Market Analyst (MG 7.3.B)
• Appraiser and Market Analyst may be the same
  individual/firm, but independent reports must be
  provided (MG 7.3.D.)

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Development Team (continued)

• AE Reviewer
• Cost Reviewer
• AE and Cost Reviewer may be the same
  individual/firm, but independent reports are
  required (MG 7.3.D.)
• Environmental Professionals are not
• acknowledged by HUD (MG 9.2).

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• For refinance cases, Needs Assessors are not
  acknowledged by HUD (MG 11.1.D.2)
• Approval of the Development Team should be sought
  prior to preparation of an application for review
  to provide for early notification to the lender
  if HUD objects to any of the proposed
  participants. (MG 4.2.B.1.)
• Development Teams not acknowledged within ten
  days are considered approved (MG 4.2.b.1)

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New Construction/Sub-Rehab

• Two Stage Review
• Preapplication 45 day review
• Firm Application 45 day review
• One Stage Review Preapplication and Firm
  Application combined
• 60 day review time (MG Chapter 1 Revision)
• Required Exhibits
• Appendix 4A for 221(d)(3), 221(d)(4) and
  220
• Appendix 4B for 232
• Required Exhibits for One Stage Firm
• Include all exhibits required for both
  Preapplication and Firm in one submission

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Refinance/Acquisition Refinance

• 60-Day HUD Review
• Required Exhibits for Refinance Cases
• Appendix 4C for 223(f)

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Note Review times may exceed established limits
if

• a more extensive HUD review is required for
  mortgages that exceed 15 million,
• proposal includes request for waivers related to
  commercial space,
• substantial rehab that proposes changing a
  building use from non-residential to residential,
  
• or waivers related to cost or site not
  attributable to dwelling use (MG 11.2.E.)

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Note

• Application review time begins
• when the application is determined
• to be complete (all required exhibits
• submitted).
• (MG 11.2.A).

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Application Submission

• An original and four copies of all exhibits are
• required to be submitted unless a lesser
• number of any given exhibit are agreed upon
• by HUD. (MG 4.3.C)
• Check with the local HUD Office!

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Exhibits

• Field Offices may not waive required application
  exhibits (MG 11.2.J.5)
• Exhibits required by the text of the Guide but
  not necessarily included on the exhibit list are
  still required exhibits. (MG 11.2.J.5)

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3rd Party Report Life

• On the date of receipt of an application in the
  HUD Office the 3rd Party Reports may not be older
  than 120 days (from the date of the site visit or
  effective date of report for Appraisals).
• Phase I Environmental Site Assessments may be up
  to 180 days old.

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NarrativesImportant

• MAP Lenders Underwriters are required to prepare
  and submit a narrative as part of the
  Preapplication and the Firm Application
  Submission.
• The narratives are very important to the HUD
  Underwriter and should outline the entire
  proposal but not repeat full explanations found
  elsewhere in the application.

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Preapplication Narrative

• MG 11.1.A.
• Description of the project, surrounding area,
  demand, competition, vacancy rates, absorption
• Differences between the 2013 and the market study
  
• Zoning, unusual site conditions, environmental
  issues of concern
• Identify Development Team
• Underwriter and Third Party Certifications

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Firm Application Narrative

• MG 11.1.B
• Explain why you recommend the loan for mortgage
  insurance and why you consider it economically
  sound
• List any Risk Factors
• List any changes in the project between
  Preapplication and Firm Submission (Note
  Significant deviation rules still apply under
  MAP)
• Financial Evaluation of the Mortgagor and
  principals of the mortgagor (see MG 8.3.D)

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Firm Narrative (continued)

• Financial Operating History of the Property
• Physical Description of Property
• History of Borrowers Investment
• Rents, expenses, market, absorption operating
  deficit
• Adequacy of the Reserve for Replacement
• Changes Underwriter made to 3rd Party conclusions
  with explanation/justification
• Requests for Wavier(s)
• Certifications of the Underwriter, Appraiser,
  Market Analyst, Needs Assessor, AE Reviewer and
  Cost Reviewer (MG 11.1.C 11.2.K)

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Application Review

• HUD has 5 days from receipt of a package to
  perform a completeness review (MG 11.2)
• The clock for the 45 or 60 day review begins on
  the day HUD determines the application to be
  complete
• If deficiencies are minor, the lender is allowed
  5 days to correct any application deficiencies
  (MG 4.2.E.2)
• If the application is incomplete or deficiencies
  are such that they cannot be corrected in 5 days
  the application is rejected and returned to the
  lender, and HUD retains the application fee. (MG
  2.12.D.1 and 4.2.E.2)

