U.S. Department of Housing and Urban Development

OFFICE OF HOUSING

Special Attention of:

Regional Administrators Notice H 91-31 (HUD)

Regional Housing Directors

Managers, Category A & B Offices Issued: 4/15/91

Directors of Housing Development Expires: 4/30/92

Regional Directors of Administration

Cross References:

Subject: Delegated Processing Procedures

A. PURPOSE

This Notice defines the Department\'s new course for

processing multifamily mortgage insurance applications under the

Delegated Processing program. Procedures for implementing and

operating this program at both the Regional and Field Office

levels are set forth herein. This Notice imposes key procedures

and controls necessary for early implementation of the program.

Detailed handbook instructions, including monitoring procedures,

are under development and will be issued at a later date.

B. OVERVIEW

The new Delegated Processing program will complement the

Department\'s full insurance processing mechanism by augmenting

Field Office staff capacity to help prevent and eliminate

processing backlogs and bottlenecks. It will enhance the

Department\'s ability to provide timely, high quality application

processing and to maintain a steady supply of multifamily rental

housing while expanding affordable housing opportunities.

Section 328(a) of the National Affordable Housing Act of

1990 directs the Department to implement a system which delegates

certain processing functions to selected HUD-approved mortgagees.

It further directs the Department to retain authority to approve

rents, expenses, property appraisals and mortgage amounts and to

execute Firm Commitments.

The Delegated Processing program tracks that mandate by

using HUD-approved mortgagees under a contract to perform basic

multifamily processing from Site Appraisal and Market Analysis

(SAMA)/Feasibility through Firm Commitment. After completing the

valuation, architectural/engineering, cost, mortgage credit and

overall underwriting analyses required for each processing stage,

the Delegated Processor will submit its analyses and

recommendations to the Field Office for review and issuance of

the appropriate processing letter (i.e., SAMA/Feasibility,

Conditional or Firm Commitment), if warranted.

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HMIT : Distribution: W-3-1, W-2(H), W-3(H)(ZAOO)(OGC), W-4(H)(OGC), R-1,

R-2, R-3, R-3-1(H)(RC), R-3-2, R-3-3,R-6,R-6-1,R-6-2,

R-7,R-7-1,R-7-2,R-8,R-8-1

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

GPO 871 902

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Initially, the program will be available for the Section

221(d), 223(f) and 232 programs. It will become available for

Sections 223(d) and 241 at a later date, upon modification of the

contracts.

In the event of a conflict between this Notice and the

Delegated Processing contracts, the contracts shall take

precedence.

C. BACKGROUND

After the demise of the Coinsurance program, the Department

rededicated itself to an enhanced program of full insurance, with

Delegated Processing as a major component. In so doing, several

objectives had to be accomplished: (1) Improve the delivery of

mortgage insurance programs; (2) speed up mortgage insurance

processing; (3) ensure sound underwriting; (4) maintain a steady

supply of multifamily rental housing and expand affordable

housing opportunities; and (5) enhance and maximize Field office

staff capacity:

The delegated procedure varies significantly from

Coinsurance in terms of both program delivery and oversight. In

fact, Delegated Processing is completely initiated and monitored

by the Field Office. It is designed to provide the Field Offices

with maximum flexibility to use it as a tool to manage competing

workload priorities.

The assignment of an application to a Delegated Processor is

completely at the discretion of the Field Office Director of

Housing Development (DHD). The DHD decides which applications

will be processed through the delegated procedure depending upon

workload, staff availability or workload priorities at the time

an application is received. The Field Office which seeks this

assistance to process an application has full responsibility for

recommending the Delegated Processor as well as for reviewing the

Delegated Processor\'s work, modifying the recommendations as

determined appropriate, and issuing the appropriate

letter/commitment.

Delegated Processors cannot have a financial interest in the

project assigned to them (i.e., they cannot be the mortgagee of

record) and their fees are determined competitively. Consequently,

they have little motivation to recommend overmortgaging

of a property to increase fees or to induce mortgagors to do

their business with them.

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Finally, since Delegated Processors will be under contract

to HUD, unsatisfactory performance may result in contract

termination. It is expected, however, that the contract award

process Will result in only highly qualified processors being

selected to participate in the program.

D. SELECTING DELEGATED PROCESSORS

The selection process is designed to permit Field and

Regional Offices to choose competent HUD-approved mortgagees,

including capable State and local housing finance agencies,

operating within their jurisdiction. The basic selection process

involves two stages of competition - the Indefinite Quantity

Contract (IQC) stage in response to a Request for Proposal (RFP),

and a Task Order stage pursuant to a specific Request for Task

Order Proposal.

The IQC stage (the first stage) was initiated on

December 24, 1990, with a Notice published in the Commerce

Business Daily. On February 8, 1991, an RFP was sent to all

respondents who expressed an interest in becoming Delegated

Processors. HUD has evaluated all responses to the RFP and has

determined those mortgagees who are eligible to participate in

the program.

These mortgagees, Delegated Processors, will be available to

provide processing services for 1 year with options to renew

for 2 additional years. Delegated Processing will be available

on a continuing basis to provide mortgage insurance processing

services as needed for the contract term. Depending upon their

legal and underwriting capacity, they are approved to serve

either the entire Region or specific Field Offices. In most

cases, more than one Delegated Processor is now available to

serve each HUD Field Office.

Under the second stage, the Task Order stage, the Delegated

Processors will be invited to submit a price quote to process a

specific application. HUD will award a Task Order to the

processor with the lowest price quote and technically acceptable

project team.

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E. ASSIGNING A PROJECT APPLICATION TO A CONTRACTOR

Delegated processing services for specific project

applications are procured through a Request for Task Order

Proposal. The Task order is the tool which gives Field Offices

full discretion to enlist a Delegated Processor\'s services in

response to an immediate need to expand staff capacity or balance

competing priorities.

In preparation for this phase of the program, each Regional

Office must identify a Government Technical Representative (GTR)

and each Field Office must identify a Government Technical

Monitor (GTM) and a technical evaluation panel (panel). The GTR

serves as a representative of the Regional Contracting Officer

(RCO) by providing oversight on the contract work and ongoing

coordination and technical guidance to the RCO. The GTM provides

technical guidance to the contractor, monitors its performance

and provides input to the GTR as necessary to make payments or

recommend to the RCO that action be taken against the contractor.

The panel, consisting of 1 or more technicians in the Field

Office, should be designated by the DHD to review each response

to a Request for Task Order Proposal and determine the best

proposal.

1\. The Task Order Process

Task Orders are awarded through a competitive process.

This process should be completed in an expeditious manner,

i.e., within approximately 8 business days, if feasible, in

order to minimize the time elapsed between application

submission and the initiation of processing. The following

is a brief description of this process with suggested time

frames for execution.

a\. After an application for project mortgage insurance

(Form HUD-92013 and supporting exhibits) is accepted

for processing and logged into MIPS, the DHD determines

that the services of a Delegated Processor are needed

and notifies the RCO by memorandum, sent by FAX, with a

copy of Form HUD-92013 attached. (Note that more than

one application may be included in a Request for Task

Order Proposal.)

This step should take 2 business days.

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b\. The RCO will notify those Delegated Processors serving

the Field Office that their services are needed and

forward the application via FAX, overnight mail, or by

allowing courier pickup by the Delegated Processors.

This step should take 1 business day.

c\. Delegated Processors submit a firm fixed-price proposal

for the processing stages required by the application,

(SAMA/Feasibility, Conditional and/or Firm) the names

and resumes of the project team (review and field

technicians), an Identity of Interest and Disclosure

Certification and a disclosure of any business

relationships it has had with the sponsor or the design

or supervisory architect for the project.

