U.S. Department of Housing and Urban Development

H O U S I N G

Special Attention of: Notice H 97-53 (HUD)

All Directors of Housing

All State and Area Issued: August 21, 1997

Coordinators Expires: August 31, 1998

All Multifamily Housing

Division Directors Cross References:

All Production Branch Chiefs

Subject: Multifamily Military Housing/Section 238(c) - Mortgage

Insurance in Military Impacted Areas

I. PURPOSE

The purpose of this Notice is to reiterate FHA policies in

military housing areas:

1\. FHA will not insure loans for multifamily on-base housing

under any circumstances, and

2\. FHA State/Area Offices can insure multifamily loans for

off-base new construction/substantial rehabilitation upon

specific authorization from Headquarters under Section

238(c) of the National Housing Act which authorizes

mortgage insurance under various HUD programs in military

impacted areas. These are areas where the impact of a

military installation on the local economy, especially

the housing market, might normally preclude eligibility

for FHA mortgage insurance.

II\. BACKGROUND

By statute HUD may NOT insure any mortgage in a military

impacted area, except pursuant to Section 238(c) of the

National Housing Act, as amended by Section 309 of the Housing

and Community Development Act of 1977 (Public Law 95-128,

enacted October 12, 1977). This section authorizes the

Secretary of Housing and Urban Development, upon application

by the mortgagee, to insure under any Section of Title II of

the National Housing Act or under Section 207 (except Sections

223(f), 213, 221(d)(3) and (4) or 234 multifamily insurance

programs) a mortgage executed in connection with the

construction, repair, rehabilitation or purchase of property

located near any installation of the Armed Forces of the

United States in federally impacted areas. This statutory

HMDN: Distribution:
W-3-1,R-1,R-2,R-3-1(H)(RC),R-3-2,R-3-3,R-6,R-6-2,R-7,

R-7-2,R-8

2

provision was intended to preclude insurance of loans for

construction or substantial rehabilitation of additional

units in an impacted area. However, Section 223(f) projects

may be insured without invoking Section 238(c) as noted

below.

State/Area offices are receiving inquiries from developers and

mortgagees in response to Requests for Proposals issued by the

Department of Defense (DOD) for rental housing on or just off

military bases. DOD has new statutory authority to provide

loans, grants and mortgage guarantees. There have been

discussions with DOD at the Headquarters level, but there is

no agreement with DOD to provide FHA mortgage insurance in

connection with their military housing program.

Therefore, outstanding FHA housing policy with regard,to

military bases and military impacted housing areas remains the

same. FHA will not insure loans for rental housing on a

military base under any circumstances. In a military impacted

area - as determined by the State/Area Offices FHA will

consider mortgage insurance applications for new construction

loans off-base or substantial rehabilitation loans off-base,

pursuant to Section 238(c), only if HUD Headquarters has

approved a request from the Secretary of Defense for a Section

238(c) designation and so notified the State/Area Offices.

only a few such designations have ever been granted in the 20-year

existence of Section 238(c). As noted above, State/Area

Offices can insure loans for the purchase or refinancing of

existing apartments off-base in military impacted areas under

all outstanding Section 223(f) underwriting procedures.

However, such projects may not be subject to long-term leases

or subsidy by DOD.

III\. DEFINITION

A military impacted area is generally a housing market in

which:

1\. Military-connected households comprise 25 percent or more

of the total households (NOTE: Military-connected

households are those households comprised of military

personnel and civilian employees of the installation and

their dependents); and

2\. The closure of the installation or reduction in military-

connected households will destabilize the housing market,

resulting in a rental vacancy rate above 10 percent for

a period of 2 or more years; or

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3\. There is concern about the continued stability of the

local housing market based on DOD\'s plans to change the

installation\'s mission and reduce military strength and

civilian employment.

A military impacted area generally would be a small

metropolitan area or a nonmetropolitan housing market.

It is unlikely that installations in large metropolitan

housing markets will meet the above criteria.

If there is a question about whether an area is a

military impacted area, the Economic and market Analysis

staff will conduct the analysis required to make this

determination.

IV\. MEMORANDUM OF UNDERSTANDING

The agreement to provide FHA insurance for applications

specifically approved by Headquarters was implemented May 26,

1978, via a Memorandum of Understanding between HUD and the

DOD (copy attached).

As noted, Section 238(c) has rarely been used in the past;

however, with military base closings and the possible need for

additional affordable housing in certain federally impacted

areas, this could change in the future in view of the DOD\'s

statutory authority to promote housing, including mortgage

guarantees, loans and grants.

This Notice also serves as a vehicle to provide current policy

on Section 238(c), and provide each HUD Office with a copy of

the May 26, 1978, Memorandum of Understanding between HUD and

the DOD. HUD does not have any other agreement with DOD to

provide FHA mortgage insurance in connection with their

military housing programs. For further guidelines and

instructions on DOD housing grants, loans and mortgage

guarantee programs, interested parties should be referred to

DOD\'s Housing Revitalization Support Office at (703) 602-4469.

V. FHA MORTGAGE INSURANCE

HUD Offices can process mortgage insurance applications

pursuant to Section 238(c) only when they have received

specific authorization from Headquarters. The Headquarters

authorization will not alter the current restrictions that: 1)

FHA will not insure loans for rental housing on a military

base under any circumstance and 2) there is no statutory

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authority to allow occupancy to be restricted to military

personnel and their families in the Section 221(d)(3) and

Section 221(d)(4) program.

