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CHAPTER 23. SECTION 221(d) PROGRAM

23-1. PURPOSE OF 221(d) PROGRAMS.

A.The purpose of the Section 221(d)(3) and Section 221(d)(4)

programs is to assist private industry in providing

comfortable and attractive rental accommodations for low-

and moderate-income families in Section 221(d)(3) program

and for moderate-income families in the Section 221(d)(4)

program, with preference or priority of occupancy to such

families who have been displaced from urban renewal areas or

because of governmental action or as a result of a disaster

determined by the President to be a major disaster.

B.Elderly (62 years of age or older), physically handicapped

and displaced single persons are considered families under

these programs. Projects may be specifically designed for

the elderly and handicapped. Projects for single room

occupancy (SRO) also may be insured under Section 221(d).

23-2. BASIC SOURCEBOOKS. Basic program instructions are in:

A.HUD Handbook 4560.1 REV, Section 221(d)(3) Market Interest

Rate for Project Mortgage Insurance.

B.HUD Handbook 4560.2, Mortgage Insurance for Moderate-Income

Housing Projects, Section 221(d)(4).

C.HUD Handbook 4560.3, Mortgage Insurance for Single Room

Occupancy (SRO) Projects, Section 221(d).

23-3.MORTGAGE CREDIT PROCEDURES AND ANALYSIS. Complete according

to

instructions under Section 207 (Section 213 when cooperative or

investor-Sponsor Mortgagors) except as modified herein.

23-4. ELIGIBLE MORTGAGORS.

A.The mortgagor shall meet one of the following qualifications

as defined in regulations, 24 CFR 221.510.

1.Nonprofit and builder-seller mortgagors.

2.Limited distribution mortgagors.

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(23-4)3. Cooperative and investor-sponsor mortgagors.

4.General mortgagors.

5.Public mortgagors.

B.Supervision of Mortgagors:

1.HUD approves all mortgagors and regulates them through

a Regulatory Agreement.

2.Mortgagors must be single asset, sole purpose entities.

C.Housing Consultants. A fee for a housing consultant is

eligible for inclusion in the replacement cost of those

Section 221(d) projects involving a nonprofit mortgagor.

See Reference 15 of the Foreword for a complete discussion

on the use of consultants and eligible fees.

23-5.DETERMINING LOAN AMOUNT AND AMORTIZATION PERIOD. Analysis

of the

credit risk is based on a loan for a definite amount and

amortization period. Refer to requirements in paragraph 4-1.

23-6.AMOUNT OF LOAN - NEW CONSTRUCTION. Includes construction of

all

types of projects not involving substantial rehabilitation. The

insurable amount is the lowest of:

A.Application amount.

B.The result of HUD\'s estimate of the replacement cost after

completion, less the amount of grant/loan funds attributable

to replacement cost items, multiplied by the applicable

percentage.

Section Mortgagor Percent

\(1\) 221(d)(3) General and Limited

Distribution 90

\(2\) 221(d)(3) All Others (including

Cooperatives) 100

\(3\) 221(d)(4) All Mortgagors 90

C.Debt service that does not exceed the applicable percentage

of project\'s estimated net income. The mortgage may exceed

this limit by capitalizing the savings from any tax

abatement.

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(23-6) Section Mortgagor Percent

\(1\) 221(d)(3) General and Limited

Distribution 90

\(2\) 221(d)(3) All Others

95

\(3\) 221(d)(4) All Mortgagors 90

NOTE:This criterion does not apply to Cooperative

Mortgagors.

D.Construction cost attributable to dwelling use,

excludingexterior land improvements, not to exceed:

1.For walk-up structures:

a.Projects involving eligible nonprofit mortgagorsto be

insured under Section 221(d)(3) of the Act,

the per family unit limits in 24 CFR

221.514(a)(1)(i).

b.Projects involving eligible mortgagors other thannonprofit

mortgagors to be insured under Section

221(d)(3) of the Act, the per family unit limits

in 24 CFR 221.514(a)(1) (ii).

c.Projects involving eligible mortgagors to be

insured under Section 221(d)(4) of the Act, the

per family unit limits in 24 CFR 221.514

(a)(1)(iii).

2.For elevator type structures:

a.Projects involving eligible nonprofit mortgagorsto be

insured under Section 221(d)(3) of the Act,

the per family unit limits in 24 CFR

221.514(b)(1).

b.Projects involving eligible mortgagors other thannonprofit

mortgagors to be insured under Section

221(d)(3) of the Act, the per family unit limits

in 24 CFR 221.514(b)(2).

c.Projects involving eligible mortgagors to be

insured under Section 221(d)(4) of the Act, the

per family unit limits in 24 CFR 221.514(b)(3).

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(23-6)3. Exceptions to insurable amount limitations:

a.The mortgage may exceed these limits by the

percentage of the site not attributable and cost

not attributable to dwelling use, including

exterior land improvements.