Responses must be submitted within 3 business days of

notification.

d\. The Field Office panel evaluates the responses and the

GTM notifies the RCO of the acceptability of each

proposal. (If more than one application is included in

the Task Order, a different Delegated Processor may be

selected for each project.)

The evaluation and notification should be completed in

1 business day.

e\. The RCO awards the Task Order. The remaining portion

of the application (i.e., all required exhibits) must

be sent immediately to the selected Delegated Processor

so that it can begin its processing.

This step should be completed within 1 business day.

The above timeframes are a guide. Additional time may be

necessary to ensure a full understanding of the proposal as

discussed below.

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2\. Evaluating Task Order Responses

The panel reviewing the Task Order responses is

responsible for determining the acceptability of the project

team offered, and the number of hours proposed for each

technician to do the work, assessing the validity of the

Identity of Interest and Disclosure Certification, and

reviewing the disclosure statement.

Price. The price offered by the Delegated Processors

consists of two components. First is the hourly rate for

the technicians proposed as members of the project team

(i.e., Chief Underwriter, Review Appraiser, Review

Architect/ Engineer, Review Cost Technician and all field

personnel). This hourly rate may not exceed the hourly rate

proposed by the respective Delegated Processor in the

Contract.

The second component of price is the number of hours

the Delegated Processor proposes as necessary for each

member of the project team to complete the underwriting

analyses for the particular project now under consideration.

If the hourly rate is acceptable, the panel must determine

whether the number of hours proposed is reasonable given the

nature of the project application. There is no precise

gauge for reasonableness. However, guidelines based on HUD

studies and experience are provided in Attachment A. These

may be used to assist the panel in its analysis. The panel

should also consult with Field Office technical specialists

in the various disciplines for assistance in this regard.

If the overall price offered by a Delegated Processor

appears unreasonable and the other aspects of the proposal

are acceptable and the proposals of other Delegated

Processors are not acceptable, the GTM should contact the

RCO to negotiate the price components which cause concern.

These negotiations require staff time and cause delays in

initiating processing of the application. They should be

avoided unless absolutely necessary. Consult the RCO about

this process.

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Project Team. The Contract requires that the Delegated

Processor offer a project team which is \"technically

acceptable\" to process the application under consideration.

Each member of the project team must meet the minimum

qualifications in Section H of the Contract. The project

team consists of review personnel and field personnel.

All review personnel were approved in the IQC award.

The Delegated Processor must submit the names and

qualifications of any new or substitute review personnel in

advance for approval by the Field Office and acceptance by

the RCO. Such personnel must be equal in experience and

knowledge as the personnel being replaced.

Field personnel are offered only at the Task Order

stage. Field personnel must also meet the minimum

requirements set forth in the Contract.

Field personnel for relevant technical disciplines must

demonstrate experience working with the type of project

described in the application (high rise or nursing home,

etc.) and in the general market area of the proposed

project. Failure to demonstrate technical acceptability

should result in elimination from the competition as an

unacceptable proposal. Further, if a member(s) of the

project team performed poorly on previous Task Orders, the

panel may determine the proposal to be unacceptable or

request (through the RCO) that another technician be

assigned.

In the event the project team lacks technical

acceptability in one of the two area, identified in the

preceding paragraph but the proposal is otherwise acceptable

and the proposals of other Delegated Processors are not

acceptable, the GTM may contact the RCO to negotiate the

concerns.

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Identity of interest and Disclosure Certification

This document, signed by the Chief Executive Officer of

the Delegated Processor, asserts that there is no

identity of interest, as defined by Section H of the

Contract, between the principals of the Delegated

Processor and any member of the project team, the

sponsor, design or supervisory architect or the

mortgagee of record. Any documented concerns relative

to the identity of interest provisions may be

considered by the panel in determining that the

Certification is accurate. A Delegated Processor may

be eliminated from the competition if such

certification is known to be inaccurate.

Disclosure Statement. The Delegated Processor must

disclose any relationships over the past 3 years

between it or the project team and the sponsor and/or

principals of the project under consideration. The

panel may use any known information to determine

whether such relationships may interfere with the

Delegated Processor\'s objectivity or integrity in

processing the application. A Delegated Processor may

be eliminated from the competition on this basis.

F. PROCESSING TIMEFRAMES

The Department is committed to timely mortgage insurance

processing. Total processing times (both HUD staff and the

Delegated Processor) are: 45 days for SAMA applications, 75 days

for Feasibility applications, and 60 days for Conditional and

Firm Commitment applications, respectively.

After award of a Task Order, a Delegated Processor is

expected to provide high quality technical analyses for each

processing stage applied for and submit its analyses and

recommendations to the Field Office for review and issuance of

the appropriate processing letter/commitment.

The various combinations of processing stages are:

3-stage processing (30 days each for SAMA, Conditional and

Firm and 45 days for Feasibility);

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2-stage: (a) 30 days for SAMA, 45 days for Feasibility and

30 days for Firm or (b) 60 days for Conditional and 30 days

for Firm; and

1-stage (90 days for Firm).

The Training Manual distributed to GTRs and GTMs in the

training conducted in February 1991, sets forth these processing

timeframes on page 209 (first training session) and page 54

(second training session).

Failure of the Delegated Processor to meet the established

timeframes is a violation of the Contract and may result in a

price reduction or termination of the Contract for default.

Exceptions to the established delivery times must be requested by

the Delegated Processor with a statement of \"good cause\"

submitted to and approved by the GTM and the RCO.

Field Offices must review the work of the Delegated

Processors in a timely manner in order to meet the established

processing times. Field Offices have 15 days in which to review

and issue a SAMA and 30 days to review and issue a Feasibility

Letter, or a Conditional or Firm Commitment regardless of the

number of processing stages.

Note that processing times for Delegated Processors and HUD

are expressed in calendar days.

DHDs are reminded that the delegated procedure is designed

to be a tool to manage competing workload priorities. Effective

utilization of the procedure should not result in backlogs for

cases processed under the procedure.

HUD\'s review processing time begins when it receives the

Delegated Processor\'s underwriting package and ends when the

letter/commitment is issued. There may be instances when the

processing times are exceeded, e.g., when HUD has not completed a

lengthy environmental assessment, especially an historic

preservation determination or when tax credits are involved.

Otherwise, the overall processing timeframes should be exceeded

only in cases where the Field Office rejects a Delegated

Processor\'s work product as \"unsatisfactory\" and requires that

the analysis be redone within a time period specified in a

well-documented deficiency letter to the Delegated Processor.

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G. Facilitating Delegated Processing

In order to achieve the processing timeframes discussed in

Section F, and to facilitate the system overall, Field Offices

will have to make certain procedural adjustments and

accommodations as follows:

1\. Preapplication Conference. A preapplication conference

between the mortgagee/sponsor and Field Office staff is

highly encouraged. Housing Development, Housing

Management and Economic and Market Analysis Staff

(EMAS) should all be represented. Any known

market/environmental problems should be explored and a

decision made as to whether or not the proposed project

would likely meet HUD program requirements.

2\. Application Acceptance Meeting. When an application is

received by the Field Office, the Multifamily Housing

Representative (MHR) should call an application

acceptance meeting with representatives of

each technical discipline and EMAS. This group will

determine whether the exhibits contain adequate

information to justify processing the project and

whether there are any obvious problems of a procedural,

policy or underwriting nature. The purpose of EMAS\'

preliminary assessment is to identify market areas

where there is evidence of current or developing market

problems or problems with the type of housing proposed.

In this meeting, EMAS should identify any analytical

and market information requirements that the Delegated

Processor will need to consider, such as those related

to special needs programs.

only applications which appear to be complete and with

no obvious problems should be candidates for the

delegated procedure. If the application is a candidate

for the delegated procedure, the MHR will forward a

recommendation to the DHD for approval.

