U.S. Department of Housing and Urban Development

H O U S I N G

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Special Attention of: Notice H 95-20 (HUD)

Secretary\'s Representatives

Directors of Housing Development Issued: March 21, 1995

Chiefs of Mortgage Credit Expires: March 31, 1996

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Cross References:

H 94-17

4571.5

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: Extension of Notice H 94-17, Extension and Clarification of

Notice H 92-31, Revised Processing Instructions for the Section

223(f) Full Insurance Program

Notice H 94-17 expires March 31, 1995, and is being extended to March
31, 1996.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Assistant Secretary for Housing-

Federal Housing Commissioner

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

HMIT: Distribution: W-3-1,W-2(H),W-3(H)(A)(FHEO)(ZAS)(OGC)(PD&R),W-4(H),
R-1,R-2,R-3-1,R-3-3,R-6,R-6-2,R-7,R-7-2,138-2,138-7, R-8,R-9

Previous Editions Are Obsolete HUD 21B (3-80)

GPO 871 902

U.S. Department of Housing and Urban Development

H O U S I N G

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Special Attention of: Notice H 94-17 (HUD)

All Regional Administrators;

Regional Housing Directors; Issued: 3/21/94

Managers, Category A Expires: 3/31/95

and Category B Offices;
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Directors of Housing Cross References: H 92-31

Development; and Chiefs H 93-17

of Mortgage Credit Handbook 4571.5

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: Extension of Notice H 93-17, Extension and Clarification of

Notice H 92-31, Revised Processing Instructions for the

Section 223(f) Full Insurance Program

Notice [H 93-17 (HUD)]{.underline} , subject above, issued March 23,
1993,

is extended to March 31, 1995.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Assistant Secretary for Housing-

Federal Housing Commissioner

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

HMIT: Distribution: W-3-1,W-2(H),W-3(H)(A)(FHEO)(ZAS)(OGC)(PD&R),W-4(H),
R-1,R-2,R-3-1,R-3-3,R-6,R-6-2,R-7,R-7-2,138-2,138-7,

R-8,R-9

Previous Editions Are Obsolete HUD 21B (3-80)

GPO 871 902

U.S. Department of Housing and Urban Development

H O U S I N G

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Special Attention of: Notice H 93-17 (HUD)

All Regional Administrators;

Regional Housing Directors; Issued: 3/23/93

Managers, Category A Expires: 3/25/94

and Category B Offices;
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Directors of Housing Cross References:

Development; and Chiefs Handbook 4571.5

of Mortgage Credit H 92-31 (HUD)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: Extension and Clarification of Notice H 92-31 (HUD),

Revised Processing Instructions for the Section 223(f)

Full Insurance Program

The expiration date of Notice H 92-31 (HUD) issued March 23,

1992, is extended to March 25, 1994.

The following corrections and clarifications are being made

to Notice H 92-31 (HUD):

A.Item E2 on page 6 should state that the Promissory Note,

Form FHA-1710, -1712 or -2223, as applicable based on

Mortgagor type shall not be altered in any manner.

B.The Office of Insured Multifamily Housing Development

will develop a new Regulatory Agreement for Section 207

Nonprofit Mortgagors. In the meantime for Nonprofit

Mortgagors use Form FHA-1733, Regulatory Agreement for

Nonprofit and Public Mortgagors under Section 221(d)(3)

of the National Housing Act, as amended.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

James E. Schoenberger

Associate General Deputy

Assistant Secretary

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

HMIT: Distribution: W-3-1,W-2(H),W-3(H)(A)(FHEO)(ZAS)(OGC)(PD&R),W-4(H),
R-1,R-2,R-3,R-3-1,R-3-3,R-6,R-6-1,R-6-2,R-7,R-7-1,

R-7-2,138-2,138-7,R-8,R-9,R-9-1

Previous Editions Are Obsolete HUD 21B (3-80)

GPO 871 902

U.S. Department of Housing and Urban Development

H O U S I N G

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Special Attention of: Notice H 92-31 (HUD)

All Regional Administrators, Issued: 3/23/92

Directors, Office of Regional Expires: 3/31/93

Housing Managers, Category A,

B and C Offices, and Field Office
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Housing Development Division Cross References:

Directors, Category A, B and

C Offices

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Subject: Revised Processing Instructions for the

Section 223(f) Full Insurance Program

In recent years, the Section 223(f) Coinsurance Program was

the major financing vehicle for the purchase or refinance of

existing multifamily properties that did not require substantial

rehabilitation. However, with the Department\'s notice to end the

coinsurance program, HUD Field Offices have received many

inquiries concerning the full insurance Section 223(f) program.

The following are clarifications of processing instructions that

help lessen the Department\'s risk while enhancing the Field

Office\'s ability to review an application of mortgage insurance.

These instructions are effective immediately and apply to all

Section 223(f) projects that do not have an outstanding

conditional or firm commitment.

A. Clarification of a Purchase Transaction.

1\. Treat any property acquired within a 2-year period,

before the date of the original application, as a

purchase transaction.

2\. If an identity of interest, regardless of how

slight, exists between the seller(s) of the existing

property and the sponsors, consider the proposal as

a refinance transaction.

B. Project Financial Statements.

Headquarters has received several requests for a waiver

of the requirements of paragraphs 2-7a(9) and (10) of

HUD Handbook
[[4565.1]{.underline}](http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=HSGH&s1=4565.1%5Bno%5D&SECT1=TXTHLB&SECT5=HSGH&u=../html/shortcut.htm&p=1&r=0&f=S)
, Mortgage Insurance for the Purchase

or Refinance of Existing Multifamily Housing Projects

Section 223(f). The basis for these requests has been

the unavailability of required information. This

modifies our policy about submission of financial

statements and waiver of the submission requirements.

