> **Chapter**
>
> **10**

**Section 8 Contract Renewal with a Reduction of Section 8 Rents without
Debt Restructuring ("Lites")**

**Executive Summary**

SECTION 10-1

> In accordance with Housing Notice H 99-36 or subsequent guidance,
> owners may elect to renew Section 8 HAP Contracts at market rents
> without debt restructuring. These transactions are called "Lites".
> This chapter (which supersedes Section 10-4 of the Guide, as revised)
> discusses the processing and underwriting of these transactions - both
> those that can be approved as Lites and those that prove ineligible as
> Lites. The procedures would also be generally applicable to Full Debt
> Restructuring transactions that have been reclassified as Lites
> because their rents are above-market but Full Debt Restructuring is
> not needed.

**Overview**

SECTION 10-2

> **10-3 Owner's Request for a Lite**

10-4 HUD Initial Processing: Section 8 HAP Contract Renewal; Contract
Administration

A.  Assignment to OMHAR

B.  Section 8 HAP Contract Renewal

C.  Transactions Found Ineligible as Lites

D.  Section 8 Moderate Rehabilitation

E.  Combining Contracts

F.  Transfer of Contract Administration

> **10-5 Summary of Lites**

A.  General

B.  Processing Time

C.  Comparison to Full Debt Restructuring

> **10-6 Lite Processing Options**

A.  General; Initial Review

B.  Approval as a Lite

C.  Ineligibility as a Lite, Tier 1

D.  May be Approved as a Lite, Tier 2 Transaction

E.  May be Approved only as a Full Debt Restructuring

F.  Owner Elects Full Restructuring

G.  Owner Appeals Determination of Need for Full Debt Restructuring
    and/or Appeals Market Rent Determination

H.  Owner Rejects Full Restructuring, or Fails to Respond

I.  Not Approvable

J.  Completion of Work

> **10-7 Lite Tier 1: Review and Underwriting**

A.  Procedures for Review of a Lite Tier 1 Transaction; Underwriting
    Standards for Tier 1 Transactions

B.  Notification of Tenants

C.  Determine Managerial Soundness

D.  Determine Physical Soundness

E.  Determine Market Rents

F.  Determine Other Income, Vacancy, and Expense Estimates

G.  Calculate Adjusted NOI; Determine Financial Soundness

> **10-8 Lite Tier 2: Review and Underwriting**

A.  Procedures for Review of a Lite Tier 2 Transaction; Underwriting
    Standards for Tier 2 Transactions

B.  Notification of Tenants

C.  Approvable Lite Tier 2 Projects

D.  Lite Tier 2 Underwriting Standards

E.  Calculation of the Adjusted NOI for Tier 2 Transactions

F.  Lite Tier 2: Options for Meeting Financial Soundness Test

> **10-9 Appeal Process for Lites**
>
> **10-10 Task Summary**
>
> **10-11 List of Business and Legal Forms**

**Owner's Request for a Lite**

SECTION 10-3

> Owners who wish to renew Section 8 HAP Contracts at market rents
> without debt restructuring must select that option in accordance with
> Housing Notice H 99-36 (or PIH 99-22 in the case of Moderate
> Rehabilitation properties) or subsequent guidance[^1]. The owner
> should submit the following attachments to the Multifamily Hub or
> Program Center no later than 120 days prior to contract expiration:

1.  a comparable market rent study;

2.  the most recent required fiscal year audited financial statements
    for the project; and,

3.  an owner's evaluation of physical condition.

> Thereafter, the owner must also submit such other documents as the PAE
> or HUD may require.

**HUD Initial Processing; Section 8 HAP Contract Renewal; Contract
Administration**

SECTION 10-4

A.  **Assignment to OMHAR**. The Multifamily Hub or Program Center will
    receive the owner's request for a Lite. HUD and OMHAR have agreed
    that Mark-to-Market eligible Lite transactions will be processed by
    OMHAR. The Multifamily Hub or Program Center will log in the
    request, update the REMS system for the type of renewal requested,
    and forward the asset to OMHAR for assignment to a PAE (see Chapter
    1).

B.  **Section 8 HAP Contract Renewal**. When the owner submitted his or
    her election under H 99-36, the Section 8 HAP Contract was extended
    for an additional six months. If this initial extension will expire
    before the PAE has completed the transaction, the PAE will request
    that the HUD Project Manager reserve funds and execute an additional
    Section 8 HAP Contract extension, using the appropriate H 99-36
    attachment, upon expiration of the existing contract. When the PAE
    request is received, the HUD Project Manager will reserve funds and
    renew the Section 8 HAP Contract for six months at the contract\'s
    current Section 8 HAP Contract rents. The extended Section 8 HAP
    Contract expires at the earlier of six months or at the end of the
    first full month after notification to the owner of the
    determination of comparable market rents.

C.  **Transactions Found Ineligible as Lites**. Some transactions will
    be found ineligible as Lites, and the PAE will recommend conversion
    to Full Debt Restructuring. The owner will be advised of this
    determination and provided an opportunity to change his or her
    election under H 99-36. Where the owner elects to change his or her
    election to Full Debt Restructuring, the HUD Project Manager will
    provide a new Section 8 HAP Contract and Rider appropriate for Full
    Debt Restructuring transactions. This contract is provided when the
    owner's revised election under H 99-36 is received. This contract,
    coupled with the prior contract, may total no more than 12 months at
    the current (pre-Mark-to-Market) contract rents.

> If an extension beyond 12 months is eventually needed, an extension at
> **OMHAR-approved market rents** may be granted by the HUD Project
> Manager. The HUD Project Manager should request the market rent
> determination from OMHAR well in advance of the renewal.

If the extension is needed principally because of administrative delays
in the assignment and acceptance of the asset, a waiver may be requested
of OMHAR to extend the contract at the current rents.

D.  **Section 8 Moderate Rehabilitation**. If the owner of an eligible
    Moderate Rehabilitation property requests a Section 8 HAP Contract
    renewal under the Mark-to-Market program, the HUD Office of Public
    Housing Hub Director or the Program Center Coordinator will forward
    the request to the Multifamily Hub or Program Center Director for
    processing and referral to OMHAR. As noted in Notice PIH 99-22, the
    contract administration responsibilities remain with the PHA during
    the processing.

E.  **Combining Contracts**. A project with multiple Section 8
    contracts, or stages, which is requesting a Section 8 HAP Contract
    renewal without debt restructuring under the Mark-to-Market program
    may request to combine them into a single contract. Contracts
    executed before January 1, 1981 may not be combined with contracts
    executed after that point.

F.  **Transfer of Contract Administration**. A qualified public-entity
    PAE may elect to be the Section 8 Contract Administrator for any
    property whose owner pursues Section 8 HAP Contract renewal at
    reduced rents (with or without debt restructuring). An Annual
    Contribution Contract (ACC) will be executed with the Office of
    Housing, and contract administration will be transferred either upon
    project assignment by OMHAR or after the execution of the Section 8
    HAP Contract reflecting the final OMHAR determination. Procedures
    for this transfer will be provided in the future. Qualified
    Public-Entity PAEs should contact OMHAR's Section 8 coordinator at
    OMHAR Headquarters (202-708-0001) if more information is needed on
    this topic.

**Summary of Lites**

SECTION 10-5

A.  **General**. Lite transactions involve a streamlined review by the
    PAE that differs in both scope and intensity from the review for a
    Full Debt Restructuring transaction.

> The purpose of the review is to determine whether the project's long
> term **financial, physical**, **and managerial** soundness can be
> assured through Section 8 HAP Contract renewal at reduced rents,
> without the need to reduce the principal amount of the FHA-insured
> loan through a partial payment of claim.

B.  **Processing Time**. Under the PRA, the PAE's work on a Lite, Tier 1
    transaction is to be completed within 90 days (75 days to receive an
    incentive payment). Where Form 2.16, Letter from PAE to OMHAR to
    Request a Change of Asset Status, has been approved converting the
    asset to a Lite, Tier 2, an additional 30 days is granted and the
    work is to be submitted within a total of 120 days, (90 days for an
    incentive payment). The "clock stops" for determining the PAE's time
    whenever (1) OMHAR has the completed work product under review,
    and (2) for (up to) the 20 business day period the owner has to
    consider conversion to Full Debt Restructuring (counting from the
    date the letter to the owner is sent). PAE's should retain the
    evidence of mailing in the case of overnight mail, or the return
    receipt where overnight mailing services are not available.