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3\. GTM Staff. The GTM should assign a staff

employee/liaison to assist in the performance of his or

her duties related to delegated processing. An MHR

working for the GTM should be assigned to facilitate

the flow of materials as well as communications between

the Field Office and the Delegated Processor. This

employee may be given responsibility to assist the GTM

in ensuring timely action with respect to inquiries,

requests for extensions, commitment modifications,

commitment conferences, notifications of approval,

deficiency letters, and tracking compliance with

processing timeframes.

4\. EMAS Market Analysis Review. The Economic and Market

Analysis Staff (EMAS) is responsible for conducting a

market analysis review of each project proposal.

Suggested guidelines for this review are provided in

Attachment B.

a\. EMAS should initiate its market analysis as soon

as the decision has been made to use Delegated

Processing and complete the review within 21 days

of the award of the Task Order. The market

analysis findings and recommendations are to be

forwarded to the Field Office Manager: Attention

Director of Housing Development. The purpose of

the analysis is to be advisory to Housing in its

review of the project proposal. The DHD will

promptly forward these findings and recommendations

to the Delegated Processor for consideration

in deriving its recommendation.

b\. The purpose of EMAS, review is to determine if

there is sufficient demand in the market for the

number of units at the proposed rents and that the

project will not adversely impact on existing

housing in the market area. As appropriate, the

EMAS review may also include an advisory opinion

on aspects of the proposed project that relate to

its marketability prospects. The market review

findings must include a recommendation of approval

or disapproval on the basis of market

considerations. In situations where the EMAS

recommendation is to disapprove the proposed

project on the basis of insufficient demand, the

review findings may include a suggested counter-proposal

that modifies the proposed number of

units, bedroom size mix, or rent levels.

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c\. EMAS is required to conduct a rereview of the

project whenever a counter-proposal is presented

by the sponsor or the Delegated Processor or a

significant deviation occurs in the project\'s

number of units, bedroom size mix, or rent levels

in subsequent processing.

d\. At the first opportunity, EMAS is to be provided

copies of any market analysis studies for the

proposal or relevant information on market

conditions that have been compiled by the sponsor

or the Delegated Processor.

Environmental Reviews. The Field Office environmental

review process must also begin as soon as the DHD

decides to use Delegated Processing for the

application. Results will be communicated to the

Delegated Processor as soon as they are available. In

the event the Delegated Processor completes its

analysis and submits its underwriting recommendations

before the environmental review process is completed,

the Field Office will include any conditions resulting

therefrom in the appropriate letter/commitment, if any,

issued by HUD. However, if such conditions involve

substantial redesign or affect the mortgage amount, the

Field Office may recommend that the RCO negotiate with

the Delegated Processor to reprocess the application

accordingly. Nevertheless, the Delegated Processor\'s

submission should be reviewed and payment made under

the Task Order, if warranted, within the established

time frames.

6\. Other HUD Retained Processing. The following

processing must also be conducted by Field Office staff

concurrent with the work of the Delegated Processor:

\- Housing Management assesses the impact of the

project on its inventory;

\- Fair Housing and Equal Opportunity reviews the

Affirmative Fair Housing Marketing Plan (if one is

required);

\- Housing Management reviews the Management Plan;

\- Housing Programs Branch initiates 2530 clearance

and, if necessary, forwards to Headquarters;

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\- Labor Relations Specialist requests prevailing wage

determination (at least 45 days prior to

construction start); and

\- Housing Programs staff assures that the

Intergovernmental Review process (if required) has

been initiated by the mortgagee/sponsor, when

necessary.

Any findings from these processes which affect the

viability of the application should be immediately

brought to the attention of the Delegated Processor.

If such findings result in termination of application

processing, the Task Order must be terminated (by the

RCO) for convenience of the Government and the

Delegated Processor compensated for work completed.

7\. Subsequent Processing Stages. When the Field Office

receives an application for a subsequent processing

stage, an application acceptance committee consisting

of the liaison and other relevant technicians will

determine if the application is complete. This

determination should be made and the application mailed

by express service to the Delegated Processor who

received the original Task Order award within 2

business days. The Field Office shall notify the RCO

of its action.

8\. Mortgagee/Sponsor Acceptance of Conditions. Field

Offices must provide mortgagees/sponsors an opportunity

to react to any conditions imposed in the

SAMA/Feasibility Letter or Conditional Commitment since

Delegated Processors are required to incorporate any

such conditions into the processing. Therefore, the

SAMA/Feasibility Letter or Conditional Commitment

should allow the mortgagee/sponsor 10 calendar days to

raise concerns about any conditions by notifying the

HUD liaison. If concerns are raised, the

mortgagee/sponsor may request a commitment conference

to resolve those concerns. Upon satisfactory

resolution of those concerns or, if no concerns were

expressed during the 10-day period, the Delegated

Processor should be forwarded a copy of the

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letter/commitment and the GTM should notify

the Delegated Processor\'s Chief Underwriter by

telephone that its architect can commence liaison

functions in preparation for the next processing stage.

9\. HUD Approval. HUD retains responsibility to review and

approve the Delegated Processor\'s underwriting

conclusions and recommendations. Consequently, Field

Office review personnel are reminded of their

obligation to countersign all processing forms

submitted by the Delegated Processor, and to sign any

modifications, and any letters/commitments issued.

H. Letter/Commitment Conditions

If the sponsor/mortgagee cannot meet the next application

date specified in a letter/commitment, the mortgagee/sponsor must

notify the Field Office at least 10 calendar days prior to

expiration of the letter/commitment and request an extension.

The Field Office may grant the extension in accordance with

outstanding handbook instructions.

Expired Letters/Commitments

Less than 90 Days

If the sponsor/mortgagee requests reopening of a

letter/commitment and submits the required reopening

fee within 90 days of expiration, and the Field Office

determines that there are no significant deviations

from the letter/commitment, the Delegated Processor is

obligated by the Contract to continue processing the

application at no additional cost to HUD.

If there are significant deviations from the plans and

specifications approved in the processing letter, the

RCO, in conjunction with the GTM and GTR, may negotiate

a fee to reprocess the application. This fee may not

exceed one-third the price offered in the Task Order

response for processing that stage. If agreement

cannot be reached, the Task Order may be resolicited or

terminated.

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More than 90 Days

If a letter/commitment is expired for more than

90 days, the Field Office may terminate the Task Order

and compensate the Delegated Processor for any liaison

activity conducted since the letter/commitment was

issued. If the sponsor/mortgagee requests a reopening,

the Field Office may ask the RCO to resolicit the Task

Order.

Modifications

Conditions contained in a letter/commitment may not be

modified except as provided in Contract. Modifications

beyond those permitted must be approved by the Field Office

based upon recommendations from the Delegated Processor.

I. REVIEWING THE WORK OF A DELEGATED PROCESSOR

The overall objective of the HUD review is to ensure sound

underwriting by the Delegated Processor. Field Offices are

expected to exercise prudent judgment in this review.

Attachment C provides guidance as to the kinds of reviews Field

Office technical staffs should conduct of the Delegated

Processor\'s underwriting analyses and recommendations. These

concerns must be considered within the guidelines included in HUD

Handbooks and provided in the Contract.

The Contract specifies the format in which the Delegated

Processor submits an underwriting package. It includes all

documentation relative to each technical discipline, including

all data, worksheets, forms, etc., used in arriving at the

underwriting recommendation. It also requires a cover letter

from the Chief Underwater which clearly communicates the

underwriting decision, summarizes the analysis for each

discipline and discusses the pros and cons used to arrive at the

recommendation.