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Preapplication Review

• Unit Number, Type, Mix
• Rents Expenses
• Demand/Market
• Suitability of the Site
• Site Visit for Environmental Review
• Review of Non-Profit Borrower

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HUD Underwriters Recommendation

• The HUD Team Leader is required to prepare a
  recommendation to the HUB Director for each
  application submission. Topics in the
  recommendation include the following
• Summary of HUD Technical Reviews
• Recommendation of Team Leader

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• Adequacy of Initial Operating Deficit
• Adequacy of the Initial and Annual Deposit to RfR
  for 223(f) loans
• Environmental Concerns
• Subsidy Layering Compliance
• Waivers

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Suggested Additional Topics

• Critical/Non-Critical Repairs
• Estimated Construction Period
• Income
• Expenses
• Cap Rate
• Eligibility For 202 Refinance
• Debt Service Savings
• Prepayment Approval

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More additional topics

• Occupancy (historical/projections)
• Zoning
• Professional Liability Insurance (232s)
• Operator/Lessee (232s)
• Management
• Unique Issues (demolition, extraordinary
  off-sites, ownership structure, scattered sites,
  etc.)
• Maximum Insurable Mortgage

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Preapplication Review Result

• The preapplication review can result in
• Acceptance of the proposal and issuance of an
  Invitation Letter or
• Modification or request to modify the proposal
  or
• Rejection of the proposal.

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After the Invitation

• An Invitation Letter allows 120 days for
  submission of the application for firm
  commitment. Up to three 30-day extensions may be
  approved by the Field Office if justified and if
  the extensions will not jeopardize the
  conclusions reached during the preapplication
  review. (MG 11.2.L)

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REMINDER!

• The Lender has 30 days to advise
• HUD of the acceptance of the terms
• and conditions of the Invitation Letter.
  Notification must be written.
• (MG 11.2.L)

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Firm 2-Stage Review

• If Firm Application is part of a 2-Stage review
• Review for Significant Deviation from Invitation
  Parameters
• Review Full Appraisal
• Complete Environmental Review
• Review AE and Cost Reviews, Plans,
  Specifications and Survey
• Full Mortgage Credit Review
• Process 2530s

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Firm 2-Stage Review (continued)

• Review Contractor (including experience,
  financial stability, working capital and 2530)
• Review/Approve Management Agent (including 2530)

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1-Stage Firm Review

• If Firm submission is a one-stage review, all
  applicable preapplication and firm application
  reviews are performed. Reviews are modified as
  warranted, i.e., there are no plans and
  specifications, but rather a review of the PCNA,
  required repairs, and Reserve Analysis is
  performed.

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Review Results of Firm Application

• At completion of the Review, HUD has three
  options
• Accept the proposal as is or
• Reject the proposal or
• Modify (or require modification of) the proposal
  to make it acceptable.

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Firm Commitment

• If warranted, a Firm
• Commitment is issued.
• Firm Commitments have a 60-day expiration.
• Extensions may be requested, but may only be
  granted if extenuating circumstances justify an
  extension and the extension is not likely to
  change the data on which the Commitment was based
  or undermine the feasibility of the project. (MG
  11.2.G)

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Back to the TourMAP Guide Chapters 5 10

• 5 Architectural Analysis
• 6 Cost Analysis
• 7 Valuation Analysis
• 8 Mortgage Credit
• 9 Environmental
• 10 Management Analysis

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Dont forget the MAP Guide Appendices

• The Appendices are an important part of
• packaging the application and include
• Instructions and formats for the third party
  reports
• Additional instructions for program specific
  requirements
• Checklists used for HUDs review

41
Additional Resources

• MAP FAQs found at
• http//www.hud.gov/offices/hsg/mfh/map/maphome.cfm
  
• Select the link Response to Comments and
  Questions

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More Resources

• For Refinance of 202 projects under 223f
• 4/18/06 Memo on Clarification on Use of
  Developers Fee
• Notice 04-21
• Notice 02-16
• For 232 Transactions
• Notices H01-03, 04-01 and 04-15

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The end of the Tour

• Post Closing MAP Guide Chapters
• 12 Insurance Closings
• 13 Construction Period
• 14 Cost Certification
• and Quality Assurance Chapter 15

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Role of the Lenders Underwriter

• Preparing the application
• Review all third party reports thoroughly
• Determine financial and credit acceptability of
  the key principals
• Recommend the maximum mortgage amount and other
  key terms of the loan
• Prepare the Narrative outlining the transaction
• Submit to HUD