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HMIT: Distribution: W-3-1,W-2(H),W-3(H)(A)(FHEO)(ZAS)(OGC)(PD&R),W-4(H),

R-1,R-2,R-3,R-3-1,R-3-3,R-6,R-6-1,R-6-2,R-7,R-7-1,

R-7-2,138-2,138-7,R-8,R-9,R-9-1

Previous Editions Are Obsolete HUD 21B (3-80)

GPO 871 902

2

1\. Audited Financial Statements.

Paragraphs 2-7a(9) and 10 require the latest year\'s

financial statements be audited by a CPA or IPA. However,

over the years we have found that as part of normal business

practice, many project owners have not maintained audited

financial statements. Therefore, we will accept

owner-certified financial statements for the latest year in

lieu of the audited financial statements. (See paragraph

B4.)

2.Refinance Transactions.

a\. Where ownership of a project has not changed hands

during the past 3 years, it is expected that required

financial information will be available. So, current

instructions as modified by paragraph B1, above, will

remain in effect.

b\. Some projects may not have been under the current

ownership for the 3-year period; therefore, financial

statements for the entire 3 years may not be available.

This is particularly true for bankruptcies or the

acquisition of defaulted properties.

Financial statements for the last 3 years are not

required if there is satisfactory evidence that they

are not obtainable because of circumstances beyond the

mortgagor\'s control. However, the mortgagor must

submit the project financial statements that are

available including an owner-certified year-to-date

balance sheet and operating statement. (See paragraph

B4.) Further, the case file must contain a statement

from the mortgagor that explains why all the required

records are not obtainable and a memorandum from the

Housing Development Division Director stating that

he/she has evaluated the mortgagor\'s statement and

agrees that the information is not available.

3

3.Purchase Transactions.

Information required in paragraph 2-7a(9) as modified by

paragraph B1, above, must be submitted for all projects for

which ownership is changing hands as part of the

transaction. In some cases, such as acquisition through

adversarial action, not all the required information may be

available for reasons beyond the purchaser\'s control.

Consequently, in such unusual circumstances, paragraph

2-7a(9) shall not apply, provided the case file contains a

statement from the mortgagor that explains why the required

records are not obtainable and a memorandum from the Housing

Development Division Director stating that he/she has

evaluated the mortgagor\'s statement and agrees that the

information is not available.

a.Where the current owner has owned the project for 1

year or longer, an owner-certified financial statement

for the period of ownership must be submitted.

b.Where the current owner has owned the project for less

than 1 year, an owner-certified year-to-date balance

sheet and operating statement for the period since

acquisition must be submitted.

c.The current owner also must submit financial statements

beyond the period covered by the owner\'s certified

financial statements (up to 3 years), if available.

4.Any owner-certified financial statement or owner-certified

balance sheet and operating statement must include the

following acknowledgment:

WARNING: 18 U.S.C. 1001 provides, among other things, that

whoever knowingly and willingly makes or uses a document or

writing containing any false, fictitious, or fraudulent

statement or entry, in any matter within the jurisdiction of

any department or agency of the United States, shall be

fined not more than \$10,000 or imprisoned for not more than

five years, or both.

4

5.Transactions Involving the Resolution Trust Corporation

(RTC).

The RTC has indicated a strong interest in using the Section

223(f) program to facilitate the disposition of many of the

projects in its portfolio, particularly in connection with

their affordable housing initiatives. The Department is

supportive of their efforts. In one phase of its

disposition effort, the RTC plans to apply for a conditional

commitment, without a purchaser having been identified. The

RTC would then be able to structure a financing package and

solicit purchasers.

The Department recognizes that financial statements as

described above may not be available on such properties and

in such instances, the procedures set forth above will

apply. However, the RTC hires management companies to

manage its real estate portfolio until the property is sold.

In the interim, the RTC may authorize capital improvements

and the correction of deferred maintenance. The cost of

this work will be reflected in the operating statements.

This operating history must be submitted to the Field Office

in lieu of the required financial statements.

These operating statements from RTC represent a good

starting point for estimating the project\'s future operating

expenses. Field Office Valuation staff should obtain a list

of the capital improvements and the cost connected

therewith. Also, in connection with deferred maintenance,

care should be taken to identify the factors that caused the

deferred maintenance and the extent of these items. The

appraiser also must use current expense comparables from

similar projects to determine the estimated operating

expense.

C.The Permanent Placement Fee.

This fee must include all permanent placement expenses except

discounts. Where GNMA Mortgage Backed Securities (MBS) are

involved and the mortgagee charges:

5

1.The maximum permanent placement fee, it may not assess an

additional charge for either the MBS application fee and/or

the securities custodial fee.

2.Less than the maximum permanent placement fee, it may assess

an additional charge for either the MBS application fee

and/or the securities custodial fee provided the total fees

and charges do not exceed the dollar value of the maximum

permanent placement fee.

D.Bond Fees and Discounts Included in the Mortgage Transaction.

1.This modifies the Department\'s policy regarding the

recognition of bond fees in the processing of Section 223(f)

loans and their inclusion in the mortgage computation.

Where a project is to be financed through the sale of either

taxable or tax-exempt bonds, the maximum financing fees

allowable in the mortgage computation and recognizable for

cost certification purposes is 5.5 percent of the mortgage

amount. Any cost beyond the 5.5 percent must be paid from

sources outside the mortgage.