Delegated Processors are under contract to the Department

and, as such, they are subject to monitoring and oversight by the

Field Office. Consequently, Field Offices are encouraged to

establish lines of communication with Delegated Processors in

order to exchange information and assure that HUD\'s expectations

as to the processors responsibilities under the contract are

clearly understood.

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After the Delegated Processor has submitted its

recommendations and conclusions for each processing stage, the

Field Offices will be expected to evaluate its performance.

Formal evaluation procedures will be provided as a part of the

handbook procedures. In the meantime, Field Offices must prepare

a written evaluation of the Delegated Processor, a copy of which

must be placed in the Delegated Processor\'s file.

Where there are negative determinations, a deficiency letter

must be sent to the Delegated Processor which identifies specific

problems with its processing on that case. Where reprocessing is

required, instruction must be provided in the letter to reprocess

according to HUD Handbooks/guidelines. An example of a written

evaluation is included as Attachment D. Copies of all deficiency

letters must also be sent to the RCO immediately. This data will

be used by the RCO for documentation in the event the Field

Office later determines that it wishes to terminate the Delegated

Processor\'s contract for default.

Field Offices may modify or change conclusions of the

Delegated Processor, with adequate documentation to the file,

even if such conclusions appear to be adequately supported by the

Delegated Processor. It would be prudent to share HUD data with

the Delegated Processor when other information sources are

shallow to avoid the need for such adjustments to their work

products.

J. Delegated Processor Payment

Once a Task Order has been executed, the RCO will forward a

copy to the Regional Program Support (RPS) staff responsible for

control of the FHA processing funds. The RPS staff will record

the amount of the Task Order in a control log and include, on a

Regional basis, the utilization of these funds in the monthly

report for FHA fee and advertising expenses (RMS HI-00506R).

The Delegated Processor will submit an invoice (Public

Voucher for Purchases and Services other than Personal

(SF-1034)), for each processing stage.

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17

Payment of the voucher should not be authorized until the

Field Office has determined that: (1) the processing is

acceptable; and (2) the amount of the voucher does not exceed the

amount awarded in the Task Order for that processing stage. It

is essential, however, that the established review timeframes for

the Field Offices be met since failure to meet the prompt payment

requirements outlined in the Contract will result in interest

charges to the Department.

The Field Office should maintain a control log showing the

funding status of each Task Order. It should include: (1) the

amount of the Task Order; (2) the total amount of vouchers

approved; and (3) the amount remaining.

Once the voucher is approved, it should be sent to the

Financial Control Branch, P.O. Box 23290, Washington, D.C. 20267-3290

for payment.

K. MONITORING AND TRACKING

Each Field Office must maintain the manual tracking system

described in Attachment E for all delegated cases. This tracking

system is a critical management tool at the Field, Regional and

Headquarters levels. Monthly reports are required using data

from this tracking system. Beginning May 6, 1991, you are to

submit this manual report in accordance with the instructions in

Attachment E. A separate report is required for each

application. A report should be submitted even if there was no

activity during the reporting period. Copies of the reports

should also be transmitted to the Regional Housing Director and

the RCO.

Additional guidance on reporting will be provided as the

Delegated Processing Program information requirements are

integrated into MIPS, MIDLIS, or another system that may be

established.

L. TAX CREDITS AND STATE AND LOCAL SUBSIDIES

1\. Cases which involve Federal Low-Income Housing Tax

Credits must be processed according to instructions

contained in the February 2, 1988 Field Office

memorandum entitled \"Processing HUD-Insured Projects

Involving Low-Income Housing Tax Credit\".

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18

These cases as well as cases involving Historic

Preservation Tax Credits require additional

Headquarters review. Such cases should be sent to

Headquarters during the Field Office review timeframe.

Accordingly, the Field Office processing timeframes may

be exceeded. However, the Delegated Processor\'s

submission should be reviewed and payment made, if

warranted, within the established timeframes. Once the

tax credit determinations have been made by

Headquarters, the Field office will incorporate them

into any letter/commitment issued.

2\. Projects which involve Federal, State or local

loans/grants must be processed according to the May 15,

1986, Field Office memorandum entitled \"Instructions

for Processing a Multifamily Insured Project with a

Grant/Loan.\" These instructions are to be included in

the special requirements section of the Request for

Task Order Proposal.

3\. In addition, the Department\'s Administrative

Guidelines, \"Limitations on Combining Other Government

Assistance with HUD Housing Assistance,\" published in

the Federal Register, April 9, 1991, are to be included

in the special requirements section of the Request for

Task Order Proposal when tax credits (if known at the

time) or State or local subsidies are a part of the

project financing structure.

M. BOND FINANCING

If bond financing is proposed, details of the bond financing,

required rents, income and occupancy restrictions, and current

HUD instructions, should be made available to the Delegated

Processor as part of the special requirements for the Request for

Task Order Proposal. The special instructions are contained in a

February 27, 1987, Field Office memorandum entitled \"Tax-Exempt

Bond Financing for HUD-Insured Multifamily Projects\".

N. RESOLUTION TRUST CORPORATION (RTC) PROPERTIES

Field Offices are encouraged to use the Delegated Processing

program to assist the acquisition (and repair) under Section

223(f) of properties in portfolios of failed financial

institutions held by the RTC.

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O. TIME AND REPORTING

1\. Two new ETRs time reporting codes for Delegated

Processing have been requested by the Office of

Housing. One will address all Development staff time

and one will identify Management staff time spent on

Delegated Processing activities. It is anticipated

that these codes will be implemented by the Office of

Administration within the next 120 days. In the

meantime, delegated activity is to be reported with

other multifamily mortgage insurance activity.

2\. Each Regional Office has been supplied with additional

copies of most of the Handbooks governing the 221(d),

232, and 223(f) programs. This material is to be made

available to the selected Delegated Processors.

Regions should identify the location of this material.

Questions relating to the contract process should be

addressed to your Regional Contracting Officer (RCO).

Programmatic questions should be addressed to Headquarters,

Policies and Procedures Division, at 458-2556. Technical

questions should be addressed to Technical Support Division

at 458-0035.

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Arthur J. Hill, Acting Assistant Secretary

for Housing-Federal Housing Commissioner

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ATTACHMENT A

GUIDELINES FOR STAFF UTILIZATION IN

INSURED MULTIFAMILY HOUSING DEVELOPMENT

(AVERAGE FOR ALL PROGRAM TYPES)

ESTIMATED STAFF TIME (HOURS)

\<\$6M Mortgage

MORT.

PHASE WORK UNIT VAL COST A&E CREDIT

SAMA/FEASIBILITY 1 appl. 71 6 16 1

CONDITIONAL

COMMITMENT 1 appl. 40 33 49 20

FIRM COMMITMENT 1 appl. 17 43 36 22

\<\$12M Mortgage

MORT.

PHASE WORK UNIT VAL COST A&E CREDIT

SAMA/FEASIBILITY 1 appl. 71 6 18 1

CONDITIONAL

COMMITMENT 1 appl. 46 36 52 27

FIRM COMMITMENT 1 appl. 19 51 43 25

\>\$12M Mortgage

MORT.

PHASE WORK UNIT VAL COST A&E CREDIT

SAMA/FEASIBILITY 1 appl. 94 9 18 1

CONDITIONAL

COMMITMENT 1 appl. 55 40 66 39

FIRM COMMITMENT 1 appl. 24 56 50 33

(These estimates assume no serious problems such as environmental

concerns which would extend the timeframes.)

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ATTACHMENT B

Economic and Market Analysis Division

The following provides suggested guidelines for the content

and format of market analysis reviews. The analysts have

discretion to decide on the actual content, based on the relevant

circumstances of the specific proposal or whether there has been

a recent antecedent review in the same market area.