Section Mortgagor Percent..TX:

\(1\) 221(d)(3) General and Limited

Distribution 90 (2) 221(d)(3) All Others (including

Cooperatives) 100 (3) 221(d)(4) All Mortgagors 90

b.Per-family-unit limits may be increased in

following instructions contained in paragraph

4-2.E.4.c of this Handbook.

23-7.AMOUNT OF LOAN - REHABILITATION. (This includes only

projects

involving substantial rehabilitation or reconstruction.) The

insurable amount loan is the lowest of:

A.Amounts in paragraph 23-6, except B.

B.The result of HUD\'s cost estimate of rehabilitation and fair

market value of the land and existing improvements before

rehabilitation, less the amount of grant/loan funds

attributable to replacement cost items, multiplied by the

applicable percentage.

Section Mortgagor Percent

\(1\) 221(d)(3) General and Limited

Distribution 90

\(2\) 221(d)(3) All Others (includes

Cooperatives)100

\(3\) 221(d)(4) All Mortgagors 90

23-8.EXISTING REHABILITATED PROJECT. Includes only purchase

transactions involving existing construction that has been

rehabilitated by a local public agency with Federal assistance

under Section 110(c)(8) of the Housing Act of 1949. The

insurable amount is the lower of:

A.Amounts in paragraph 23-6, except B.

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(23-8)B. The result of HUD\'s estimated value of the property as

of

the date the mortgage is accepted for insurance, less the

amount of grant/loan funds attributable to replacement cost

items, multiplied by the applicable percentage.

Section Mortgagor Percent

\(1\) 221(d)(3) General and Limited

Distribution 90

\(2\) 221(d)(3) All Others (including

Cooperatives) 100

\(3\) 221(d)(4) All Mortgagors 90

C.The result of the actual purchase price of the property;total

carrying charges, financing and legal, organizational

and audit expense, less the amount of grant/loan funds

attributable to replacement cost items, multiplied by the

applicable percentage.

Section Mortgagor Percent

\(1\) 221(d)(3) General and Limited

Distribution 90

\(2\) 221(d)(3) All Others (including

Cooperatives) 100

\(3\) 221(d)(4) All Mortgagors 90

23-9. BUILDER-SELLER MORTGAGOR UNDER SECTION 221(d)(3).

A.Before applying for project mortgage insurance, the

mortgagor enters into an agreement (satisfactory to HUD)

with a private nonprofit corporation eligible for insurance.

1.The builder-seller mortgagor agrees to sell the

project, on completion, to the nonprofit for no more

than the HUD approved certified cost of the project.

2.If the sale is not consummated, the project willbe

operated as a limited distribution rental project.

B.The MCE will prepare two Forms HUD-92264-A to determine the

Maximum Insurable Mortgage (MIM) for:

1.Limited distribution mortgagor.

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(23-9)2. Nonprofit mortgagor.

C.At final endorsement the mortgagee will hold the difference

between the two MIMs developed above until the project is

sold to a nonprofit.

23-10.INVESTOR-SPONSOR MORTGAGOR UNDER SECTION 221(d)(3)

certifies its

intention to sell the project to a management type cooperative

within 2 years after project completion.

A.The MCE prepares two Forms HUD-92264-A to determine the MIM

for:

1.Limited distribution mortgagor.

2.Management type cooperative.

B.The difference between the MIM amount available to the

cooperative and the lesser amount available to the

investor-sponsor will be escrowed.

1.At final endorsement, the mortgagee will hold theescrow

until the project is converted to a cooperative.

2.If the project is not converted to a cooperativeform

of operation within 2 years from the date of

completion, the escrow will be applied:

a.Against the mortgage or

b.In such other manner as the Commissioner may

direct.

23-11.INSURING ADVANCES.

A.Initial/Interim Advances. Use basic Section 207

instructions.

B.Final Advance.

1.The amount to be approved for final advance should

follow basic Section 207 instructions.

2.However, approval of a final advance for an

investor-sponsor or builder-seller mortgagor may be

conditioned on escrowing a portion of the

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(23-11)mortgage proceeds until closing the sale to a

cooperative (management type) or nonprofit mortgagor.

23-12.COST CERTIFICATION PROCEDURES. Use basic Section 207

instructions except as modified here.

A.Certification purposes in builder-sponsor and

investor-sponsor cases:

1.To establish the maximum insurable mortgage for the

project based on the allowed cost of the completed

project.

2.To establish the ceiling price at which the project may

be sold.

B.Legal, organization and marketing expense in

investor-sponsor cases:

1.Two sets of legal and organizational expenses areinvolved

besides marketing expense and should be shown

separately in Form HUD-92330:

a.Expenses involving the mortgagor

(investor-sponsor).

b.Expenses involving the cooperative corporation

formed to buy the project.

2.Since the investor-sponsor is legally bound to use its

best efforts to sell the project to a cooperative, its

marketing expenses should be included.

3.If the legal and organizational sum attributableto the

cooperative has been exhausted before final

endorsement:

a.Investor-sponsor may deposit more money with themortgagee

before final endorsement for application

against further organizational expenses of the

cooperative (as approved by HUD).

b.The additional deposits may be included in cost

certification.

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