C.  **Comparison to Full Debt Restructuring**. In comparison to Full
    transactions, a Lite requires:

D.  No debt reduction; no 2^nd^ or 3^rd^ mortgage; no FHA claim payment.
    There **may be** refinancing of the existing debt to reduce debt
    service through lower interest rates and/or longer amortization.

E.  A Market Rent Study rather than a Limited Scope Appraisal.

F.  No Rehabilitation Escrow. Critical (health and safety) repair needs
    must be completed immediately and immediate (first year) repair
    needs must be completed, or adequate funds must be present in the
    Replacement Reserve Account, as preconditions for the PAE's
    recommendation in favor of Section 8 HAP Contract renewal.

G.  No kick-off meeting with the owner.

H.  No Required Tenant Meeting. (See Section 10-7 B.) Tenant comments
    are solicited in writing in lieu of tenant meetings.

I.  No requirement to execute a Mark-to-Market Use Agreement.

J.  A single PAE invoice per transaction (not including reimbursables).

K.  No Closing File.

**Lite Processing Options**

SECTION 10-6

> **Lite Processing**
>
> ![](media/image1.emf){width="4.334722222222222in"
> height="1.9152777777777779in"}

A.  **General; Initial Review**. All transactions submitted as Lites
    will initially be reviewed for financial, physical, and managerial
    soundness under Tier 1 (underwriting standards are described in
    Section 10-7 below). Notification forms are provided and owner
    consideration and appeal timelines are included in the forms. See
    each form for specific guidelines.

> Where the PAE receives adequate information from the owner **prior to
> ordering third party reports,** the PAE will determine the current
> Debt Service Coverage Ratio (DSCR) using the current contract rents
> and the most recent expenses. If the existing DSCR is lower than that
> required for approval as a Lite Tier 1 or 2, the PAE will:

1.  Immediately proceed as in paragraph E of this Section (using Form
    10.6(b) Notification to Owner of Ineligibility as a Lite based on
    *Initial Review*), offering the owner the option to change his or
    her election under H 99-36. Upon receipt of the owner's response,
    the PAE will proceed in accordance with paragraphs F (owner changes
    election), G (owner appeals), or H (owner rejects change of
    election) below, as applicable; and,

2.  **Without waiting for any appeals, order the third party reports. In
    this case, however, even if the transaction will ultimately be
    processed as a Lite under paragraph G**, the PAE must order a
    Limited Scope Appraisal (as for a Full Debt Restructuring) rather
    than the market study normally obtained for a Lite. The statement of
    work for the appraiser should be amended to include a determination
    of rents on both an **"as is" and "as repaired" basis**. (See
    Appendix H.)

3.  **Approval as a Lite**. If the PAE determines that the transaction
    can be approved as a Lite, Tier 1, the following procedures apply.

4.  The PAE will complete the electronic submission shown in Form 10.2,
    Electronic Submission of PAE's Lite Conclusions.

5.  The PAE will submit the narrative and conclusion described in Form
    10.1, OMHAR Reduction in Rent and Section 8 HAP Contract Renewal
    Justification and cover page, to OMHAR, with a print out of the
    electronic submission (Form 10.2). This submission should address
    the issues covered in the Sections that are cited in the Form 10.1.

6.  OMHAR will review the PAE's recommendation, obtain any necessary
    corrections, accept or adjust the market rents, and draft a new
    Section 8 HAP Contract using the appropriate form from H 99-36.
    OMHAR will estimate the Budget Authority and insert this amount in
    the new contract as the maximum amount of Housing assistance
    authorized for that contract.

7.  OMHAR will send the PAE Form 10.3(a), Market Rent Determination, and
    attach the new Section 8 HAP Contract for execution by the owner. A
    copy of this notice will be used by the PAE as support for its
    invoice for payment for its work on the transaction.

8.  OMHAR will also send a copy of the Section 8 HAP Contract to the HUD
    Project Manager.

9.  The PAE will send the Section 8 HAP Contract to the owner using Form
    10.4(a), Notification to Owner of Market Rent Determination. The
    owner must execute the contract by the due date established in the
    letter (10 days from issuance) and provide the executed contract to
    the HUD Project Manager. Owners must also provide a new rent
    schedule reflecting the approved rents and gross rent change
    certifications for tenants to the HUD Project Manager. Gross rent
    changes do NOT require recertification of tenant income or expenses
    and do not affect annual recertification schedules (see Handbook
    4350.3, Chapter 3 and Appendix 11). If the Section 8 HAP contract is
    not executed by the due date, HUD will be unable to honor the
    owner's vouchers under the higher rents and will have no choice but
    to assume that the owner intends to opt out of the Program.

> This notice includes guidance to the owner on appeals. Execution of
> the contract does not interfere with the owner's ability to appeal.
>
> The PAE will use the Form 10.4(b) cover letter, Notification to HUD
> Project Manager of Market Rent Determination, to provide a copy to the
> HUD Project Manager of the Notification to the Owner, so that the
> existing HAP Contract can be terminated and the fund reservation
> process for the new HAP Contract can begin. The PAE should provide an
> additional copy, including the cover letter, to the Section 8 Contract
> Administrator and the OMHAR Regional Office.
>
> The PAE will assure that the Mark-to-Market MIS system data is
> complete. This includes entering the date the Section 8 HAP Contract
> was sent to the owner and the date the PAE received a copy of the
> Section 8 HAP Contract signed by the owner.

**PAE Determines Transaction is Approvable as a Lite**

> ![](media/image2.emf){width="4.254861111111111in"
> height="2.088888888888889in"}

7.  Upon request, the PAE will supply the owner with the information it
    has used to reach its tentative conclusions (the PCA and Market
    Study/Limited Scope Appraisal, if completed, the draft income and
    expense spreadsheet, and the PAE's justification for its selection
    of market rents). These materials should be provided by overnight
    mail.

8.  The HUD Project Manager will: (a) terminate the existing Section 8
    HAP Contract as of the expiration date listed in the Notification to
    Owner as described in Form 10.4(b), and (b) prepare to complete the
    fund reservation and execution process for the new Section 8 HAP
    Contract when received from the owner. The HUD Project Manager will
    also update the REMS system when processing is completed. **These
    Section 8 HAP Contract execution procedures should proceed
    regardless of any appeals process**.

9.  The **owner should execute** the Section 8 HAP Contract, prepare a
    new rent schedule reflecting the approved rents and gross rent
    changes for tenants in the project and provide this to the HUD
    Project Manager, with a copy to the PAE.

10. If the **owner fails to execute** the contract, future owner
    vouchers for Section 8 funding under the existing contract will not
    be paid. OMHAR will inform the HUD Project Manager that a copy of
    the new Section 8 HAP Contract has not been received by the PAE by
    the due date and to assume that the owner intends to opt out. If
    tenant-based assistance to the tenants is required, the HUD Project
    Manager will provide the owner with a short-term renewal in order to
    comply with the one year notice requirements to tenants and/or to
    provide sufficient time to process tenant vouchers.

11. If there is an **appeal**, OMHAR will discuss the appeal with the
    PAE and reach a final determination. If the appeal:

12. **results in an increase** in the market rents, OMHAR will provide a
    revised Form 10.3(a) and a revised Section 8 HAP Contract to the PAE
    (with a copy to the HUD Project Manager and the Section 8 Contract
    Administrator). The PAE will send Form 10.5, Notification to the
    Owner of Results of Appeal of Market Rent Determination, with the
    revised Section 8 HAP Contract indicating that rents have been
    increased and the appeals process is complete. The PAE should
    provide a copy of the notice, using the Form 10.4(b) cover letter,
    Notification to HUD Project Manager of Market Rent Determination, to
    the HUD Project Manager, with a copy to the Section 8 Contract
    Administrator and the OMHAR Regional Office.

13. **does not result in an increase** in the determination of market
    rents, OMHAR will notify the owner, using Form 10.7(a), Notification
    to Owner of Failure of Appeal, with a copy to the HUD Project
    Manager, Section 8 Contract Administrator, and the PAE, that the
    review is finished and the appeals process is complete.

14. **Ineligibility as a Lite, Tier 1**. At any time during its review,
    the PAE may determine that the transaction is not eligible as a
    Lite, Tier 1. This determination may be made when the PAE has
    completed Tier 1 underwriting or earlier in the process so long as
    the PAE has sufficient evidence to support its conclusion. In any
    case where the transaction is found ineligible as a Tier 1, the PAE
    will determine whether the transaction:

15. **may be approved as a Lite, Tier 2**. (Underwriting standards are
    in Section 10-8.D. below.) In this case, the PAE will follow the
    procedures in paragraph D below. Or,

16. **requires a Full Debt Restructuring**. (Underwriting standards are
    in the earlier Chapters of this Guide.) In this case, the PAE will
    follow the procedures in paragraph E and paragraphs F, G, or H
    below, as applicable. Or,

17. **is ineligible for Mark-to-Market or otherwise cannot be approved
    at all**. In this case, the PAE will follow the procedures in
    paragraph I below.