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GUIDELINES FOR CONTENT AND FORMAT OF A MARKET ANALYSIS

FOR GENERAL OCCUPANCY RENTAL HOUSING

A. Project Description:

1\. The number of units by bedroom size.

2\. The estimated gross rent by size of unit.

3\. The amenities and services.

4\. Project Location in terms of:

a\. Characteristics of the neighborhood and

submarket in relation to schools,

transportation, shopping, employment centers,

social and community services, etc.

b\. Any other locational considerations relevant to

the proposed project.

B. Market/Submarket Definition:

Description of the geographic boundaries of the market or

submarket area and a discussion explaining the definition

of the market.

C. General Characteristics of the Housing Market Area:

1\. Current and forecast economic conditions and

employment, including analysis of the recent trends.

2\. Renter household characteristics and trends, from

1980 to the present and from present to the forecast

date (two to three years), including reasons for any

significant changes.

D. Housing Market Conditions:

1\. Estimate and characteristics of the current rental

inventory in the market or submarket area.

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2\. Recent Market Experience:

a\. Absorption experience of recently completed

projects.

b\. Current occupancy and recent trends in existing

projects.

c\. The current gross rents for comparable and

competitive projects, including a discussion on

the trend in rent increases during recent years

and whether current rents are understated due

to concessions or other factors and the extent

of rent concessions or similar incentives in

projects in initial rentup.

d\. The current overall rental vacancy rate, with

additional special consideration of the

qualitative submarkets, relevant to the

proposed project (e.g., high rent two-bedroom

units) and a discussion of any vacancy or

absorption problems in the market or submarket.

The vacancy rate for that segment of the market

most relevant to the subject project may be

significantly lower or higher than the overall

rental vacancy rate.

E. Characteristics of projects under construction and in

planning:

1\. Estimate of the total number of units under

construction and a discussion of the characteristics

of the units and the distribution by bedroom size and

by rent ranges.

2\. Estimate of the total number of units in planning

stages with building permits or firm financial

commitments.

F. Demand Estimate and Analysts:

1\. The market analysis is based on an estimate of annual

demand for rental housing. The demand estimate

should show the number of units by the number of

bedrooms and the monthly rents. It should be

emphasized that this demand estimate should be

\"effective demand\" i.e., based upon prospective

renters with sufficient income to pay the

corresponding indicated rents.

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2\. An analysis which reconciles the proposed project

with the demand estimate, taking into consideration

the forecast renter household growth, the current

vacancy situation and the supply in production.

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Guidelines for Content and Format of a Market Analysis

for Residential Care Facilities

(Board and Care, Intermediate Care and Skilled Nursing Care)

A. Project Description:

1\. The number of units/accommodations by type.

2\. The estimated total monthly cost for shelter and

services by type of unit/accommodations.

3\. The amenities, services and care provided by this

type of housing and how these relate to the physical,

mental or social conditions of the elderly.

4\. Project location in terms of proximity to hospitals,

medical facilities, social and community services,

essential to the support of the tenants in the

facility and any other locational considerations

relevant to the proposed project.

B. Geographic definition of the market or submarket area:

1\. Description of the market or submarket area and a

discussion explaining the definition of the primary

and any secondary markets and the reason for the

definition.

2\. The size of the market area for residential care

facilities (Board and care \-- Nursing Homes) may

differ considerably from the area for a congregate

rental project for the elderly. Nursing home

patients tend to go to facilities near where they

live for accessibility to attending doctors and to

relatives and friends. In metropolitan areas,

typically, the market area for residential care

facilities will be smaller than that for general

occupancy rental housing.

C. Current Inventory: Quantitative and qualitative

characteristics of individual projects in the market or

submarket area.

1\. Total number of units/accommodations by type

(one-bedroom, efficiency, private, semiprivate, ward,

etc.)

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2\. Occupant characteristics of patients/tenants in terms

of social and economic factors, e.g., age, income,

sex, etc.

3\. Total monthly costs by type of unit and discussion of

types of services and amenities offered.

4\. Condition of inventory with consideration of the

proportion that may be substandard or obsolete in

terms of physical plant, services, amenities, etc.

5\. As relevant, a discussion of competing types of

projects;

a\. Privately or Publicly Financed

b\. Private pay, Medicare, Medicaid, SSI patients

D. Current Market Experience

1\. Absorption experience of recently completed projects

on a units-per-month basis.

2\. Waiting lists in existing projects.

3\. Current occupancy in existing comparable and

competitive projects.

4\. Current vacancy rates in the market or submarket area

for the type of residential care facility proposed,

including a discussion on whether the rates/charges

are understated due to concessions or other factors.

5\. Extent of rent concessions or similar incentives in

existing projects and projects in initial rentup.

6\. Discussion of reasons for any vacancy or absorption

problems in the market or submarket.

E. Alternative Health Care and Social Service Systems

1\. Description of the extent and types of care and

services in the market or submarket such as home

health care, adult day-care available from

alternative providers, e.g., state and local social

service agencies, fraternal, social, charitable or

religious organizations.

2\. Description of the potential impact of these

alternatives on demand for the type of facility under

analysis.

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F. Characteristics of facilities under construction and in

planning:

1\. Total number of units/beds by type under construction

2\. Types of services and amenities offered

3\. Total monthly costs by type of unit

4\. Total number of units in planning stages with

building permits or firm financial commitments.

G. Demand Estimate and Analysis

1\. The market analysis is based on an estimate of annual

demand for rental housing. The demand estimate

should show the number of units or accommodations by

type and the total monthly charges.

2\. An analysis which reconciles the proposed project

with the demand estimate, taking into consideration

the forecast household and population growth of the

elderly, the current vacancy situation and the supply

in production.

3\. The demand estimate of the number of units or

accommodations is \"effective demand,\" based on the

number of elderly with sufficient incomes that

comprise the \"need\" and the proportion of that \"need\"

that could reasonably be expected to be absorbed in

the market or submarket area during the demand

forecast period (typically two years).

4\. A descriptive analysis of the demand estimate which

addresses the primary determinants including:

a\. Current and projected elderly population and

one-person households by age cohorts in the

market and submarket area.

b\. Current and projected estimates of the primary

group to be served by the type of residential

care facility proposed, by age groups, income

characteristics and household characteristics.

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ATTACHMENT C

GUIDELINES FOR FIELD OFFICE REVIEW OF DELEGATED PROCESSORS\' WORK

The Delegated Processors\' processing must be complete and

in full compliance with outstanding instructions to be

acceptable. Short cuts and unsupported conclusions must not be

accepted. Where it does not understand a particular instruction,

the Delegated Processor must ask for clarification from the Field

Office.

Where the Delegated Processor questions the appropriateness

of an outstanding instruction, and the Field Office is in

agreement, a request to waive the instruction may be submitted to

Headquarters by the Field Office. Deficiencies or discrepancies

between outstanding instructions and current industry practices

may be forwarded to the Office of Insured Multifamily Housing

Development for consideration in future revisions of technical

and program handbooks.

This review guideline is divided by discipline and

processing stage. It identifies major areas where underwriting

deficiencies have typically been found. However, the Delegated

Processor is responsible for full compliance with Section C of

the Contract and the Field Office must make an adequate review

for compliance.

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2

ARCHITECTURE

CONTROL BINDER. Upon completion of each processing stage, the

Delegated Processor must submit to the Field Office a copy of an

architectural control binder divided as follows:

1\. Application - Multifamily Projects, Form HUD 92013; the

sponsor\'s design program; the previously HUD issued SAMA,

Feasibility Letter or Commitment, if any; and a copy of the

HUD issued environmental requirements, if any.

2\. Form HUD 92264, with all documents referenced in Section O,

e.g., site inspection report, suggested conditions,

listings of outstanding exhibits, lists of major movable

equipment, etc.