The maximum financing fee the mortgagee may retain for its

own account is 3.5 percent. This 3.5 percent covers the

costs of origination, processing, underwriting, closing and

delivery (including the mortgagee\'s legal fees), escrow

monitoring, permanent placement, etc. The remaining 2

percent (or such greater percentage as may result from the

lender reducing its maximum retainable 3.5 percent fee) may

be used to offset the cost of bond fees.

2.Discounts. In a refinancing or purchase transaction,

discounts will be recognized only for those actual costs

charged by the permanent lender which are determined to be

eligible.

a.Discounts charged for warehousing a mortgage for future

delivery as well as those which may be charged by the

interim lender are not eligible for inclusion in the

determination of the maximum insurable mortgage.

6

b.Discounts included in the computation of Criteria 7 and

10 must be reasonable based on current market

conditions. In some cases, discounts are used to buy

down the permanent rate to a below market rate. This

has the affect of inflating a project\'s value and

mortgage while placing an undue risk on the insurance

fund. Therefore, do not include in the mortgage

computation discounts incurred in a buy down situation

that exceed reasonable discounts based on current

market interest rate levels.

E.SECONDARY FINANCING.

The secondary financing limitations for a purchase or refinance

transaction are set forth in 24 CFR 207.32a(j). These secondary

financing limitations ([[24 CFR
207.32a(j)]{.underline}](http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=CF97&l=20&s1=207.32$%5Bno%5D&SECT1=TXTHLB&SECT5=CF97&u=../cgi/legis.cgi&p=1&r=0&f=S))
were designed to be

consistent with [[24 CFR
207.9]{.underline}](http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=CF97&l=20&s1=207.9$%5Bno%5D&SECT1=TXTHLB&SECT5=CF97&u=../cgi/legis.cgi&p=1&r=0&f=S)(a)
regarding the prohibition against

the creation of liens against the property superior or inferior

to the lien of the mortgage. It was decided that secondary

financing will be permitted provided it is represented by a

promissory note that may be unsecured or secured. The mortgagor

may secure a promissory note given in connection with a Section

223(f) closing under the following conditions:

1\. That the amount of the financing is strictly controlled by

HUD but in no case shall the principal face amount of the

notes exceed the maximum amount set out in 24 CFR

[[207.32]{.underline}](http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=CF97&l=20&s1=207.32$%5Bno%5D&SECT1=TXTHLB&SECT5=CF97&u=../cgi/legis.cgi&p=1&r=0&f=S)a(j)(1)
and (2).

2.That the Promissory Note, Form FHA-2223, shall not be

altered in any manner; and

3.That the terms of the second mortgage shall be approved by

the Area Counsel and shall be consistent with the terms of

the promissory note, the first mortgage and all HUD

regulations and requirements. Inasmuch as the second

mortgage secures an extremely limited right to payment,

language shall be included which expressly sets out these

payment rights. In addition, the second mortgage shall not

contain a cross default provision or any right of

foreclosure prior to the termination of the HUD mortgage

insurance. (Note: Because of these requirements, most

standard form mortgages would probably be inappropriate for

this type of second mortgage.)

7

4.The mortgagee of the HUD-insured first mortgage consents to

the placing of any inferior lien.

Housing\'s regulations ([[24 CFR
207.9]{.underline}](http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=CF97&l=20&s1=207.9$%5Bno%5D&SECT1=TXTHLB&SECT5=CF97&u=../cgi/legis.cgi&p=1&r=0&f=S))
permit inferior liens given

in favor of a Federal, State or local government agency or

instrumentality under such circumstances as may be approved by

the Commissioner, provided the source of funds for repayment of

the inferior lien is limited to surplus cash or residual

receipts. The mortgagee of the HUD-insured first mortgage must

consent to the placing of any inferior lien.

The secondary financing limitations set forth in 207.32a(j) in

paragraph 6-10 of HUD Handbook 4565.1 do not apply to secondary

loans given in favor of a Federal, State or local government

agency or instrumentality pursuant to the provisions of 24 CFR

207.9(b). The Field Office Manager may permit a subordinate lien

given in favor of a government agency or instrumentality in an

amount equal to no more than 15 percent of HUD\'s Fair Market

Value of the project. However, no other form of secondary

financing may be used.

F.Instructions for Processing with Grant/Loan.

1.GENERAL. These instructions apply to:

a.Grants and loans to the mortgagor entity from a

Federal, State or local government agency or

instrumentality.

b.Loans to principals of the mortgagor entity from a

Federal, State or local government agency or

instrumentality.

2.APPLICATION FOR MORTGAGE INSURANCE. At the commitment

processing stage, the applicant:

a.Identifies the use of grant/loan funds on Form

HUD-92013, Application for Project Mortgage Insurance.

b.Submits either:

1)A \"letter of intent\" signed by an authorized agent

of the government agency or instrumentality

showing:

a\) Amount of the grant/loan funds.

8

b\) Intended use of the grant/loan funds.

c)Original source of grant monies. If not

submitted, presume Federal funds are

involved.

2)An application for the grant/loan showing the

information above.

3\. REPLACEMENT COST FORMULA. Forms
[[HUD-92013]{.underline}](http://www.hudclips.org/sub_nonhud/html/pdfforms/92013.pdf)
and HUD-92264

must reflect the inclusion of all proposed mortgageable

improvements whether they are to be funded by the grant/loan

funds or mortgage proceeds. The Valuation Branch:

a.Deducts the amount of the grant/loan funds attributed

to replacement cost (mortgageable) items when computing

replacement cost by formula.

b.Doesn\'t deduct grant/loan funds earmarked for

nonreplacement cost (i.e., not mortgageable) items.

c.Completes Replacement Cost by Formula for Proposed

Construction, and uses this information to complete

Section G, Estimated Replacement Cost, on Form

HUD-92264.