18. **May be Approved as a Lite, Tier 2 Transaction**.

19. If the PAE determines that the project may be approvable as a Lite
    Tier 2, it must submit Form 2.16 to the appropriate OMHAR Regional
    Office briefly justifying its conclusion.

20. The OMHAR Regional Office will review Form 2.16 and, based on its
    review experience with the PAE, may request review of any
    information the PAE will provide to the owner.

21. After OMHAR approves Form 2.16, the PAE will complete any necessary
    discussions with the owner (especially where substantial expense
    reductions or refinancing of existing debt are required) and process
    the transaction as a Lite Tier 2, following the standards in Section
    10-8 below.

22. If the transaction is found **approvable as a Lite, Tier 2**, the
    PAE will proceed with the approval as outlined in Section 10-6.B.
    above. If a refinance is required in order to be approvable as a
    Lite, a condition must be included in the Section 8 HAP Contract to
    the effect that the owner has agreed to refinance before the next
    contract renewal.

> If the transaction is found **not eligible as a Lite, Tier 2**, and
> would only be approvable as a Full Debt Restructuring, the PAE will
> proceed as indicated in paragraph E.

E.  **May be Approved only as a Full Debt Restructuring**.

> **Determines Transaction is Ineligible as a Lite**
>
> **Needs Conversion to Full**
>
> ![](media/image3.emf){width="4.351388888888889in" height="2.41875in"}
>
> If the PAE determines that the project will only be approvable as a
> Full Restructuring, it will submit Form 2.16. The PAE should include a
> brief justification of its conclusion including a summary of the
> income and expenses used, and the DSC concluded. The OMHAR Regional
> Office, based on its review experience, may request review of any
> information to be provided to the owner. (Alternatively, the PAE, in
> its discretion may submit the completed Tier 1 or 2 Lite work product
> for review and approval. After approval, the PAE can submit an invoice
> to OMHAR for the Lite work, and include Form 10.3(b), Agreement with
> PAE's Determination of Ineligible Lite, as support.) After completion
> of any review determined necessary by OMHAR, OMHAR will hold Form
> 2.16, but will notify the PAE, using Form 10.3(b) to proceed as
> follows:

1.  The PAE will request a teleconference or meeting, with the owner.

2.  The PAE will advise the Multifamily Hub or Program Center (and the
    Section 8 Contract Administrator, if not HUD) of this teleconference
    or meeting and invite their participation. In many cases, the
    Multifamily Hub or Program Center (and the Section 8 Contract
    Administrator, if not HUD) may be very helpful to the PAE in these
    discussions with the owner. If requested, the PAE should work with
    the Multifamily Hub or Program Center (and the Section 8 Contract
    Administrator, if not HUD), by supplying reasonable transaction
    information or otherwise, to help it to be supportive in the
    upcoming meeting.

3.  In the teleconference or meeting, the PAE will advise the owner of
    its tentative conclusions (conclusions that may not yet have been
    fully reviewed by OMHAR), explain the owner's options, and the
    forthcoming Form 10.6(a) or (b) Notification to Owner of
    Ineligibility as a Lite; Transmittal of Form for Re-election under H
    99-36. (Note that the Form 10.6(a) is used in all cases except where
    the determination of ineligibility is made as part of the Initial
    Review referenced in Section 10-6 A above where a determination of
    market rents has not yet been made. In this latter case, Form
    10.6(b) is used.)

4.  After the teleconference or meeting, the PAE will send the Form
    10.6(a) or (b) notification to the owner, with a copy of the
    election form, asking the owner to change his or her election under
    H 99-36 and providing 20 business days to appeal the determination
    that the property cannot be approved as a Lite and/or to appeal the
    rents tentatively determined.

5.  Upon request, the PAE will supply the owner with the information it
    has used to reach its tentative conclusions (the PCA and Market
    Study/Limited Scope Appraisal, if completed, the draft income and
    expense spreadsheet, and the PAE's justification for its selection
    of market rents). These materials should be provided by overnight
    mail.

6.  **Owner Elects Full Debt Restructuring**. If the owner revises his
    or her election to a Full Debt Restructuring, the owner will provide
    the revised election to the Multifamily Hub or Program Center (with
    a copy to the PAE). The PAE will submit a copy of the election to
    the appropriate OMHAR Regional Office in support of the Form 2.16.
    When Form 2.16 (previously submitted) is approved, the PAE may
    process the transaction as a Full Restructuring as described in the
    other Chapters of this Guide. The PRA provides for up to an
    additional 12 months for completion of processing; thus, the total
    time the PAE has the transaction for processing may exceed 12
    months. (This should not be confused with the time that the owner's
    Section 8 HAP Contract may be extended at current rents; absent a
    waiver, this period cannot exceed 12 months total.)

7.  **Owner Appeals Determination of Need for Full Debt Restructuring
    and/or Appeals Market Rent Determination.** If the owner appeals the
    determination that the transaction is unapprovable as a Lite and/or
    appeals the market rent determination, OMHAR will review the appeal
    and respond to the owner within 30 calendar days.

8.  If the appeal is rejected, OMHAR will notify the owner using Form
    10.7(b), Notification of Failure of Appeal. In this case, the owner
    will have an additional five business days to revise his or her
    election under H 99-36.

9.  If OMHAR's response to the appeal is positive, OMHAR will draft a
    response to the owner, with a copy to the PAE, advising them of the
    determination and the basis for it and how processing should proceed
    (i.e., if Tier 2 processing is in order, or if market rents should
    be revised but the transaction be completed as a Lite and put on the
    watch list, etc.).

10. **Owner Rejects Full Debt Restructuring, or Fails to Respond.**

> ![](media/image4.emf){width="4.045138888888889in" height="2.16875in"}
>
> **\*Section 8 HAP Contract specifies property will be on watch list;
> retains eligibility to come in as Full**
>
> If the owner refuses Full Debt Restructuring, or fails to respond to
> the PAE's letter within 20 business days, or fails to respond within
> 10 business days to OMHAR's letter turning down the appeal, the PAE
> will complete processing of the transaction at the current Lite tier,
> i.e., complete Tier 1 processing (Paragraph B above), or complete Tier
> 2 processing (paragraph D above) if a previous Form 2.16 converting
> the transaction to a Tier 2 was approved. Then,

1.  OMHAR will review the PAE's recommendation, obtain any necessary
    corrections, accept or adjust the market rents, and draft a new
    Section 8 HAP Contract.

2.  OMHAR will provide a Form 10.3(c), Ineligible Lite/ Conversion to
    Full Refused, to the PAE with the approved market rents and the
    Section 8 HAP Contract. OMHAR will send a copy of this letter to the
    HUD Project Manager and Section 8 Contract Administrator. The
    Multifamily Hub or Program Center will determine whether to continue
    project-based assistance at the OMHAR-approved market rents, or
    whether to issue tenant-based vouchers to residents. If
    project-based assistance is used, the HUD Project Manager will
    execute the amended Section 8 Contract that maintains the owner's
    eligibility in OMHAR in case the owner at a later date decides to
    change his election to Full Debt Restructuring. The amended contract
    stipulates that the project will be placed on the "watch list" for
    Multifamily Housing to monitor.

3.  The PAE will provide Form 10.8, Notice to Owner/Conversion Refused,
    to the owner and provide a copy, using cover letter Form 10.4(b), to
    the HUD Project Manager and Section 8 Contract Administrator. The
    letter to HUD should include the PAE's narrative, financial
    analyses, and PCA to assist HUD in determining whether the HAP
    Contract should or should not be renewed.

4.  **Not Approvable**. In some cases, the PAE may determine that the
    transaction is basically ineligible for the Mark-to-Market program,
    or cannot achieve managerial, physical and financial soundness under
    any approach. In these cases, the PAE will contact the OMHAR
    Regional Office to discuss the appropriate approach.

5.  **Completion of Work**. The PAE must complete Lite processing by
    completing the Credit File in accordance with Form 10.9. (However,
    the invoice for payment may be submitted upon OMHAR's approval of a
    Tier 1 or 2 Lite work product described in Form 10.1.) In addition,
    upon completion of processing, the PAE should supply the HUD Project
    Manager with a copy of the PCA and the PAE's final determination of
    needs and deposits over the term. The PAE must also maintain the
    Contract File.