Mortgages insured pursuant to Section 238(c) are obligations

of the Special Risk Insurance Fund. A 1 percent mortgage

insurance premium is charged for multifamily project mortgages

insured pursuant to Section 238(c). Credit subsidy

reservation is required for mortgages insured under this

program. Please follow the outstanding instructions for

credit subsidy reservation/obligation for mortgages insured

under Sections 221(d)(3) and 221(d)(4), pursuant to Section

238(c).

Any questions regarding this Notice should be directed to the

New Products Division at (202) 708-2556.

Nicolas P. Retsinas

Assistant Secretary for Housing-

Federal Housing Commissioner

Attachment

MORTGAGE INSURANCE IN MILITARY IMPACTED AREAS

AGREEMENT BETWEEN THE DEPARTMENT OF DEFENSE

AND THE DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT

Section I

Section 238(c) of the National Housing Act, as amended by Section

309 of the Housing and Community Development Act of 1977 (Public

Law 95-128, enacted October 12, 1977), authorizes the Secretary

of Housing and Urban Development, upon application by the

mortgagee, to insure under any Section of Title II of the

National Housing Act a mortgage executed in connection with the

construction, repair, rehabilitation or purchase of property

located near any installation of the Armed Forces of the United

States in federally impacted areas in which the conditions are

such that one or more of the eligibility requirements applicable

to the Section under which insurance is sought could not be met

if:

\(A\) The Secretary finds that the benefits to be derived

from such use outweigh the risk of probable costs to

the Government, and;

\(B\) The Secretary of Defense certifies that there is no

intention insofar as can reasonably be foreseen to

curtail substantially the personnel assigned or to be

assigned to such installation.

Section 2

The Secretary of Housing and Urban Development has issued

regulations providing for the insurance of mortgages authorized

by Section 238(c) of the National Housing Act and establishing

the amount of the annual mortgage insurance premium on such

mortgages at one percent of the average annual outstanding

principal obligation of the mortgages.

Section 3

This agreement, executed by Jay Janis, Under Secretary, of the

Department of Housing and Urban Development and Charles W.

Duncan, Jr., Deputy Secretary, of the Department of Defense, on

behalf of the Secretary of Defense, establishes a procedure for

the implementation of Section 238(c) of the National Housing Act.

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Section 4

When it is determined by the Secretary of Defense that additional

housing is required in the community, he may request that the

Secretary of the Department of Housing and Urban Development make

mortgage insurance available pursuant to Section 238(c) of the

National Housing Act in areas near an installation of the Armed

Forces of the United States in which the eligibility requirements

applicable to other Sections of the Act cannot be met because of

federal impaction of the area.

Section 5

The request shall be accompanied by:

\(1\) A certification by the Secretary of Defense that there

is no intention insofar as can reasonably be foreseen

to curtail substantially the personnel assigned or to

be assigned to such installation.

\(2\) A description of the military facility and a statement

of its mission.

\(3\) A statement indicating the number of military and

civilian personnel currently assigned to the

installation, the average number assigned during the

preceding 12-month period and anticipated increase or

decrease in the number of personnel so assigned.

\(4\) A current inventory of the present and proposed housing

on the installation.

\(5\) An estimate of the number of persons, to be employed in

associated services such as restaurants, small

industrial plants, etc., that will support the military

activities on the installation.

\(6\) Any unusual circumstances inherent in the location that

would have an effect on the Secretary\'s determination.

\(7\) An opinion from the Secretary of Defense that the

benefits to be derived from the insurance of mortgages

pursuant to Section 238(c) outweigh the risk of

probable costs to the Government.

\(8\) The estimated construction costs which would be

incurred with appropriated funds if the Department of

Defense were to construct housing on the installation

to meet the military demand.

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Section 6

Upon receipt of the certification and the information provided

under Section 5, the Secretary of the Department of Housing and

Urban Development will solicit additional information from the

Director of the State/Area office in which the installation is

located and will advise the Secretary of Defense of the decision

as to whether mortgages on property in the designated area will

be acceptable for insurance under Section 238(c) for the ensuing

24-month period.

Section 7

Biennially, after an initial determination has been made to

accept mortgages for insurance in a designated area, the

Secretary of Defense will certify that the circumstances under

which the Secretary of the Department of Housing and Urban

Development agreed to provide mortgage insurance under Section

238(c) have not been changed or the nature and extent of the

change, if any. Upon receipt of such certification, the

Secretary of the Department of Housing and Urban Development will

advise the Secretary of Defense of the decision as to whether

mortgages in the designated area will be accepted for insurance

under Section 238(c) for the ensuing 24-month period.

Section 8

In the event of any actual or anticipated significant change in

the number of personnel assigned to the installation during a

period in which a determination has been made to accept mortgages

of insurance, the Secretary of Defense will immediately notify

the Secretary of the Department of Housing and Urban Development.

Section 9

Mortgages may be insured under any single family insurance

program provided by Title II of the National Housing Act or under

Section 207 (except Sections 223(f), 213, 221(d)(3) and (4) or

234\) multifamily insurance programs. The mortgage must meet all

eligibility requirements applicable to the Section of the Act

under which insurance is sought, except that the market demand

resulting from military impaction will be considered in determine

whether there is an adequate market demand for the property.

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Section 10

In the event the number of personnel assigned to the installation

will be substantially curtailed or the installation will be

closed, the Secretary of Defense will provide the Secretary of

the Department of Housing and Urban Development with a detailed

estimate of the cost to the Department of Defense for housing in

place under this program covered by the Department of Defense

Homeowners Assistance Program.

Charles W. Duncan, Jr. /s/ May 26, 1978

Deputy Secretary of Defense Date

Jay Janis /s/ May 15, 1978

Under Secretary of Housing and Date

Urban Development