3\. Topographic Survey and Surveyor\'s Report, Form HUD 92457.

4\. Engineering and specialty reports, e.g., geotechnical,

environmental, noise, flood hazard, toxic hazard, termite

control, structural integrity, heat gain/loss calculations,

etc.

5\. Municipal and utility company letters of confirmation for

the provision of services and/or offsite improvements.

6\. Evaluation of the Design Architect and related exhibits.

7\. Owner-Architect Agreement, AIA Document B181, and HUD

Amendment to the B181.

8\. Evaluation of the design architect\'s performance.

9\. Copy of the Delegated Processor\'s architect\'s journal.

10 Specifications and drawings.

SAMA STAGE.

1\. Desk review the site inspection report, sketch site plan

and photographs, comments on site suitability for the

proposed improvements, and any recommendations for

reasonableness. Compare to the Chief Underwriter

recommendations and reconciliation of the record where

recommendations vary.

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3

2\. Compare the site report against corresponding portions of

the appraisal report and other available data. Assess for

apparent discrepancies or conflicts.

3\. Determine that the Delegated Processor\'s architect

accomplished the following tasks and review for consistency

with the Delegated Processor appraisal report and HUD

appraiser\'s environmental report.

a\. Consulted with the Delegated Processor appraiser in

determining unusual site conditions, the need for

offsite improvements, and provided sufficient

information, including quantities (e.g., length of

utility extensions) to provide a clear understanding

of required work.

b\. Consulted with the HUD appraiser preparing the

project environmental report regarding the need for

engineering or specialty studies concerning

environmental, flood, and site hazard issues.

4\. Compare the completed face sheet of Form HUD 92264 with the

application, Form HUD 92013, and reconciliation of any

discrepancies. Assure that Form HUD 92264, Section O, is

signed and dated by the architect and review architect, and

that it properly references the site inspection report and

other relevant exhibits.

5\. Verify that changes to the architect\'s report or

recommendations by other than the architect are fully

documented and supported and bear the Chief Architect\'s or

Chief Underwriter\'s signature and date of revision.

CONDITIONAL COMMITMENT STAGE.

Where the SAMA stage is omitted, the above concerns must be

addressed at the Conditional stage. Following are additional

high frequency problem areas that warrant close review at this

stage.

1\. Establish that a topographic survey, foundation soils

report and other appropriate engineering or specialty

studies or report(s) for which the sponsor has

responsibility were provided in a timely fashion for

project design. Assure that any required reports not yet

completed are included as conditions of the commitment.

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2\. Review the survey and site plan to establish:

a\. Site eligibility in regards to site ingress and

egress, utilities service and other general

acceptability criteria in MPS 4910.1, chapter 2.

b\. That binding maintenance agreements are provided

where common use easements (e.g., driveways) are

used.

c\. That recorded and common law easements don\'t underlie

or transmit aerial lines over proposed building

locations.

d\. If there are nonconforming easements (e.g., do

hazardous liquids transmission lines violate

regulatory or program limitations in relation to

building locations?).

3\. Determine that foundation designs reflect site soils

limitations and design recommendations included in the

foundation soils report and any other geotechnical reports.

4\. Assure that offsite work indicated by the site inspection

report is addressed.

5\. Verify compliance with any environmental requirements.

6\. Assure that all drainage will discharge to an acceptable

outfall, and that retention ponds have been acceptably

included in the site plan where required by the controlling

jurisdiction.

7\. Assess the reasonableness of the project design concept

considering land cost, site limitations and proposed

improvements.

8\. Assess the suitability of dwelling unit floor plans,

building floor plan efficiency, amenity type and level,

site plan effectiveness and overall project appeal for long

term marketability to the intended occupancy.

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9\. Compare the design concept, materials, and structural and

mechanical systems selected for competitiveness with

available rentals for the same occupancy in regard to

development costs, maintenance and operating costs.

10\. Determine compliance with handicapped accessibility

requirements.

11\. Assure that project design conforms with provisions of the

SAMA, if issued.

12\. Compare the completed face sheet of Form HUD 92264 for

consistency with the drawings and outline specifications.

a\. Compare with the application, Form HUD 92013, where a

SAMA was not issued, and review for the

reconciliation of any discrepancies.

b\. Assure that Form HUD 92264, Section O, is signed and

dated by the architect and review architect, and that

it properly references any relevant exhibits, reports

or memoranda.

c\. Review Section O for appropriate recommendations and

conditions, e.g., the need to provide additional

engineering studies, jurisdictional authority

statements or certifications, etc.

13\. Verify that changes to the architect\'s reports, processing

or recommendations by other than the architect are fully

documented and supported in the record and bear the Chief

Architect\'s or Chief Underwriter\'s signature and date of

revision.

FIRM COMMITMENT STAGE

Where the Conditional stage is omitted, the above concerns

must be addressed at the Firm stage. Following are additional

concerns that require special attention at this stage.

1\. Establish that the drawings and specifications define a

project conforming to the Conditional Commitment, if

issued. Compare with the application, Form HUD 92013,

where a Conditional Commitment was not issued.

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2\. Verify compliance of site elements with applicable

handicapped accessibility criteria.

3\. Review the site/grading plan for adequate control

elevations for rapid drainage away from foundation areas to

a positive outfall.

a\. Check for an acceptable secondary surface outlet at

each catch basin, where primary drainage is by

subsurface devices.

b\. Assure that drainage outfall is to an authorized

public device or that appropriate easements are

provided for discharge devices across private

property.

4\. Compare designs for foundations, slabs-on-grade, paving,

etc., with design recommendations provided in the soils

report, other geotechnical reports, and/or structural

engineer. Assure that the record reconciles any variation

between engineering recommendations.

5\. Assure that design limitations/recommendations of all

engineering and specialty reports are properly reflected in

the project design or fully reconciled in the record.

6\. Assure that the plans include sufficient section and detail

drawings to fully define the work and that they are

properly referenced on the plan and elevation drawings.

Craftsmen must not have to substitute judgment for fully

defined drawings to complete any element of the work.

7\. Verify that the appropriate general and supplementary

conditions and Davis-Bacon wage rates are included in the

Project Manual.

8\. Review the Specifications, Division 1, General

Requirements, for provisions conflicting with program

requirements or impacting other discipline processing.

Typical deficiencies include:

a\. Modifying the responsibility for payment of insurance

or various permit or municipal fees from that

reflected in AIA Document B201 and assumed in the

cost estimate.

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7

b\. Modifying procedures and documents for progress

schedules, schedules of value, requisitions, change

orders and substantial completion from program

requirements.

c\. Providing for cash or \"lump-sum\" payments contrary to

outstanding instructions.

d\. Providing for alternate means of construction instead

of defining the selected alternates.

9\. Compare the grading specification, Division 2, with site

and foundation area preparation recommendations in the

soils and other geotechnical reports, and assure that the

record properly reconciles any differences. Assure that it

provides for compacted fill and its testing where indicated

by the drawings.

10\. Review the trade specifications for completeness and

coordination with the drawings, e.g., is the same type of

roofing specified as shown in the drawings, not specified

at all, or does the specification include types of roofing

not shown in the drawings.

11\. Assure that provisions for master TV antennae, cable TV,

and telephone service are consistent with market practices

and Bound underwriting and are fully specified where

required.

12\. Check for door, window and finish schedules and legends

that clarify the graphics.

13\. Verify that appropriate contracts, drawings and

specifications or municipal certifications are provided for

completion of offsite work.

14\. Check the Owner-Architect Agreement, AIA Document B181, for

the design work to be performed by the prime professional,

and assure that any additional services or deletion of

typical services are reflected in Article 10.

a\. Assure that there is an executed B181 fully defining

the services and fees for each prime professional

with which the owner contracts directly for any part

of the basic services with more than one prime

professional, e.g., for site, civil, mechanical,

electrical, engineering services, etc., or

supervisory architectural services.