**Lite Tier 1: Review and Underwriting**

SECTION 10-7

A.  **Procedures for Review of a Lite Tier 1 Transaction; Underwriting
    Standards for Tier 1 Transactions**. All transactions submitted as
    Lites will be reviewed for financial, physical, and managerial
    soundness. If a transaction is determined (a) physically sound, (b)
    managerially sound, and (c) financially sound by achieving a 1.20
    DSCR of existing debt service using market rents and the limited
    underwriting described below, the PAE will recommend Section 8 HAP
    Contract renewal at market rents. The PAE will follow the procedures
    described below and provide the appropriate support for their
    conclusions in Form 10.1.

B.  **Notification of Tenants**. The PAE must notify, or ensure that the
    owner notifies, all parties described in Section 3-9.C., that the
    owner has applied for a Section 8 HAP Contract renewal without
    mortgage debt restructuring (See Form 10.10). The notice must be
    provided, in writing, to the tenant of each unit in the project and
    to any organizations representing project tenants. The notice must
    state that the following information will be made available for
    inspection.

C.  the owner's evaluation of physical condition (if any); and

D.  the owner's comparable market rent analysis (with addresses
    identifying data on comparable market rents redacted).

> The notice must be posted in the manner provided in Chapter 3, Section
> 3-9.C.2 and C.3. Tenants and other interested parties may submit
> comments to the PAE within 30 days of receipt of this notice and the
> PAE must document and consider these comments. At the option of the
> PAE, surveys or sampling phone calls may be used to elicit additional
> tenant input.

C.  **Determine Managerial Soundness**. The PAE will consult with HUD
    staff, consider tenant comments, and determine the acceptability of
    project management, generally as described in Chapter 4, Section
    4-8. If the project fails to demonstrate **managerial soundness**,
    the owner can propose an acceptable new manager and still be
    processed at Tier 1 or Tier 2, if otherwise appropriate.

D.  **Determine Physical Soundness**.

E.  The PAE must obtain a PCA (including the environmental checklist)
    and determine the property's current condition and its Reserve needs
    for the forthcoming 20 years. The PAE's analysis of adequate
    reserves will cover the lesser of 20 years or the remaining term on
    the existing insured loan. However, the PCA is always prepared for a
    20-year period.

F.  The PAE should engage a qualified physical inspector following the
    guidance in Appendix I.

G.  The PAE's physical inspector should conduct a review of the
    project's physical condition and an assessment of its Reserves for
    Replacement as set forth in Appendix I.

H.  The PAE will review the PCA submitted by the physical inspector. The
    PAE will identify material errors, inconsistencies, or other
    deficiencies, obtain revisions if necessary and make any needed
    corrections in the projected reserve needs or elsewhere. Where any
    correction is made, the PAE must describe the error and provide a
    clear and specific justification for each correction. The PAE will
    also confirm that any tenant and local community group comments have
    been considered.

I.  The property will meet the Physical Soundness criterion if:

J.  The PAE determines that the property is currently in acceptable
    condition and can remain so for the remaining term of the mortgage.
    The PAE should consider any REAC inspection findings in developing
    this conclusion. (If the REAC score is lower than 60, the
    transaction will generally require a Full Restructuring or other
    more comprehensive action. Where the REAC score is low, the PAE
    should describe the reason for the low rating and how this issue is
    addressed.)

K.  Any Uniform Physical Condition Standards (UPCS) violations or other
    health and safety items have been cured prior to issuance of any PAE
    recommendation in favor of Section 8 HAP Contract renewal. The PAE
    need not reinspect the property but should obtain a statement or
    invoice from the owner indicating that the work is complete. Upon
    request of the PAE, the processing "clock" may be stopped if the
    PAE's work is complete and the owner has not yet completed the
    correction of the work item.

L.  The calculation of Adjusted NOI in paragraph G, below assumes
    reserve deposits sufficient to meet the long term physical needs of
    the property over the remaining term of the loan without ever
    dropping below the amount of one year's deposits prior to entering
    the Mark-to-Market Program.

M.  If the project fails to demonstrate **physical soundness**, and all
    other criteria are met, the PAE should recommend an appropriate
    approach. One approach that may be appropriate for some transactions
    is consideration of the property as a Full Debt Restructuring, which
    would provide funds for rehabilitation. Other alternatives, which
    would require special procedures and review by the OMHAR Regional
    Office, are special deposits from the owner to the Reserves for
    Replacements, or the establishment of a special repair escrow.
    (Where notable additional work by the PAE is required, the PAE
    should consider submitting a Form 2.16, requesting the transaction
    be converted to Tier 2.)

N.  **Determine Market Rents**. The PAE should contract with a
    State-certified "General" Real Estate Appraiser to perform an
    independent market study (or, if the property was initially
    determined to be ineligible as a Lite under Section 10-6.A., the
    more extensive Limited Scope Appraisal) as described in Appendix H.
    In addition to developing an independent market study, the PAE's
    appraiser should also review the comparable market rents provided in
    any owner's Rent Comparability Study and visit each comparable
    property selected by the owner's appraiser. If the PAE's appraiser
    disagrees with the selection of comparables and/or the comparability
    adjustments made by the owner's appraiser, the report should
    document why the comparable/adjustment is inappropriate. Rents will
    be determined based on the "as-is" condition of the property.
    (Waivers will be considered for projects where financial commitments
    exist for improvements that would impact the rents.)

> The PAE will review the comparable market rent data provided by the
> appraiser. In performing this review, the PAE must conduct site visits
> to the subject and comparable properties. The PAE should visit all of
> the comparables submitted by its own appraiser. It should also review
> the comparables of the owner's appraiser if conveniently located, or
> if necessary to resolve disputes. The PAE should make any appropriate
> adjustments, and briefly explain the basis for any such adjustments,
> to arrive at the market rents that the property would command on the
> open market. The PAE should also provide brief support for its final
> rent determination, indicating which comparables were most heavily
> relied upon (averaging the rents of the adjusted comparables is
> generally not appropriate). PAEs must make this determination as
> carefully as if debt restructuring were involved.

F.  **Determine Other Income, Vacancy, and Expense Estimates**. In
    calculating the adjusted NOI:

G.  The PAE will use the commercial income, other income (excluding
    interest income), vacancy and collection losses, and operating
    expenses from the most recent annual audited financial statements,
    **if typical**. Typical means representative of stabilized, ongoing
    operations of the property. The PAE will determine whether there is
    reason to conclude that the current year's financial statements are
    typical using the property information submitted, and the PAE's own
    knowledge and analysis, including consultation with Multifamily Hub
    or Program Center staff (where appropriate). If vacancy and
    collection losses or expenses are not thought to be typical, and
    additional work is necessary to determine appropriate estimates, the
    PAE should consider submission of a Form 2.16 requesting that the
    transaction be converted to Tier 2. For example, (a) if it is
    learned that the vacancy in the property is steadily increasing,
    possibly due to reductions in the elderly population in the area,
    or (b) if commercial income in the past has stemmed from an entity
    that is no longer renting the space or the space is occupied by an
    identity of interest entity, it would be appropriate to request
    conversion to Tier 2 in order to complete a more thorough
    underwriting.

H.  In cases where a typical amount would require a higher vacancy and
    collection loss factor, a higher operating expense, a lower
    commercial income, or a lower other income figure ***that can be
    readily determined,*** the PAE may justify a specific revision and
    use the resulting typical figure. (For example, if other income on
    the most recent statement includes a \$10,000 rebate of prior years'
    overpayments for Workers' Compensation, that rebate should be
    excluded in determining typical other income.) If needed, the PAE
    should obtain two additional prior years' audited statements from
    the applicable HUD field office or from the owner.

I.  Stabilized operating expenses should be trended to bring the
    estimate up to the time of underwriting. Income may not be trended.

J.  The PAE will determine the annual deposit to the Reserve for
    Replacements ***that would be needed*** to meet the project's needs
    over the term of the loan as identified in the PCA (without ever
    causing the Reserve balance to fall below the amount of one year's
    deposits the property was making prior to the Mark-to-Market
    Program). In making the calculation below, the PAE will use that
    assumed annual deposit. (The actual deposits to the Reserves need
    ***not*** be increased, even if the needs are greater than can be
    covered by the current Reserve balance and current ongoing Reserve
    deposits, so long as the property meets the debt service
    requirements specified in paragraph 5 below.)