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Lenders Underwriter

• During Application Review
• Respond to inquiries from HUD during review
• The Lenders Underwriter is the Single Point of
  Contact during the Review

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Lenders Underwriter (or Construction Loan
Administrator)

• During Construction
• Distribute Mortgage Proceeds
• Submit Advances to HUD for review
• Recommend/Submit Construction Change Orders
• Keep the Mortgage in Balance!
• During 223(f) Repairs Monitor!!
• Act as the Single Point of Contact for the Lender
  during Construction or Repairs

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HUD Single Points of Contact

• Prior to Application Submission
• MAP Coordinator to obtain a Team Leader
  assignment
• MAP Team Leader to submit Development Team
  have preliminary discussions
• During Application Review
• Project Manager

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During Construction

• Construction Coordinator for assignment of a
  HUD Inspector, issues regarding HUD inspections,
  and recipient of Change Orders and PTOs
• Mortgage Credit Examiner for submission of
  advances for after-the-fact review of interim
  advances or Repair Escrow Withdrawals

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What HUD is looking for..

• Projects that comply with Program Requirements
• Transactions that represent sound business deals
  (a good risk to the insurance fund)
• A new project that makes sense in the community
  in which it is located and compliments the
  surrounding community
• Properties that will be managed effectively,
  efficiently and professionally

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• Project has appealing amenities
• Is conveniently located to services
• Good access in/out of the property
• Project is well situated on the site
• The site is environmentally safe for residents
• Refinancing the property will improve the
  financial and physical condition of the property

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• The owner is dedicated to the success of the
  project and is financially able to bring the
  project to completion
• The contractor is capable of bringing the project
  to successful completion on time
• Overall that the project will be an asset to
  the owner, residents, lender, community, and HUD

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2530 Assistance

• For instructions see
• http//www.hud.gov/offices/hsg/mfh/apps/appsmfhm.c
  fm
• For assistance call
• APPS Help Desk 800-767-7588

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Energy Efficiency Initiative

• HUD encourages borrowers and managers to use
  energy saving devices, including Energy Star
  construction standards and appliances, in the
  repair, rehabilitation, and day-to-day operations
  of properties.
• www.energysavers.gov

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• Educate your Clients on HUDs requirements!

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What should your client know..

• Regulatory Agreement Owner will have to sign it
  and abide by its the provisions. You will want
  to discuss with them specifically -
• Surplus Cash distribution
• Financial Statement Submission
• These are the two most common provisions that
  borrowers new to FHA violate!

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Also discuss

• RFR Account release procedures
• Where to find Handbook Guidance
• Management Reviews
• Physical Inspections
• Rental Rates and Lease Terms
• Transfer of ownership, assets, and encumbering
  the mortgage

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• Change of use of structures
• Single Asset Ownership requirements
• Maintenance Standards
• HUD Approval of Management
• Paying only reasonable and necessary operating
  expenses
• Maintenance of Books and Records

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• Deposit of income and security deposits
• Fair Housing laws and guidelines
• Affirmative Fair Housing Marketing
• Technical Fiscal Defaults
• Non-Recourse Provisions of the Loan
• Release of funds for completion of non-critical
  repairs (including retainage)

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Important Guidance for Owners and Agents

• Handbook 4350.1 Rev-1, Multifamily Asset
  Management and Project Servicing
• Handbook 4381.5 Rev-2, Management Agent Handbook
• Handbook 4370.1 Rev-2, Reviewing Annual/Monthly
  Financial Reports

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• Handbook 4370.2 Rev-1, Accounting Procedures
• Handbook 4370.4, Audited Financial Statement Desk
  Reference
• Notice 99-13, Revised Asset Management Procedures

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• HUD Guidance can be found on HUDClips.
• www.hudclips.org/cgi/index.cgi

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Points to Remember

• The Lenders Narrative is a very important
  document to HUD Reviewers
• When preparing the Narrative, more is not
  betteror efficientthink outline not
  duplication of information that is elsewhere in
  the application.
• HUD and the Lender have specific Single Points of
  Contact at each step of the process

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Remember.

• All exhibits must be presented before review can
  begin
• Documents must be signed by an individual
  authorized to sign for your Company not all
  approved Underwriters have this authority
• Keeps HUDs perspective in mind as you underwrite

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Remember.

• Read the 3rd Party Reports!
• Identify all known issues or risks in the
  narrative Delineate strategies for mitigating
  risk
• Bring all your conclusions together into a deal
  that makes sense for your company and HUD in a
  presentation that HUD can understand

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Remember

• Educate your clients we will all be happier and
  more successful if you do

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• Questions