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8

b\. Assure that Article 9 of the agreement defines the

fee as a \"lump-sum\" amount.

c\. Verify that no identity-of-interest exists between

the prime professional providing supervisory

architectural services and the owner or contractor.

15\. Compare the completed face sheet of Form HUD 92264 with the

drawings and specifications for consistency. Assure that

the form is completed according to instructions contained

in Handbook 4480.1. The following are common problem

areas:

a\. Section C, Boxes 27, relating to living areas and

composition.

b\. Section C, Boxes 33 and 34, relating respectively to

gross floor area and net rentable residential area.

c\. Section D, Boxes 37 and 38, relating respectively to

project equipment and services included in the rent

d\. Assure that Form HUD 92264, Section O, is signed and

dated by the architect and review architect. Assure

that it properly references any required exhibits,

(e.g., utility confirmation letters) or recommends

issuance of a lower level commitment where drawings

are incomplete or inadequate engineering or other

data has been presented upon which to make a

determination of reasonable mortgage risk; and other

relevant information.

16\. Verify that changes to the architect\'s reports, processing

or recommendations by other than the architect are fully

documented and supported in the record and bear the Chief

Architect\'s or Chief Underwriter\'s signature and date of

revision.

17\. Assess the Delegated Processor\'s architect\'s rating of the

sponsor\'s architect against the architectural journal and

submitted documents for consistency and reasonableness.

18\. Compare the above review findings against the architectural

journal to assess the performance of the Delegated

Processor\'s architect and Chief Architect.

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

9

PURCHASE AND REFINANCE TRANSACTIONS. Additional concerns for

Section 223(f) projects or projects pursuant to Section 223(f)

include:

1\. Assurances that the Delegated Processor\'s work write-up

clearly identifies:

a\. Required repairs, i.e., those identified by the

architect for completion, whether or not included in

any list of sponsor proposed work.

b\. Repairs required by local code enforcement officials.

c\. Critical repairs, i.e., those work items work that

are ineligible for deferral until after endorsement.

d\. What must be done and where it must be done in a

fashion that tradesmen can accomplish the work and

inspectors can verify its completion without

additional instruction, except as may be provided by

attached drawings and specifications.

e\. Sponsor proposed work additional to that required by

the architect.

f\. Environmental requirements established by the

Environmental Officer or appraiser and any special

requirements for the removal of hazards or hazardous

materials, such as asbestos, Lead-Based Paint, PCBs,

etc. The Environmental Officer and Appraiser\'s

reports should also identify requirements and

procedures applicable to noise control, seismic

design, Historic Preservation, archeology

restrictions and floodplains, as applicable.

2\. Drawings to the extent required to properly define the work

and any necessary specifications.

3\. Assurances that required repairs address for correction the

root cause of premature failures, e.g., proper drainage and

ventilation of crawl spaces and not merely replacement of

rotted Joist and subflooring. Compare repair lists to the

site inspection report findings.

4\. A determination that a schedule of delayed occupancy is

provided where work is to be completed after endorsement

and that:

a\. It lists all dwelling units for which there will be

delayed occupancy or for which work will cause

interrupted occupancy, and

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

10

b\. The periods of delayed or interrupted occupancy are

provided for use by the appraiser in computing the

operating deficit reserve.

5\. Determine from the architect\'s journal if the appraiser

required preparation of the remaining useful life estimate

for short lived building components and equipment, and its

reasonableness, if required. Compare the estimates to

findings in the appraisal and management specialist\'s

reports.

6\. Compare the List of Required Repairs against assumptions

made by the appraiser regarding replacements and

improvements in calculating rental income and value.

SUBSTANTIAL REHABILITATION Additional concerns for substantial

rehabilitation include verification that:

1\. At feasibility, the preliminary work write-up is a joint

work write-up by the owner\'s architect and the Delegated

Processor\'s architect.

2\. At Conditional, the sponsor\'s architect inspected every

dwelling unit and every aspect of the project for the

detailed work write-up, and that the Delegated Processor\'s

architect reviewed a sufficient number of dwelling units

and the project in general for a satisfactory assessment of

the work write-up.

3\. At Firm, that the Delegated Processor\'s architect made at

least a cursory project visit, if the project is vacant or

there is an extended period between the previous processing

stage and firm, to assure that conditions remain as

previously identified.

4\. Work on the existing property qualifies the project for

substantial rehabilitation, even where an addition is

proposed.

SECTION 232 Additional concerns for Section 232 include:

1\. Comparing the proposed work for projects pursuant to

Section 223(f) with findings and recommendations in the

most current reports of any state and local jurisdictions

responsible for monitoring the facility.

2\. Checking the drawings and specifications against lists for

major movable equipment to assure that items are not

reflected twice.

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

11

a\. Confirm that all fixed equipment is included in the

main construction contract.

b\. Confirm that equipment, furniture, etc., included in

the list of major movable equipment is clearly

specified and its use location identified so that

cost estimates can be prepared and compliance

inspection for the release of funds completed.

c\. Assure that major movable equipment to be leased is

identified on Form HUD 92264, Section P, for the

appraiser\'s use in computing expenses.

3\. Scanning the specifications and drawing notes for evidence

of identity-of-interest subcontractors and for the

provision of fixed items from other than the general

contract.

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12

CONTROL BINDER COST

1\. Form FHA 2326, Project Cost Estimate

2\. Form FHA 2325, Report of Cost Processing Worksheet

3\. Supplemental Cost Estimates

a\. Unusual Land Improvements

b\. Demolition

c\. Cost Not Attributable to Dwelling Use

d\. Offsite Improvements

4\. Comparable Project Cost Estimate; quantity take-off

estimate of all site improvements

5\. Form HUD-92264, Project Income Analysis and Appraisal

6\. Drawings - Sketches, Preliminary and construction

7\. Specifications - Outline and construction

8\. Scope of Work/Estimate of Costs

9\. Form FHA 2328, Contractor\'s and/or Mortgagor\'s Cost

Breakdown

10\. Form HUD-92329, Property Insurance Schedule

11\. Supplemental Exhibits - The following should be provided by

the Delegated Processor\'s cost analyst to adequately

support the validity of the subject project cost estimate

and processing recommendations.

a\. Delegated Processor\'s/Contractor\'s Cost Estimate

Comparison Worksheet

b\. Lump Sum Cost, Location, and Time Adjustments

c\. Bench Mark Data Descriptions

d\. Statements

e\. Processing

f\. Problems

g\. Delays

h\. Reconciliation efforts

12\. Recommendation(s)

SAMA:

1\. No review of the Delegated Processor\'s deliverable is

required unless a supplemental cost estimate has been made

as a result of appraiser\'s or the Delegated Processor\'s

architect\'s request.

CONDITIONAL COMMITMENT

1\. Monitor Delegated Processor\'s performance.

2\. Review Delegated Processor\'s deliverable for required

exhibits.

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

13

3\. Notify Housing Programs of incomplete submission.

Recommend acceptance/rejection.

4\. Review the Delegated Processor\'s processing including

backup worksheets and processing comments including any

explanations for delays and recommendations.

5\. Evaluate the Delegated Processor\'s cost analyst

performance.

6\. Advise Housing Director of recommendation regarding

deliverable acceptance/rejection and Delegated Processor\'s

performance including detailed explanation for rejection

recommendation.

FIRM

1\. Monitor the Delegated Processor\'s performance.

2\. Review the Delegated Processor\'s deliverable for required

exhibits.

3\. Notify Housing Programs of incomplete submission. Recommend

acceptance/rejection.

