Deep Dive: FHA's Small Building Risk Sharing Initiative
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- 2. 2 Diana Talios FHA Multifamily Production U.S. Department of Housing and Urban Development
- 3. Section 542 FHA Risk Sharing Programs Small Buildings Risk Sharing Initiative Program Details Overview October 20, 2015
- 4. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details First Steps: SBRS lender or “Qualified Participating Entity” (QPE) is approved to participate in the program. What does this mean? • Lender’s SBRS application met the requirements of FHA Multifamily Production, and • Lender’s application to FHA as a “Non-supervised Mortgagee FHA is approved. • Risk Sharing Agreement(s) executed by HUD and the QPE. • Note: Two separate Risk Sharing Agreements (RSAs): one for ‘regular’ SBRS loans; one for Federal Financing Bank (FFB) loans. QPEs are not required to participate in both. 4
- 5. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) What is the Federal Financing Bank (FFB)? • The FFB is a government corporation, under the general supervision and direction of the Secretary of the Treasury, created by Congress to help Federal agencies efficiently finance their programs at the lowest cost to the taxpayer and to fund any obligation that is fully guaranteed by another Federal agency. • FFB’s financing under the Risk Share program is a bridge allowing QPE’s access capital at favorable rates until the statutory prohibition on the use of Ginnie securitization is eliminated. • FFB Pricing will be benchmarked to comparable Ginnie Mae Securities. • Current benchmark indication pricing for fully amortizing loans is approximately 100bps over 10 year Treasuries. 5
- 6. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) Eligible Project Types under SBRS: • Projects must qualify as affordable housing, consistent with Section 42 LIHTC Program: 20% of the units restricted to households at 50% AMI, or 40% of the units restricted to households at 60% AMI. Tenants must be income eligible upon move-in. • QPE provides its servicing compliance review standards in its application to HUD. HUD does not mandate annual income certifications. • Eligible properties are 5 or more units. • Loan amounts are limited to $3,000,000 or $5,000,000 in High Cost Areas as designated by HUD. • Refinance of ‘Existing Projects’ with or without substantial rehabilitation (SR) is permitted. All physical needs identified in a Capital Needs Assessment commissioned by QPE must be addressed either through scope of work or adequate reserves. • Note: new construction is not eligible, however a “take-out” loan after project achieves stabilization is permitted. 6
- 7. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) Ineligible Projects under SBRS: • Transient Housing or Hotels • Projects in Military Impact Areas • Retirement Service Centers • Nursing Homes or Intermediate Care Facilities • Board and Care/Assisted Living Facilities Other requirements: • All appraisals must be completed in accordance with the Uniform Standards of Professional Appraisal Practices • Mortgage Insurance Premium: currently 25bps to FHA. Rates will be published in the Federal Register. • Environmental Reviews – conducted by HUD in accordance with 24 CFR part 50. QPEs will follow requirements in the MAP Guide, chapter 9. • Davis Bacon wage determinations are not applicable to SBRS. 7
- 8. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) STEPs for HUD’s “Firm Approval” (commitment) letter: • QPE processes and underwrites the loan. • QPE submits application (Request for HUD-Retained Reviews) and other supporting documentation to local HUD office in which the property is located for processing. Format will be ‘Exhibit C’ in the Risk Sharing Agreement. • Required exhibits attached to the Request are: • Phase I environmental report(s) and lead, asbestos and radon reports as noted in MAP Guide, Chapter 9. • HUD Form 2530s or evidence of APPS submission • Form SF-424 – Intergovernmental review, if applicable • Location Map • Legal Description of Property • Evidence of zoning • Sketch Plan of Site 8
- 9. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) HUD-retained reviews: • Previous participation review (2530) • Environmental review – in accordance with MAP Guide • Intergovernmental review- State Review Procedure or Clearinghouse approval. • Subsidy Layering review – May be delegated to the State Housing Credit Agency – • Determination of project is in military impact area or proposed HUD projects in area • Market comments related to potential impact on HUD projects in area. Approximate timeline for HUD’s review: 30-45 days. 9
- 10. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) SBRS project application review is a two-stage process First stage: • QPE provides initial “ Request for HUD-Retained Reviews” with estimated loan amount and environmental report(s). • HUD enters project in its database and assigns FHA project number to the QPE. • HUD begins environmental review (approximately 30-45 days) Second stage: • Lender provides final “Request for HUD-Retained Processing” with remaining exhibits: • Previous participation review (2530) • Subsidy Layering review – May be delegated to the State Housing Credit Agency • Determination if project is in military impact area • Market comments related to potential impact on HUD projects in area 10
- 11. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) Environmental Review - overview of MAP Guide process (Chapter 9) – Major Concerns for lender to be aware of • Underground/Aboveground storage tanks (USTs-ASTs) • Flood Map • Asbestos • Lead Based Paint • Phase II – Limited or otherwise • Historic Designation – State, Federal or Neighborhood Designation • Tier I Vapor Encroachment Screening 11
- 12. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) QPE Closing and Endorsement: • QPE closes loan in accordance with SBRS program requirements. • QPE submits Closing Docket to local HUD office for Note endorsement with required project documents, cost certification and evidence mortgage insurance premium (MIP) has been submitted in HUD’s payment system “pay.gov” • Loans may be insured upon completion or insured advances: if ‘insured advances’, HUD will endorse at initial closing and at final closing. If ‘insured upon completion’ it will be a single endorsement. • Local HUD office reviews closing docket: time line is 5 working days. 12
- 13. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) Project Loan Servicing: • QPE is responsible for loan servicing and project management in accordance with the Risk Sharing Agreement, terms of the Regulatory Agreement, and the requirements of SBRS. • HUD will monitor the QPE to ensure compliance with the QPE’s processing, underwriting, servicing and management standards as approved by HUD in its application. • QPE submits annual and semi-annual reports on its portfolio and the QPE to HUD-Headquarters and to the local HUD office. Requirements in “Program Details”, Part V and VI. 13
- 14. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) Timeline for next steps to implement FFB for SBRS: – Template Risk Sharing Agreements on HUD’s website – target is end of October 2015. – Template FFB Master program documents posted on website – end of October 2015. – Template FFB documents will reflect ‘insured upon completion’ projects only. ‘Insured advances’ option for FFB financed projects is not open yet. 14
- 15. 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Details (continued) Links to the SBRS program documents: http://portal.hud.gov/hudportal/HUD?src=/program_offices/ho using/mfh/progdesc/progsec542b • SBRS Application Requirements • SBRS Initiative Pre-Application Worksheet • SBRS Program Details • FHA Small Building Risk Share Initiative Final Notice 15