4.SUPPLEMENT TO PROJECT ANALYSIS (FORM HUD-92264-A) is

completed as follows:

a.Criterion 3, Value. For Profit-Motivated Mortgagors:

1)Deduct grant/loan funds attributed to mortgageable

items from the Fair Market Value taken from

Section L, of Form HUD-92264.

2)Multiply the result by the applicable percentage

(85 or 90 percent).

b.For nonprofit mortgagors, complete Criterion 11, Amount

Based on Deduction of Grants, Loans and Gifts, which

considers the effect of grants, gifts and loans.

9

c.The formulas for Criteria 7 and 10 provide for

grant/loan processing. However, these instructions are

not applicable to nonprofit mortgagors in a purchase

transaction using Criterion 7.

d.A grant/loan:

1)Does not affect other criteria on Form

HUD-92264-A.

2)Cannot be used to meet the profit-motivated

mortgagor\'s required investment.

3)Can be used to meet the nonprofit mortgagor\'s

required investment.

e.The least mortgage permitted by the applicable criteria

becomes the maximum insurable mortgage.

f.Add the grant/loan funds to the mortgage amount in Part

A of the \"Total Requirements for Settlement\" section of

Form HUD-92264-A.

5.Initial/Final Endorsement

a.Before scheduling endorsement, HUD\'s counsel must

determine that the closing documents are legally

acceptable including any administrative or

Headquarters\' approval required in connection with the

grant/loan.

b.The mortgagee must consent to the existence of the

second mortgage and agree that its existence doesn\'t

constitute a basis for default on the first mortgage.

c.There must be a simultaneous closing and same day

recordation of the grant/loan secondary financing

documents and the insured first mortgage loan

documents.

d.Release of grant/loan proceeds cannot be geared to the

completion of specific repairs.

e.For cost certification purposes:

1)Allowed costs are reduced by that portion of

grant/loan proceeds used to pay for the cost.

10

2)In completing Item A of Line 4, Mortgage Amount,

on Form FHA-2205-A, Mortgagor\'s Certificate of

Actual Cost (Section 207 pursuant to Section

223(f), the applicable percentage is 100 percent

for an acquisition transaction involving a

nonprofit mortgagor and a grant/loan.

6.REPAYMENT OF THE LOAN may be secured by a second lien on the

project provided:

a.Repayment of the second mortgage, including interest,

is geared solely to the availability of surplus cash or

residual receipts. The following language must be

included in the note:

\"So long as the Secretary of Housing and Urban

Development or his/her successors or assigns, are the

insurers or holders of the first mortgage on (insert

project name and FHA Project No.), payments due under

this note shall be payable only from surplus cash (or

residual receipts) of said project, as the term surplus

cash (or residual receipts) is defined in the

Regulatory Agreement dated (insert date) between HUD

and (insert name of mortgagor). The restriction on

payment imposed by this paragraph shall not excuse any

default caused by the failure of the maker to pay the

indebtedness evidenced by this Note.\"

b.The term of the second mortgage may be extended, if:

1)The note matures, there are no surplus cash funds

or residual receipts available for repayment and

the first mortgage has not been retired in full.

2)HUD grants a deferment of amortization or

forbearance that results in an extended maturity

of the insured mortgage.

c.The second mortgage is assumable when a sale or

transfer of physical assets occurs where the mortgage

insurance remains in place provided:

1)Not more than 70 percent of the net proceeds of

the sale or transfer is applied to the reduction

of the loan.

11

2)For these instructions, net proceeds are the funds

available to the original mortgagor after:

a)Correcting any monetary or covenant default

on the first mortgage.

b\) Making:

1Required contributions to any reserve

funds.

2Needed improvements to the property as

evidenced by HUD\'s annual inspection

reports.

d.The second mortgage automatically terminates if HUD

acquires title to the project by a deed in lieu of

foreclosure.

e.All work performed with the proceeds of the second

mortgage will be cost certified except in a refinancing

transaction where the mortgage is equal to or less than

70 percent of value.

f.The second mortgage is subject to and subordinate to

the first mortgage and the Regulatory Agreement.

g.Proceeds of the second mortgage are used to cover only

project related items.

h.If a loan is made to the project sponsor, then:

1)The issuer of the loan and the principals must

certify that they have no claim and will not later

assert any claim against the mortgaged property,

the mortgage proceeds, any reserve or deposit made

in connection with the mortgage transaction, or

against the rents or other income from the

mortgaged property for payment of any part of the

loan.

2)The mortgagor cannot issue a surplus cash/residual

receipts note to the principals as evidence of an

obligation of payment for the loan.

12

G.Labor standards and prevailing wage requirements detailed in 24

CFR 207.19(d) apply where the project is:

a.To be rehabilitated under 24 CFR 551 or 850, and;

b.The cost of repairs, replacements and improvements exceed

\$6,500 per dwelling unit as adjusted by any high cost

factor.

H.SUPPLEMENT TO PROJECT ANALYSIS, Form HUD-92264-A is completed as

follows:

1.The heading is, for the most part, self-explanatory. In the

blank spaces under Type of Project, indicate:

a.Section 223(f) insurance.

b.Whether the transaction is a purchase or a refinance.

2.Complete only those criteria relevant to the project under

consideration.

a.Purchase Transaction - Criteria 1, 3, 4, 5 and 7.

b.Refinance Transaction - Criteria 1, 3, 4, 5, and 10.

c.For nonprofit mortgagors you may have to complete

Criterion 11.

3.DETERMINATION OF MAXIMUM INSURABLE MORTGAGE.

Criterion 1 MORTGAGE AMOUNT REQUESTED IN APPLICATION Self-explanatory.