> In the rare case where a reduction to the annual deposit to the
> Reserve for Replacements is contemplated in the underwriting, the PAE
> should assure that HUD is specifically advised of this circumstance as
> they may wish to reduce the deposit. The PAE should not delay
> completion of their processing awaiting HUD's action.

G.  **Calculate Adjusted NOI; Determine Financial Soundness**.

  -------------- --------------------------------------------------------
  Take           Gross Potential Market Rents (as determined by the PAE)

  Minus          5% vacancy and collection loss factor (or greater, if
                 typical)

  Plus           Commercial and Other Income (typical, and excluding
                 interest income)

  Minus          Operating Expenses (typical, trended if appropriate)

  Minus          Annual Reserve (assumed) deposits sufficient to cover
                 future capital needs

  Equals         Adjusted Net Operating Income, for Tier 1
  -------------- --------------------------------------------------------

> If this Adjusted NOI, divided by the debt service (Principal, Interest
> and MIP) for the existing FHA-insured loan produces a DSCR of 1.20 or
> greater, the property meets the **Financial Soundness** criterion.

**Lite Tier 2: Review and Underwriting**

SECTION 10-8

A.  **Procedures for Review of a Lite Tier 2 Transaction; Underwriting
    Standards for Tier 2 Transactions**. The PAE may recommend to OMHAR
    that a transaction be processed as a Lite Tier 2,

B.  if the PAE concludes that it is likely that the expenses or debt
    service may be able to be reduced sufficiently to achieve financial
    soundness without restructuring of the debt. If financial soundness
    can only be achieved through refinancing of existing debt, a
    substantial reduction in expenses, pay-down of the existing
    mortgage, or a deposit by the owner to the Reserve for Replacements,
    the owner must provide a written statement of intent agreeing to the
    refinancing, reduction, pay down, or deposit before renewal of the
    new Section 8 HAP Contract.

C.  if significant additional work must be done to approve a transaction
    as a Tier 1 Lite. In these cases, the OMHAR Regional Office will
    determine, when approving the Form 2.16, what parts of this Tier 2
    section apply, if any.

> In either case, the PAE will complete the process described in this
> Section and provide the appropriate support for its conclusions in the
> Form 10.1.

B.  **Notification of Tenants**. The Notification of Tenants
    requirements of Section 10-7 B are also applicable to Tier 2
    transactions.

C.  **Approvable Lite Tier 2 Projects**. A project is approvable under
    Tier 2 if it is determined to be physically and managerially sound,
    and is determined to be financially sound under either of the
    following standards. Either the property

D.  achieves a 1.20 DSCR (using current debt service or a reduced debt
    service achieved through refinancing of the existing debt with no
    partial payment of claim) using market rents and the more extensive
    underwriting described below; or

E.  is a stronger property (as defined in paragraph F, below) that
    achieves a 1.10 DSCR (using current debt service or a reduced debt
    service achieved through refinancing of the existing debt with no
    partial payment of claim) using market rents and the more extensive
    underwriting described below.

F.  **Lite Tier 2 Underwriting Standards**.

> To determine if the project meets Tier 2 criteria, the PAE will do the
> following:

1.  [Determine Managerial Soundness]{.underline}. The PAE will do the
    same review and use the same criteria as Tier 1.

2.  [Determine Physical Soundness]{.underline}. The PAE will do the same
    review using the same criteria as Tier 1, ***except that, in the
    case of a Section 223(a)(7) refinancing,*** ongoing deposits to the
    Reserve for Replacements will be changed, at the refinancing, to the
    amount assumed in the NOI Calculation in paragraph E, below.

3.  [Determine Market Rents]{.underline}. The PAE will do the same
    review and use the same criteria as in Tier 1.

4.  [Determine Other Income, Vacancy, Expense, and Reserve
    Estimates]{.underline}.

5.  The PAE will ***fully underwrite*** commercial and other income,
    vacancy, and collection loss factors. "Fully underwrite" includes
    review of the most recent three years of operating statements,
    analysis of the vacancy trends in the property and market, and
    analysis of the sources of commercial and other income and the
    likelihood of the continuance of such income. Where there is notable
    commercial income, full underwriting would include review of
    commercial lease provisions and assessment of the likelihood of
    continuance of this income. The PAE should use no less than a 10%
    physical vacancy factor and a 5% economic vacancy factor for
    commercial income.

6.  The PAE will also ***fully underwrite*** expenses and discuss the
    conclusion with the owner. "Fully underwrite" includes review of the
    most recent three years of operating statements and line by line
    analysis of significant expense categories and expense trends.
    Justifications for expense items may commonly be very brief, but
    should be more expansive where historic expenses in that line item
    have been erratic or contrary to expectation. To the extent
    possible, expenses should be compared to any other sources of
    expense information and/or verified with outside sources. If the
    property has been poorly maintained or poorly managed, the PAE
    should assure that the expenses estimated for maintenance and
    management are adequate to provide for good maintenance and
    management.

7.  If the owner agrees that the property can be operated using the
    expenses determined in the underwriting, the PAE may proceed. If
    not, the property will be underwritten at a higher level of
    operating expenses with which the owner does agree.

8.  The PAE will use the same assumed annual deposit to the Reserves for
    Replacement as in Tier 1 Section 10-7 F.4 above.

9.  **Calculation of the Adjusted NOI for Tier 2 Transactions**.

  ----------- -----------------------------------------------------------
  Take        Gross Potential Market Rents (as determined by the PAE)

  Minus       5% vacancy and collection loss factor (or greater, if
              typical)

  Plus        Commercial (after deducting required vacancy allowance) and
              Other Income (fully underwritten, and excluding interest
              income)

  Minus       Operating Expenses (fully underwritten and discussed with
              the owner)

  Minus       Annual Reserve (assumed) deposits as in Tier 1

  Equals      Adjusted Net Operating Income, for Tier 2
  ----------- -----------------------------------------------------------

> If this Adjusted NOI, divided by the debt service (Principal, Interest
> and MIP) for the existing FHA-insured loan produces a DSCR of **1.20
> or greater**, the property meets the **Financial Soundness**
> criterion.

F.  **Lite Tier 2: Options For Meeting Financial Soundness Test**. If
    the property does not produce a 1.20 DSCR, the PAE can consider the
    following five options.

G.  *Recommend Approval at Reduced DSCR for Strong Properties*: If the
    DSCR is **1.10 or greater,** and an adequate case can be made that
    the property is a strong candidate for long-term successful
    operations with this reduced DSCR, the PAE may recommend approval.
    The PAE's supporting documentation should include consideration of
    any information provided by REAC and the HUD field office, including
    HUD's prior management reviews. A "strong" property should meet the
    criteria below. Consideration should also be given to properties
    that have operated successfully at less than 1.20 DSCR for some
    time.

H.  The property is located in a strong market with little likelihood of
    a reduction in demand resulting from decreases in the eligible
    population due to a general population decline, job losses,
    weaknesses in the predominating industry, increases in the housing
    stock, or similar conditions.

I.  The property is in good condition, as evidenced by the REAC score,
    PCA, and PAE inspection and the current owners maintain it in
    acceptable condition.

J.  The property has had a comparatively stable rent, vacancy, and
    expense history over the past three years and there is no reason to
    believe that this would change in the future as a result of
    anticipated utility increases, the end of tax abatements, or similar
    foreseeable factors.

K.  Considering tenant comments, prior HUD reviews and the PAE's review,
    the property has sound management with an acceptable history.

L.  Based on the PAE's inspection, the PCA, market study and tenant
    comments, the property has no features such as extremely small
    units, poor location, or other factors that would render it
    non-competitive in a market situation.

.

2.  *Recommend Approval if the Property **Could** Produce an Acceptable
    Debt Service Coverage Ratio (DSCR) with Refinancing of Existing
    Debt*: If the property **could** produce a DSCR of 1.20 or greater,
    or a DSCR of 1.10 or greater for a strong property, with a
    refinancing of the existing debt using generally available rates and
    terms and FHA mortgage insurance (or risk-sharing), the PAE may
    recommend approval provided that the owner's commitment to refinance
    is satisfactory to the Multifamily Hub or Program Center. Where the
    property could be viable with a 223(a)(7) refinance, PAEs should
    refer owners to the local Multifamily Hub or Program Center
    responsible for processing applications for firm commitment. PAEs
    are encouraged to assist the local HUD office and lender upon
    request by providing any relevant data.