Criterion 3 AMOUNT BASED ON VALUE

Item a Delete \"Replacement Cost,\" and enter the Fair Market Value

taken from Section L of Form HUD-92264. If there is a

profit-motivated mortgagor, deduct amount of grant/loan

funds attributable to mortgageable items. Insert applicable

percentage (85 or 90 percent). Multiply by the percentage

and record the product in Column 2.

13

Item b If leasehold, enter Value of Leased Fee appearing in the

\"Income Approach to Value\" section, Form HUD-92264.

Multiply by the same percentage used in Item 3a above.

Record the product in Column 1.

Item c Enter Unpaid Balance of Special Assessments appearing in the

\"Special Assessments\" section, Form HUD-92264.

Items d-e (Self-explanatory).

Criterion 4 AMOUNT BASED ON LIMITATIONS PER FAMILY UNIT

Process in accordance with instructions contained in HUD

Handbook 4480.1, Multifamily Underwriting Reports and Forms

Catalog.

Criterion 5 AMOUNT BASED ON DEBT SERVICE RATIO

Item a Enter mortgage interest rate from application, Form

HUD-92013.

Item b Enter mortgage insurance premium rate.

Item c Enter initial curtail rate.

Item d Self-explanatory.

Item e Enter in the first blank the net earnings to project from

\"Income Computations\" Section, Form HUD-92264. Multiply net

earnings by 85 percent and record product under Column 2.

Item f If leasehold, enter the Ground Rent from the \"Income

Approach to Value\" Section, Form HUD-92264. Add the annual

payment for any special assessments reflected in \"Special

Assessment\" Section, Form HUD-92264. Extend sum to Column

2\.

Items g-h Self-explanatory.

Note: 1. Capitalize savings from any tax-abatement.

Step 1 Compute the applicable debt service rate for

the period of the tax-abatement in the

Remarks Section on Form HUD-92264-A.

Step 2 Divide savings by debt service rate.

14

Step 2 Divide savings by debt service rate.

Step 3 Add tax-abatement mortgage to debt service

mortgage in item h above.

2.Amortization of that portion of the mortgage supported

by tax-abatement.

Step 1 Subtract the debt service mortgage, item h

above, from the maximum insurable mortgage.

Step 2 The remainder, if any, must be amortized

during the life of the tax-abatement.

3.At or before the final closing HUD must obtain Form

FHA-1708, Agreement for Payment of Real Property Taxes

by Sponsor, if the project will benefit from tax

abatement.

Criterion 7 AMOUNT BASED ON MORTGAGOR\'S TOTAL COST OF ACQUISITION

FORMAT Column 1 Column 2 Column 3

Item a Purchase Price Project \$\_\_\_\_\_\_\_

Item b Repairs and Improvements \$\_\_\_\_\_\_\_

Item c Other Fees \$\_\_\_\_\_\_\_

Item d Loan Closing Charges \$\_\_\_\_\_\_\_

Item e Sum of Items a, b, c,

and d \$\_\_\_\_\_\_\_

Item f Amount of Any Reserve for

Replacement and/or Major

Movable Equipment to be

purchased as an asset of

the project and/or Grant/Loan \$\_\_\_\_\_\_\_

Item g Item e minus Item f \$\_\_\_\_\_\_\_

Item h Item g x \_\_\_\_\_\_ % \$\_\_\_\_\_\_\_

15

INSTRUCTIONS

Item a Enter purchase price of the property reflected in the

purchase agreement and determined allowable.

Item b Enter estimated cost of repairs from \"Remarks\" Section of

Form HUD-92264. Enter zero if cost of repairs is included

in the purchase price per the purchase agreement.

Item c Enter costs of municipality inspection services,

architectural and/or engineering services and HUD\'s

inspection fee from the \"Remarks\" Section of Form HUD-92264.

Also, record these costs in \"Remarks\" Section of Form

HUD-92264-A.

NOTE: HUD\'s inspection fee is:

1.\$30 per dwelling unit where the project involves

repairs of \$3,000 or less per unit.

2.1 percent of the total repairs where:

a.The project involves repairs of more than \$3,000

or

b.The project is being insured under 24 CFR 232

Subpart E.

Item d Prepare Appendix 1, using the following instructions and

attach a copy to the completed Form HUD-92264-A.

1.Disregard amounts appearing in Section G of Form

HUD-92264-A.

2.Enter the sum of allowable costs for MIP, Exam Fee,

Financing Fee, Permanent Placement Fee, Discounts,

Title and Recording, Legal, and Organizational

expenses, Initial Deposit to the Reserve for

Replacements (Realty) and Initial Deposit to the

Reserve for Major Movable Equipment (Nonrealty) which

expenses appear in \"Remarks\" Section of Form HUD-92264

and other fees from Item c above.

16

Step 1 Add known dollar amounts for:

A. Purchase Price

B. Repairs

C. Legal

D. Organizational

E. Title and Recording

F. Initial Deposit to the Reserve for

Replacements (Realty), if funded

by the purchaser

G. Initial Deposit to the Reserve for

Major Movable Equipment

(Nonrealty), if funded by the

purchaser

H. Other Fees (Arch., Eng., Insp.)

Step 2 Deduct amount of any:

A. Reserve escrows that will be

purchased as an asset of the

project.

B. Grant/loan attributable to

mortgageable items.

Step 3 Multiply sum from Step 2 by the applicable

percentage (85 or 90 percent).

Step 4 Add known percentages for:

A. MIP (1 percent)

B. Permanent Placement Fee (not to

exceed the difference between 3.5

percent and the percentage

applicable to the financing fee)

C. Financing Fee (Initial Service

Charge - not to exceed 2 percent)

D. Exam Fee (not to exceed .3 percent)

E. Discounts, if allowable

Step 5 Multiply total from Step 4 by the applicable

percentage (85 or 90 percent). (Show product

to four decimal places.)

Step 6 Subtract result from Step 5 from 100 percent.

17

Step 7 Divide product from Step 3 by result from

Step 6. Round quotient down to the nearest

hundred for mortgage amount.

Step 8 Using percentages from Step 4, compute and

total actual fees based on the mortgage

developed in Step 7 for:

A. MIP

B. Permanent Placement Fee

C. Financing Fee

D. Exam Fee

E. Discounts

Step 9 Add to the total derived from Step 8, the

allowable amounts for Legal, Organizational,

Title and Recording, Initial Deposit to the

Reserve for Replacements (Realty) and the

Initial Deposit to the Reserve for Major

Movable Equipment (Nonrealty). Transfer

result to Item d.

Item e Self-explanatory.

Item f Enter amount of:

1.Any reserve for replacement and/or major movable

equipment to be purchased as an asset of the project.

2.Grant/loan attributable to mortgageable items.

Item g Self-explanatory.

Item h Enter applicable percentage (85 or 90 percent). Multiply

Item g by the applicable percentage and extend the product,

rounded down to the nearest hundred, to Column 3.

Criterion 10 AMOUNT BASED ON EXISTING INDEBTEDNESS, REPAIRS, AND LOAN

CLOSING CHARGES

18

FORMAT Column 1 Column 2 Column 3

Item a Total Existing

Indebtedness \$\_\_\_\_\_\_\_

Item b Required Repairs \$\_\_\_\_\_\_\_

Item c Other Fees \$\_\_\_\_\_\_\_

Item d Loan Closing

Charges \$\_\_\_\_\_\_\_

Item e Sum of Items a, b, c,

and d \$\_\_\_\_\_\_\_

Item f Amount of Any Reserve for

Replacements and/or Major

Movable Equipment on Deposit

under Existing Mortgage and/or

Grant/Loan \$\_\_\_\_\_\_\_

Item g Item e minus Item f \$\_\_\_\_\_\_\_

Item h 70 percent of Value \$\_\_\_\_\_\_\_

Item i Greater of Item g or h \$\_\_\_\_\_\_\_

INSTRUCTIONS:

Item a Enter the allowable existing indebtedness as defined in

paragraph 6-2d of HUD Handbook 4565.1.

Item b Enter estimated cost of repairs from \"Remarks\" Section of

Form HUD-92264.

Item c Enter costs of municipality inspection services,

architectural and/or engineering services from \"Remarks\"

Section of Form HUD-92264 and HUD\'s inspection fee. Record

an itemization of these costs in \"Remarks\" Section of Form

HUD-92264-A.

NOTE: HUD\'s inspection fee is:

1.\$30 per dwelling unit where the project involves

repairs of \$3,000 or less per unit.

19

2.1 percent of the total repairs where:

a.The project involves repairs of more than \$3,000

or

b.The project is being insured under 24 CFR 232

Subpart E.

Item d Prepare Appendix 2 using the following instructions and

attach a copy to the completed Form HUD-92264-A.

1.Disregard amounts appearing in Section G of Form

HUD-92264.

2.Enter the sum of allowable costs for MIP, Exam Fee,

Financing Fee, Permanent Placement Fee, Discounts,

Initial Deposit to the Reserve for Replacements

(Realty), Initial Deposit to the Reserve for Major

Movable Equipment (Nonrealty), Title, Recording, Legal,

Organizational expenses (which expenses appear in

\"Remarks\" Section of Form HUD-92264) and other fees

from Item c above.

Step 1 Add known dollar amounts for:

A. Existing Indebtedness

B. Repairs

C. Initial Deposit to Reserve for

Replacements (Realty)

D. Initial Deposit to Reserve for Major

Movable Equipment (Nonrealty)

E. Legal

F. Organizational

G. Title and Recording

H. Other Fees (Arch., Eng., Insp.)

Step 2 Deduct amount of:

A. Replacement Reserve for Replacements

and/or Major Movable Equipment

currently on deposit with present

lender.

B. Grant/loan attributable to

mortgageable items

20

Step 3 Add known percentages for:

A. Financing Fee (Initial Service

Charge not to exceed 2 percent)

B. MIP (1 percent)

C. Exam Fee (not to exceed .3 percent)

D. Permanent Placement Fee (not to

exceed the difference between 3.5

percent and the percentage

applicable to the financing fee)

E. Discounts, if allowable

Step 4 Subtract sum from Step 3 from 100 percent.

Result is the percentage of the mortgage

represented by the known fees.

Step 5 Divide sum from Step 2 by result from Step 4.

Round the quotient down to the nearest

hundred, for mortgage.

Step 6 Using percentages from Step 3, compute and

total actual fees based on mortgage

determined in Step 5 for:

A. Financing Fee

B. MIP

C. Exam Fee

D. Permanent Placement Fee

E. Discounts

Step 7 Add to the total derived from step 6 above,

the allowable amounts for Legal,

Organizational, Initial Deposit to the

Reserve for Replacements (Realty), Initial

Deposit to the Reserve for Major Movable

Equipment (Nonrealty) and Title and

Recording. Transfer result to Item d.

Item e Self-explanatory.

Item f Enter amount of:

1.Any Reserve for Replacement and/or Major Movable

Equipment presently on deposit with lender under the

existing mortgage.

21

2.Grant/loan attributable to mortgageable items.

Item g Self-explanatory.

Item h For nursing homes and cooperatives enter zero.