3.  *Recommend Approval, if Owner Provides Evidence of Financing
    Commitments Not Involving FHA Mortgage Insurance or Risk-sharing*:
    If the owner provides evidence of a commitment to refinance the
    existing FHA-insured loan without using full FHA mortgage insurance
    or FHA risk-sharing, and the PAE, OMHAR, and the Multifamily Hub or
    Program Center find the commitment satisfactory, the PAE may
    recommend approval. The owner must provide evidence of closing of
    the refinancing prior to the next Section 8 HAP Contract extension.

4.  *Recommend Approval, if Deviations are De Minimis*: If the amount of
    dollars or percentage points by which the property fails to meet the
    DSCR criteria is de minimis, recommend approval. Such cases should
    be discussed with the OMHAR Regional Office before submission.

5.  *Recommend the Owner Change his or her Election Under H 99-36*: If
    the results are such that a Lite, Tier 2 is not feasible, the PAE
    should proceed as described in the applicable portions of Section
    10-6 E, and following.

**Appeal Process for Lites**

SECTION 10-9

> In most cases, the owner has **one** opportunity to appeal the OMHAR
> decision related to the determination of market rents and, if
> applicable, the determination that the transaction is ineligible as a
> Lite. The PAE will notify the owner of its appeal rights as part of
> the form notification letters.
>
> The exception is the case where a transaction is initially identified
> as ineligible as a Lite under Section 10-6 A, and the rents have not
> yet been determined. In this case, the owner has one opportunity to
> appeal the determination of ineligibility as a Lite and a second
> opportunity to appeal the rents.
>
> The owner will have 20 days from the date of the notification to
> appeal to the OMHAR Regional Office, addressing all points of
> disagreement. The OMHAR Regional Office will review the appeal,
> discuss it with the PAE, make a final determination and respond within
> 30 calendar days of receipt of the owner's appeal with a copy of its
> determination to the HUD Project Manager, Section 8 Contract
> Administrator and the PAE.

**Task Summary**

SECTION 10-10

+----------------------+------------------------------+---------------+
| **PAE**              |                              |               |
+======================+==============================+===============+
| **Timeline**         | **Task**                     | **Team**      |
+----------------------+------------------------------+---------------+
| **Submission**       |                              |               |
+----------------------+------------------------------+---------------+
|                      | Asset received by OMHAR HQ   | OMHAR HQ      |
|                      | for processing               |               |
+----------------------+------------------------------+---------------+
| **Initial            |                              |               |
| Processing**         |                              |               |
+----------------------+------------------------------+---------------+
| Within 75 days of    | Per the PRA, to earn an      |               |
| assignment           | incentive fee, the PAE       |               |
|                      | completes processing of Lite |               |
|                      | Tier 1                       |               |
+----------------------+------------------------------+---------------+
| Within 90 days of    | Per the PRA, the PAE         |               |
| assignment           | completes processing of a    |               |
|                      | Lite Tier 1                  |               |
+----------------------+------------------------------+---------------+
| Within 90 days of    | Per the PRA, to earn an      |               |
| assignment           | incentive fee, the PAE       |               |
|                      | completes processing of a    |               |
|                      | Lite Tier 2                  |               |
+----------------------+------------------------------+---------------+
| Within 120 days of   | Per the PRA, the PAE         |               |
| assignment           | completes processing of a    |               |
|                      | Lite Tier 2                  |               |
+----------------------+------------------------------+---------------+
| **Lite Processing    |                              |               |
| and Section 8 HAP    |                              |               |
| Contract             |                              |               |
| Processing**         |                              |               |
+----------------------+------------------------------+---------------+
| Initial Review:      | If has adequate information  | Owner         |
| Immediately after    | from owner, determines       |               |
| assignment           | current DSCR. If existing    |               |
|                      | DSCR is lower than required  |               |
|                      | for approval as Tier 1 or 2, |               |
|                      | the PAE:                     |               |
|                      |                              |               |
|                      | · notifies owner of          |               |
|                      | ineligibility of Lite (Form  |               |
|                      | 10.6(b)), offering option to |               |
|                      | change election under H      |               |
|                      | 99-36                        |               |
|                      |                              |               |
|                      | · orders third party reports |               |
|                      | (Market Study/Limited Scope  |               |
|                      | Appraisal, as appropriate)   |               |
+----------------------+------------------------------+---------------+
| After initial review | Follows procedures in        | OMHAR RO      |
|                      | Section 10-7 of the OPG. If  |               |
|                      | transaction can be approved  | Owner         |
|                      | as a Lite Tier 1, PAE:       |               |
|                      |                              | HUD Project   |
|                      | · completes electronic       | Manager       |
|                      | submission (Form 10.2)       |               |
|                      |                              | Section 8     |
|                      | · submits narrative and      | Contract      |
|                      | conclusion (Form 10.1) and a | Administrator |
|                      | print out of the electronic  |               |
|                      | submission (Form 10.2) to    |               |
|                      | the OMHAR RO                 |               |
|                      |                              |               |
|                      | · notifies owner of market   |               |
|                      | rent determination and       |               |
|                      | transmits Section 8 HAP      |               |
|                      | Contract for execution with  |               |
|                      | notification that current    |               |
|                      | contract expires at the end  |               |
|                      | of the next full month, with |               |
|                      | copies to the HUD Project    |               |
|                      | Manager, the Section 8       |               |
|                      | Contract Administrator and   |               |
|                      | the OMHAR RO                 |               |
|                      |                              |               |
|                      | · Updates M2M MIS data with  |               |
|                      | date Section 8 HAP Contract  |               |
|                      | is sent to owner, and date   |               |
|                      | executed Section 8 HAP       |               |
|                      | Contract received from owner |               |
+----------------------+------------------------------+---------------+
|                      | If project fails as a Tier   | OMHAR RO      |
|                      | 1, but may be approvable as  |               |
|                      | Tier 2, the PAE:             | Owner         |
|                      |                              |               |
|                      | · submits Form 2.16, Change  |               |
|                      | of Asset Status, to OMHAR    |               |
|                      | RO;                          |               |
|                      |                              |               |
|                      | · follows procedures in      |               |
|                      | Section 10-7 of the OPG      |               |
|                      |                              |               |
|                      | · after approval discusses   |               |
|                      | transaction with owner       |               |
|                      |                              |               |
|                      | · Updates M2M MIS data with  |               |
|                      | date Section 8 HAP Contract  |               |
|                      | is sent to owner, and date   |               |
|                      | executed Section 8 HAP       |               |
|                      | Contract received from owner |               |
+----------------------+------------------------------+---------------+
|                      | If not eligible for Lite     | OMHAR RO      |
|                      | Tier 1 or 2,                 |               |
|                      |                              |               |
|                      | · submits Form 2.16 to OMHAR |               |
|                      | RO with justification for    |               |
|                      | processing as a Full Debt    |               |
|                      | Restructuring                |               |
+----------------------+------------------------------+---------------+
|                      | If OMHAR RO agrees with PAE  | OMHAR RO      |
|                      | that Full Debt Restructuring |               |
|                      | is necessary, the PAE:       | Owner         |
|                      |                              |               |
|                      | · requests teleconference or | Multifamily   |
|                      | meeting with owner           | Hub or        |
|                      |                              | Program       |
|                      | · advises and invites        | Center        |
|                      | participation of Multifamily |               |
|                      | Hub or Program Center (and   | Section 8     |
|                      | Section 8 Contract           | Contract      |
|                      | Administrator, if not HUD)   | Administrator |
|                      |                              | (if not HUD)  |
|                      | · advises owner of tentative |               |
|                      | conclusions and explains     |               |
|                      | owner options                |               |
|                      |                              |               |
|                      | · sends Form 10.6 (a) or (b) |               |
|                      | notification to owner with   |               |
|                      | copy of election form        |               |
|                      |                              |               |
|                      | · notifies owner of 20 day   |               |
|                      | appeal period and supplies   |               |
|                      | information as necessary     |               |
+----------------------+------------------------------+---------------+
| At completion of     | Submits completed Credit     | OMHAR RO      |
| Lite Processing      | File (Form 10.9) and         |               |
|                      | Contract File to OMHAR RO    |               |
+----------------------+------------------------------+---------------+
| **Appeal Process**   |                              |               |
+----------------------+------------------------------+---------------+
|                      | PAE notifies owner of appeal | Owner         |
|                      | rights as part of            |               |
|                      | notification form letters.   |               |
+----------------------+------------------------------+---------------+
|                      | If requested by owner, may   | Owner         |
|                      | provide the PCA and Market   |               |
|                      | Study/Limited Scope          |               |
|                      | Appraisal (if completed),    |               |
|                      | the draft income and expense |               |
|                      | spreadsheet, and PAE's       |               |
|                      | justification for selection  |               |
|                      | of market rents by overnight |               |
|                      | mail                         |               |
+----------------------+------------------------------+---------------+
|                      | If appeal results in         | Owner         |
|                      | increase in market rents,    |               |
|                      | PAE:                         | PAE           |
|                      |                              |               |
|                      | · sends Form 10.5 and        | HUD Project   |
|                      | revised Section 8 HAP        | Manager       |
|                      | Contract to the owner, and   |               |
|                      |                              | Section 8     |
|                      | · provides a copy using Form | Contract      |
|                      | 10.4(b) to the HUD Project   | Administrator |
|                      | Manager, with copies to      |               |
|                      | Section 8 Contract           |               |
|                      | Administrator and OMHAR RO   |               |
+----------------------+------------------------------+---------------+
|                      | If owner refuses Full Debt   | Owner         |
|                      | Restructuring or fails to    |               |
|                      | respond to PAE's, PAE        | OMHAR RO      |
|                      | completes processing         |               |
|                      | transaction as a Lite        |               |
+----------------------+------------------------------+---------------+
|                      | OMHAR RO may call upon PAE   | OMHAR RO      |
|                      | to discuss an owner appeal   |               |
|                      | during review process        |               |
+----------------------+------------------------------+---------------+