Item i Self-explanatory.

Criterion 11 AMOUNT BASED ON DEDUCTION OF GRANT(S), LOAN(S) AND GIFT(S)

FORMAT Column 1 Column 2

Item a Fair Market Value \$\_\_\_\_\_\_\_

Item b Total grant(s), loan(s)

and gift(s) intended to

offset cost of mortgageable

items. \$\_\_\_\_\_\_\_

Item c Item a minus Item b \$\_\_\_\_\_\_\_

INSTRUCTIONS:

Item a Enter the Fair Market Value from Section L of Form

HUD-92264.

Item b Include all grant(s), loan(s) and gift(s) intended to offset

replacement cost items.

Item c Self-explanatory.

4.SECTION II, TOTAL REQUIREMENTS FOR SETTLEMENT, has two

parts, A and B. Complete Part B before Part A.

a.Part B.

1)Line 1, Fees Not to be Paid in Cash, is not

applicable to Section 223(f) processing.

2\) Commitment, Marketing Fees and Discounts.

a)Fees: The GNMA mortgage-backed securities

program used for permanent financing,

requires an indemnification

22

escrow equal to 1.75 percent of the permanent

mortgage. This escrow is:

1Not eligible for inclusion in the

maximum mortgage.

2A cash requirement of the mortgagee that

is usually passed on the mortgagor.

b)Discounts. Enter discounts determined not

eligible for inclusion in the maximum

insurable mortgage.

3)Working Capital. Normally not applicable in

Section 223(f) processing. However, if the

subject project is being insured under 24 CFR 232

Subpart E there is a need to fund minor nonrealty

items, insert the applicable cost of said items.

b.Part A.

Line 1 DEVELOPMENT COST. Delete \"Development Cost\" and

enter \"Cost of Acquisition\" or \"Cost to

Refinance,\" as appropriate.

1Enter the amounts reflected in Items 7a/10a

and 7c/10c, plus the amount of loan closing

charges based on the maximum insurable

mortgage.

2Compute loan closing charges based on the

maximum insurable mortgage and list a

breakdown on these fees in the \"Remarks\"

Section of Form HUD-92264-A.

Line 2 LAND INDEBTEDNESS. Delete \"Land Indebtedness\" and

enter \"Required Repairs.\" Next, enter Item b of

either Criterion 7 or 10 as adjusted to reflect

escrow requirements for repair work to be

completed after endorsement.

Line 3 Self-explanatory.

23

Line 4 Modify to read \"Amount of Mortgage and

Grant/Loan.\"

Line 5 Not applicable.

Line 6 Self-explanatory.

Line 7 Self-explanatory.

Line 8 INITIAL OPERATING DEFICIT. Compute the operating

deficit in accordance with Chapter 6 of HUD

Handbook 4565.1 and enter the required deposit on

this line. Attach the worksheet to Form

HUD-92264-A.

NOTE:Independent living units in a Board and Care Home

require a special debt service escrow that must be

included on this line.

Line 9 COMMITMENT, MARKETING FEES, DISCOUNTS. Transfer

amounts from Part B, Item 2.

Line 10 Working Capital. Transfer amount from Part B,

Item 3c.

Line 11 OFFSITE CONSTRUCTION COSTS. Delete \"Offsite

Construction Costs\" and enter \"Other

Indebtedness.\"

1Enter any notes payable or recorded

indebtedness not eligible for inclusion in

the determination of the mortgage.

2Other indebtedness doesn\'t include accounts

payable as these items are normally part of

the ongoing operating expenses.

Line 12 TOTAL ESTIMATED CASH REQUIREMENT. Add the amounts

in lines 7, 8, 9, 10 and 11 and enter the total.

This figure represents the estimated difference

between the mortgage and the estimated total cost

of the transaction.

NOTE: FRONT MONEY ESCROW. Not applicable.

24

5.SECTION III, SOURCE OF FUNDS TO MEET CASH REQUIREMENTS.

Enter:

a)Results of financial statement analysis in accordance

with instructions contained in HUD Handbook 4480.1,

Multifamily Underwriting Reports and Forms Catalog.

b)Amounts already on deposit or expended by the mortgagor

to cover requirements listed above.

c)Amount of promissory notes permitted after completing

Appendix 3 or 4.

6.SECTION IV RECOMMENDATIONS, REQUIREMENTS AND REMARKS.

Show itemization of figures included in the total reflected

in Section II, Part A, Line 1, and any other appropriate

comments.

Sign and date the form.

I.Identity of Interest Between a Government Agency or

Instrumentality and the Proposed Mortgagor. A Federal, State or

local government agency or instrumentality may sell the property,

be the permanent mortgagee and provide a grant/loan to the

mortgagor. Any combination of these acts does not establish an

identity of interest between agency or instrumentality and the

mortgagor.

J.Low Income Housing Tax Credits. The proposed mortgagor and your

Office must comply with all the Headquarters review requirements

concerning processing a project receiving benefit of Low Income

and Historic Tax Credits.

K.Tax-exempt Bond Financing. HUD will try to accommodate various

financing techniques. However, the Secretary\'s position must not

be compromised or subordinated. Therefore, if a project was

previously financed with tax-exempt bonds all covenants and other

long-term restrictions recorded to run with the land must comply

with the requirements of paragraph 1-30D, HUD Handbook 4430.1,

Initial Closing Commitment for Project Mortgage Insurance.

Headquarters will not waive these requirements.

25

Questions regarding this Notice may be directed to the Office of

Insured Multifamily Housing Development, Technical Support Division,

Mortgage Credit Branch at FTS 458-0283.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Arthur J. Hill

Assistant Secretary for Housing-

Federal Housing Commissioner

APPENDIX 1

FORMAT ONLY TO BE

REPRODUCED LOCALLY

TO COMPUTE FEES IN A PURCHASE TRANSACTION

Step 1. Add the known dollar amounts for:

A. Purchase
Price\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B.
Repairs\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

C.
Legal\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

D.
Organizational\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

E. Title and
Recording\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

F. Initial Deposit to the Reserve for

Replacements (Realty), provided the

Deposit will be funded by the

Purchaser\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

G. Initial Deposit to the Reserve for

Major Movable Equipment (Nonrealty)

provided the Deposit will be funded

by the Purchaser (Sec. 232 Projects)\-\-\-\-\-\-\-- \$\_\_\_\_\_\_\_\_\_

H. Other Fees (Arch., Eng., Insp.)\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

TOTAL \$\_\_\_\_\_\_\_\_\_

Step 2. Deduct amount of any:

A. Reserve for Replacements and/or

Major Movable Equipment which will

be purchased as an asset of the

project\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B. Grant/Loan attributable to

mortgageable items\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

RESULT \$\_\_\_\_\_\_\_\_\_

Step 3. Multiply result from Step 2 by

85 percent and round down to

the nearest hundred dollars. PRODUCT \$\_\_\_\_\_\_\_\_\_

Page 1

APPENDIX 1

Step 4. Add the known percentages for the following:

A.
MIP\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B. Permanent Placement Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

C. Financing Fee (Initial Service

Charge)\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

D. Exam
Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

E. Discounts, if Allowable\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

TOTAL \$\_\_\_\_\_\_\_\_\_

Step 5. Multiply the sum from Step 4 by 85

percent. PRODUCT \$\_\_\_\_\_\_\_\_\_

Step 6. Subtract the product from Step 5

from 100 percent. RESULT \$\_\_\_\_\_\_\_\_\_

Step 7. Divide the product from Step 3 by

the result from Step 6. The quotient

rounded down to the nearest hundred

becomes the mortgage. \$\_\_\_\_\_\_\_\_\_

Step 8. Compute the actual amount of the

fees based on the mortgage determined

in Step 7.

A.
MIP\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B. Permanent Placement Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

C. Financing
Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

D. Exam
Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

E. Discounts, if Allowable\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

TOTAL \$\_\_\_\_\_\_\_\_\_

Step 9. Add to the total derived from Step 8, the

following:

A. Legal and Organizational\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B. Initial Deposit to Reserve

for Replacements\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

C. Initial Deposit to Reserve for Major

Movable Equipment\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

D. Title and
Recording\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

TOTAL \$\_\_\_\_\_\_\_\_\_

Page 2

APPENDIX 2

FORMAT ONLY TO BE

REPRODUCED LOCALLY

FORMAT TO COMPUTE FEES IN A REFINANCING TRANSACTION

Step 1. Add the known dollar amounts for:

A. Existing
Indebtedness\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B.
Repairs\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

C. Initial Deposit to Reserve for

Replacements (Realty)\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

D. Initial Deposit to Reserve For

Major Movable Equipment (Nonrealty)

(Section 232 Projects only)\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

E.
Legal\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

F.
Organizational\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

G. Title and
Recording\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

H. Other Fees (Arch., Insp., Eng.\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

TOTAL \$\_\_\_\_\_\_\_\_\_

Step 2. Deduct amount of:

A. Any Reserve Escrow for Replacement

and/or Major Movable Equipment

currently on deposit with the

lender\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B. Grant/Loan Attributable to mortgageable

items\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

RESULT \$\_\_\_\_\_\_\_\_\_

Step 3. Add the known percentages for:

A. Financing Fee (Initial Service

Charge)\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B.
MIP\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

C. Exam
Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

D. Permanent Placement Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

E. Discount, if Allowable\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

TOTAL \$\_\_\_\_\_\_\_\_\_

Page 1

APPENDIX 2

Step 4. Subtract the sum from Step 3 from 100

percent\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--RESULT
\$\_\_\_\_\_\_\_\_\_

Step 5. Divide the sum from Step 2 by the result from

Step 4. The quotient rounded down to the

nearest hundred becomes the mortgage.\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

Step 6. Compute and total the actual fees based on the

mortgage determined in Step 5.

A. Financing
Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B.
MIP\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

C. Exam
Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

D. Permanent Placement Fee\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

E.
Discounts\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

TOTAL \$\_\_\_\_\_\_\_\_\_

Step 7. Add to the sum from Step 6, the following:

A. Legal and Organizational\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

B. Initial Deposit to Reserve

for Replacements\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

C. Initial Deposit to Reserve for

Major Movable Equipment\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

D. Title and
Recording\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

TOTAL \$\_\_\_\_\_\_\_\_\_

Page 2

APPENDIX 3

FORMAT ONLY TO BE

REPRODUCED LOCALLY

FORMAT TO COMPUTE MAXIMUM AMOUNT PERMITTED TO BE

FINANCED THROUGH PROMISSORY NOTES IN A PURCHASE TRANSACTION

1\. Fair Market
Value\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

2\. 7.5 percent of
Value\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

3\. Cost of
Acquisition\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

4\. 7.5 percent of Cost of Acquisition\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

5\. Maximum Amount of Promissory Notes Permitted

(Lesser of 2 or 4 above.)\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
\$\_\_\_\_\_\_\_\_\_

NOTE:If the maximum mortgage, determined at cost certification by the
MCE, is lees than that estimated at the time of firm commitment, the
maximum allowable amount of promissory notes must be recomputed using
the revised amounts.

This Format does not apply to secondary financing from a governmental
agency or instrumentality.

Page 1