+----------------------+-----------------------------+----------------+
| **OMHAR              |                             |                |
| Headquarters**       |                             |                |
+======================+=============================+================+
| **Timeline**         | **Task**                    | **Team**       |
+----------------------+-----------------------------+----------------+
| **Submission**       |                             |                |
+----------------------+-----------------------------+----------------+
|                      | Receives owner's request    | Multifamily    |
|                      | for a Lite under H 99-36    | Hub or Program |
|                      | (or subsequent guidance)    | Center         |
|                      | from the Multifamily Hub or |                |
|                      | Program Center              |                |
+----------------------+-----------------------------+----------------+
|                      | Asset Assignment Specialist | PAE            |
|                      | assigns the asset to the    |                |
|                      | appropriate PAE for         | OMHAR Regional |
|                      | processing, and notifies    | Office         |
|                      | OMHAR RO                    |                |
+----------------------+-----------------------------+----------------+
| **Lite Processing    |                             |                |
| and Section 8 HAP    |                             |                |
| Contract             |                             |                |
| Processing**         |                             |                |
+----------------------+-----------------------------+----------------+
|                      | OMHAR Section 8 Coordinator | PAE            |
|                      | reviews M2M MIS reports to  |                |
|                      | track dates input by PAE    | Owner          |
|                      | for overdue contracts;      |                |
|                      | takes appropriate steps to  | Multifamily    |
|                      | resolve issues with PAE and | Hub or Program |
|                      | owner to either obtain the  | Center         |
|                      | signed Section 8 HAP        |                |
|                      | Contract or initiate the    |                |
|                      | process for tenant-based    |                |
|                      | assistance                  |                |
+----------------------+-----------------------------+----------------+
| After request for    | Processes the Form 2.16     | OMHAR RO       |
| Change of Asset      | request for change of asset |                |
| Status               | status to either a Lite     | PAE            |
|                      | Tier 2 or a Full Debt       |                |
|                      | Restructuring when          |                |
|                      | forwarded by the OMHAR RO.  |                |
|                      | Once approved Asset         |                |
|                      | Assignment Specialist       |                |
|                      | notifies the PAE            |                |
+----------------------+-----------------------------+----------------+

+-----------------------+-----------------------------+----------------+
| **OMHAR Regional      |                             |                |
| Office**              |                             |                |
+=======================+=============================+================+
| **Timeline**          | **Task**                    | **Team**       |
+-----------------------+-----------------------------+----------------+
| **Submission**        |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | Receives notification of    | OMHAR HQ       |
|                       | asset assignment to a PAE   |                |
|                       | from OMHAR HQ               |                |
+-----------------------+-----------------------------+----------------+
|                       | Responds to PAE questions   | PAE            |
|                       | at any time                 |                |
+-----------------------+-----------------------------+----------------+
| **Lite Processing and |                             |                |
| Section 8 HAP         |                             |                |
| Contract Processing** |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | Receives Forms 10.1 and     | PAE            |
|                       | 10.2 from the PAE           |                |
|                       |                             |                |
|                       | · reviews PAE               |                |
|                       | recommendation for Lite     |                |
|                       | Tier 1                      |                |
|                       |                             |                |
|                       | · obtains necessary         |                |
|                       | corrections                 |                |
|                       |                             |                |
|                       | · accepts or adjusts market |                |
|                       | rents                       |                |
|                       |                             |                |
|                       | · drafts a new Section 8    |                |
|                       | HAP Contract for execution  |                |
|                       | by owner (using appropriate |                |
|                       | form from H 99-36)          |                |
+-----------------------+-----------------------------+----------------+
|                       | Sends copy of Section 8 HAP | HUD Project    |
|                       | Contract to the HUD Project | Manager        |
|                       | Manager to cancel prior     |                |
|                       | contract and reserve funds  |                |
+-----------------------+-----------------------------+----------------+
|                       | Reviews PAE request for     | PAE            |
|                       | Change of Asset Status      |                |
|                       | (Form 2.16) to a Tier 2     | OMHAR HQ       |
|                       | Lite or a Full Debt         |                |
|                       | Restructuring, requests     |                |
|                       | additional information, if  |                |
|                       | necessary, and forwards to  |                |
|                       | the OMHAR HQ Asset          |                |
|                       | Assignment Specialist       |                |
+-----------------------+-----------------------------+----------------+
| At completion of Lite | Receives Credit File (Form  | PAE            |
| Processing            | 10.9) and Contract File     |                |
|                       | from the PAE                |                |
+-----------------------+-----------------------------+----------------+
| **Appeals Process**   |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | If owner appeals, OMHAR RO  | PAE            |
|                       | has 30 days to review and   |                |
|                       | respond; may call upon PAE  |                |
|                       | to discuss appeal during    |                |
|                       | review process              |                |
+-----------------------+-----------------------------+----------------+
|                       | If appeal results in        | Owner          |
|                       | increase in market rents,   |                |
|                       | OMHAR provides a revised    | PAE            |
|                       | Form 10.3(a) and revised    |                |
|                       | Section 8 HAP Contract to   | HUD Project    |
|                       | the PAE with copies to the  | Manager        |
|                       | HUD Project Manager and     |                |
|                       | Section 8 Contract          | Section 8      |
|                       | Administrator               | Contract       |
|                       |                             | Administrator  |
+-----------------------+-----------------------------+----------------+
|                       | If appeal does not result   | Owner          |
|                       | in an increase in market    |                |
|                       | rents, OMHAR notifies       | PAE            |
|                       | owner, using Form 10.7(a),  |                |
|                       | as appropriate, with copies | HUD Project    |
|                       | to the HUD Project Manager, | Manager        |
|                       | Section 8 Contract          |                |
|                       | Administrator, and the PAE  | Section 8      |
|                       | within 10 business days     | Contract       |
|                       |                             | Administrator  |
+-----------------------+-----------------------------+----------------+
|                       | If an owner' s appeal of    | Owner          |
|                       | determination of need for a |                |
|                       | full restructuring:         | PAE            |
|                       |                             |                |
|                       | · is rejected, OMHAR        | Multifamily    |
|                       | notifies owner with Form    | Hub or Program |
|                       | 10.7(b) within 10 business  | Center         |
|                       | days, and owner has an      |                |
|                       | additional 5 business days  |                |
|                       | to revise their election    |                |
|                       | under H-99-36               |                |
|                       |                             |                |
|                       | · is accepted, OMHAR        |                |
|                       | advises PAE and owner how   |                |
|                       | to proceed                  |                |
+-----------------------+-----------------------------+----------------+

+-----------------------+-----------------------------+----------------+
| **Owner**             |                             |                |
+=======================+=============================+================+
| **Timeline**          | **Task**                    | **Team**       |
+-----------------------+-----------------------------+----------------+
| **Submission**        |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | Owner submits request for a | Multifamily    |
|                       | Lite under H 99-36 (or      | Hub or Program |
|                       | subsequent guidance) with   | Center         |
|                       | initial information on      |                |
|                       | rents and expenses for PAE  |                |
|                       | analysis of DSCR to the     |                |
|                       | Multifamily Hub or Program  |                |
|                       | Center                      |                |
+-----------------------+-----------------------------+----------------+
|                       | Owner is notified of asset  | OMHAR HQ       |
|                       | assignment to PAE by OMHAR  |                |
|                       | HQ                          |                |
+-----------------------+-----------------------------+----------------+
| **Lite Processing and |                             |                |
| Section 8 HAP         |                             |                |
| Contract Processing** |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | Receives Section 8 HAP      | PAE            |
|                       | Contract, with market rent  |                |
|                       | determination (Form         |                |
|                       | 10.4(a)) for execution      |                |
|                       | (includes guidance on       |                |
|                       | appeals)                    |                |
+-----------------------+-----------------------------+----------------+
|                       | Executes Section 8 HAP      | HUD Project    |
|                       | Contract within 10 days of  | Manager        |
|                       | receipt from PAE, and       |                |
|                       | provides it to the HUD      | PAE            |
|                       | Project Manager, with a     |                |
|                       | copy to the PAE             |                |
+-----------------------+-----------------------------+----------------+
|                       | If ineligible for a Lite,   | Multifamily    |
|                       | and owner elects Full Debt  | Hub or Program |
|                       | Restructuring, provides     | Center         |
|                       | revised election under H    |                |
|                       | 99-36 to Multifamily Hub or | PAE            |
|                       | Program Center              |                |
+-----------------------+-----------------------------+----------------+
| **Appeals**           |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | May request PCA and Market  | PAE            |
|                       | Study/Limited Scope         |                |
|                       | Appraisal (if completed),   |                |
|                       | the draft income and        |                |
|                       | expense spreadsheet, and    |                |
|                       | PAE's justification for     |                |
|                       | selection of market rents   |                |
|                       | from the PAE                |                |
+-----------------------+-----------------------------+----------------+
| After determination   | May appeal determination of | PAE            |
| as ineligible as Lite | market rents and/or         |                |
|                       | ineligibility of within 20  | OMHAR RO       |
|                       | days of notification        |                |
+-----------------------+-----------------------------+----------------+

+-----------------------+-----------------------------+----------------+
| **Multifamily Hub or  |                             |                |
| Program Center/HUD    |                             |                |
| Project Manager**     |                             |                |
+=======================+=============================+================+
| **Timeline**          | **Task**                    | **Team**       |
+-----------------------+-----------------------------+----------------+
| **Submission**        |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | Receives owner's request    | Owner          |
|                       | for a Lite under H 99-36    |                |
|                       | (or subsequent guidance),   | OMHAR HQ       |
|                       | logs in the request,        |                |
|                       | forwards the asset to OMHAR |                |
|                       | HQ for assignment to a PAE, |                |
|                       | and updates the REMS system |                |
|                       | for the type of renewal     |                |
|                       | requested.                  |                |
+-----------------------+-----------------------------+----------------+
| **Lite Processing and |                             |                |
| Section 8 HAP         |                             |                |
| Contract Processing** |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | HUD Project Manager         | OMHAR RO       |
|                       | receives Section 8 HAP      |                |
|                       | Contract from the OMHAR RO  |                |
|                       | to begin the fund           |                |
|                       | reservation process         |                |
+-----------------------+-----------------------------+----------------+
|                       | Receives cover letter from  | PAE            |
|                       | PAE (Form 10.4(b)) with the |                |
|                       | market rent determination   |                |
|                       | for the Section 8 HAP       |                |
|                       | Contract                    |                |
+-----------------------+-----------------------------+----------------+
|                       | Update REMS system when     |                |
|                       | processing is completed     |                |
+-----------------------+-----------------------------+----------------+
| After approval as     | Terminates existing Section | Owner          |
| Tier 1                | 8 HAP Contract as described |                |
|                       | in Form 10.4(b), and        | PAE            |
|                       | prepares fund reservation   |                |
|                       | and execution process for   |                |
|                       | new Section 8 HAP Contract  |                |
|                       | when received from owner    |                |
+-----------------------+-----------------------------+----------------+
|                       | If owner does not execute   | Owner          |
|                       | Section 8 HAP Contract as   |                |
|                       | required in the notice, HUD |                |
|                       | may prepare to issue        |                |
|                       | Section 8 tenant-based      |                |
|                       | assistance to tenants in    |                |
|                       | the property                |                |
+-----------------------+-----------------------------+----------------+
|                       | If owner elects Full Debt   | Owner          |
|                       | Restructuring, receives     |                |
|                       | revised election under H    | OMHAR RO       |
|                       | 99-36 and reassigns to      |                |
|                       | OMHAR as a Full             |                |
+-----------------------+-----------------------------+----------------+
| **Appeals**           |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | If owner refuses Full Debt  | OMHAR RO       |
|                       | Restructuring or fails to   |                |
|                       | respond to PAE's letters,   | Owner          |
|                       | OMHAR forwards conversion   |                |
|                       | recommendation to HUD       | PAE            |
|                       | Project Manager and Section |                |
|                       | 8 Contract Administrator,   | Section 8      |
|                       | and HUD determines whether  | Contract       |
|                       | to execute the Section 8    | Administrator  |
|                       | HAP Contract or convert to  |                |
|                       | tenant-based assistance     |                |
+-----------------------+-----------------------------+----------------+

+-----------------------+-----------------------------+----------------+
| **Section 8 Contract  |                             |                |
| Administrator**       |                             |                |
+=======================+=============================+================+
| **Timeline**          | **Task**                    | **Team**       |
+-----------------------+-----------------------------+----------------+
| **Lite Processing and |                             |                |
| Section 8 HAP         |                             |                |
| Contract Processing** |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | Receives copies of PAE      | PAE            |
|                       | notifications (e.g., market |                |
|                       | rent determinations,        |                |
|                       | revised determinations)     |                |
+-----------------------+-----------------------------+----------------+
|                       | Receives copy of OMHAR      | OMHAR RO       |
|                       | notifications on appeals    |                |
+-----------------------+-----------------------------+----------------+
| **Appeals**           |                             |                |
+-----------------------+-----------------------------+----------------+
|                       | If owner refuses Full Debt  | OMHAR RO       |
|                       | Restructuring or fails to   |                |
|                       | respond to PAE's letters,   | Owner          |
|                       | OMHAR forwards conversion   |                |
|                       | recommendation to HUD       | PAE            |
|                       | Project Manager and Section |                |
|                       | 8 Contract Administrator,   | Multifamily    |
|                       | and HUD determines whether  | Hub or Program |
|                       | to execute the Section 8    | Center         |
|                       | HAP Contract or convert to  |                |
|                       | tenant-based assistance     |                |
+-----------------------+-----------------------------+----------------+

**List of Business and Legal Forms**

SECTION 10-11

**No. Title**

  --------- ---------------------------------------------------------------
  10.1      OMHAR Reduction of Rent and Section 8 HAP Contract Renewal
            Justification and Cover Page

  10.2      Electronic Submission of PAE's Lite Conclusions

  10.3(a)   Market Rent Determination; Transmittal of Section 8 HAP
            Contract

  10.3(b)   Agreement with PAE's Determination of Ineligible Rents; Market
            Rent Determination

  10.3(c)   Ineligible Lite/Conversion to Full Refused; Market Rent
            Determination; Transmittal of Section 8 HAP Contract

  10.4(a)   Notification to Owner of Market Rent Determination; Transmittal
            of Section 8 HAP Contract

  10.4(b)   Notification to HUD Project Manager of Market Rent
            Determination; Transmittal of Section 8 HAP Contract

  10.5      Notification to Owner of Results of Appeal of Market Rent
            Determination; Transmittal of *Increased* Market Rents and
            Revised Section 8 HAP Contract

  10.6(a)   Notification to Owner of Ineligibility as a Lite; Transmittal
            of Form for Re-Election under Housing Notice H 99-36

  10.6(b)   Notification to Owner of Ineligibility as a Lite based on
            *Initial Review* (Section 10-6A); Transmittal of Form for
            Re-election under Housing Notice H 99-36

  10.7(a)   Notification to Owner of Failure of Appeal

  10.7(b)   Notification to Owner of Failure of Appeal; Transmittal of Form
            for Re-election under Housing Notice H 99-36

  10.8      Notice to Owner / Conversion Refused; Determination of Market
            Rents

  10.9      Lite Credit File Checklist

  10.10     Notice of Rent Reduction Without Debt Restructuring
  --------- ---------------------------------------------------------------

[^1]: References to HUD Notices refer to the actual notice or earlier or
    subsequent related guidance.