4\. Review the Delegated Processor\'s processing including

backup worksheets and processing comments including any

explanations for delays and recommendations.

5\. Evaluate the Delegated Processor\'s cost analyst

performance.

6\. Advise Housing Director regarding acceptance/rejection of

deliverables, including detailed explanation for rejection

recommendation, and the Delegated Processor\'s performance.

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

14

VALUATION

Control Binder. The Delegated Processor\'s valuation binder

submitted with each completed processing stage must be divided

along the following lines:

1\. Application - Multifamily Projects, Form HUD-92013 (and

Form HUD 92013E for specialized projects).

2\. Full Narrative Appraisal, including full documentation.

3\. Form HUD-92264 or Form HUD-92264NH, based on conclusions

reached in the full narrative appraisal.

4\. Draft Form HUD-92264A, Section I, to determine maximum

insurable mortgage.

5\. Separate Forms HUD-92273 or equivalent form for Nursing

Homes, Board and Care or Intermediate Care Facilities for

each unit or bed type and size.

6\. Form HUD-92274 or equivalent form for operating cost

analysis for Nursing Homes, Board and Care and Intermediate

Care Facilities.

Field Office review of the Delegated Processor\'s Valuation

processing should focus particular attention on the following

areas:

SAMA Stage

1\. Did the appraiser estimate land value fully improved?

2\. Were pictures of the site and comparable included in the

submission? Do they support the processing?

3\. Did the appraiser supply complete information in Section J

on the last arms-length transaction? This information is

very important in assuring that the sponsor doesn\'t receive

excess Profits at closing.

4\. Did the appraiser complete Form HUD 92264, Section J to

indicate project acceptability, and Sections A-D?

5\. Was a Form HUD 92273 properly completed for each unit type

and size?

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

15

6\. Did the appraiser express an opinion as to the

marketability of the proposed project?

7\. Did the appraiser and review appraiser sign and date all

forms prepared by the appraiser, including Form HUD-92264

and Forms HUD-92273?

8\. Did the Chief Underwriter\'s recommendation regarding

issuance of a SAMA Letter/project rejection properly

reflect the appraiser\'s findings and recommendations? If

not, did the Chief Underwriter adequately support the

differing recommendations.

CONDITIONAL COMMITMENT Stage

All the above concerns must be reviewed at the Conditional

stage where the SAMA stage is omitted. The following must also

be verified:

Section 221(d)

1\. Did the appraiser complete Form HUD-92264, Section G, lines

53-74 and Section N?

2\. Was Form HUD-92274 properly completed and documented?

3\. Was Form HUD-92264, Sections A through F and I, completed

based on information recorded on Form HUD 92274?

4\. Does the submission include a \"trial\" Form HUD-92264A based

upon the Form HUD-92264?

5\. Were pictures of the rental comparable included in the

submission? Do they support the processing?

Section 223(f) Purchase or Refinancing

6\. Was a properly selected capitalization rate used?

7\. Did the appraiser perform a market value determination as

part of the correlation of value function in the value

program processing? Was proper documentation included?

8\. Did the appraiser estimate property value \"as repaired\"?

9\. Were pictures of the property and comparable included in

the submission? Do they support the processing?

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

16

10\. Was a Form HUD 92273 properly completed for each unit type

and size?

ii\. Was Form HUD 92274 properly completed and documented?

12\. Was Form HUD 92264, Sections C, E, F, G, K, and L

completed?

13\. Does the submission include a \"trial\" Form HUD-92264A,

based upon the Form HUD 92264?

14\. Was Form HUD 92264A, Sections 1 and 3-5, completed?

15\. Was an initial deposit for reserves for replacement

computed based on formula or remaining useful life of short

lived building components and equipment?

16\. Was the operating deficit calculated to provide for delayed

or interrupted occupancy of units for which repairs are to

be delayed until after closing?

Section 232

17\. Was Form 92264NHICF, Sections D-H, K M, and P completed for

new construction projects?

18\. Did the appraiser make a proper split of the proprietary

income?

19\. Did the appraiser include the operating expense of renting

major movable equipment where it is not being purchased.

Common to All

20\. Did the appraiser and review appraiser sign and date all

documents?

21\. Did the Chief Underwriter\'s recommendation regarding

issuance of a Conditional Commitment/project rejection

properly reflect the appraiser\'s findings and

recommendations? If not, did the Chief Underwriter

adequately support the differing recommendations.

22\. Were any environmental conditions or hazards noted or

acknowledged by the appraiser?

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

17

FIRM COMMITMENT Stage

Where one stage processing is used, all the above

considerations must be reviewed at the Firm stage.

Where two or three stage processing is used, verify that

all assumptions used in earlier stages remain valid, e.g.,

number, type and size of dwelling units, type and extent of

amenities offered in the rent, type of services included in the

rent, effect of title exceptions on project eligibility and

income stream, type and extent of any changes in assumed unusual

site conditions indicated by additional engineering analysis,

type and extent of repairs/improvements proposed for

rehabilitation and purchase/refinance projects. Where initial

assumptions upon which income, expenses or value were based have

changed, verify that proper modification of processing documents

has been reflected.

FEASIBILITY Stage -(Substantial Rehab)

1\. Did the appraiser prepare an adequately documented \"as-is\"

value determination?

2\. Were existing rents and expenses for the project used by

the appraiser in determining the as-is value prior to

rehab?

3\. Did the appraiser use market rate rents and expenses in

producing the after rehab composite Form HUD-92264?

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

18

MORTGAGE CREDIT

Once a particular stage of processing is complete the

Delegated Processor will submit for review a mortgage credit

control binder for the subject project divided along the

following lines:

1\. Application - Multifamily Projects, Form HUD-92013.

2\. Credit Investigation.

3\. Financial Statements and Analysis.

4\. Experience and Qualifications.

5\. Land or Property.

6\. Method and Terms of Financing.

7\. Commitment Processing.

8\. Continuous History Sheet of pertinent telephone

conversations and meetings with the sponsor/general

contractor.

9\. Copies of Correspondence.

10\. Miscellaneous.

During the course of its technical review of the Mortgage

Credit processing, the field office should concentrate its

efforts in the following areas:

A. Credit Investigation.

1\. Did the Mortgage Credit analyst determine the

acceptability of the character and reputation of the

sponsor(s) and general contractor; the sponsor\'s and

general contractor\'s experience and ability to develop,

build and operate (directly or indirectly) the proposed

project.

2\. Does the Binder contain acceptable:

a\. Individual credit reports on all persons listed as

principals.

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19

b\. Commercial trade reports on:

1\) The mortgagor entity, if formed.

2\) Any partnership or corporation which is serving

as a principal of the mortgagor entity.

3\) Business concerns in which a principal serves as

a general partner, limited partner with at least

25 percent interest, and/or stockholder with 10

percent or more interest.

4\) The general contracting firm.

3\. Did the Mortgage Credit analyst expand the scope of the

credit investigation beyond the credit reports by making

inquires of banks, trade references and other HUD

offices.

B. Financial Statements. Was the financial analysis completed

with the objective of determining the amounts available for

investment in the project by performing an analysis of

working capital and/or determining which assets can be

readily hypothecated to produce the required investment?

1\. Was a narrative financial analysis supported by work

papers?

2\. Are the financial statements current and do they contain

the required criminal certification?

3\. Did the Mortgage Credit analyst:

a\. Accept figures from financial statements without analysis?

b\. Consider contingent liabilities and financial

requirements of other projects?

4\. Did the Mortgage Credit analyst obtain the necessary

supporting schedules?

5\. How did the Mortgage Credit analyst treatment of past due

receivables and receivables from affiliates?

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20

C. Supplement to Project Analysis, Form HUD-92264-A.

1\. How is a grant/loan from governmental agency handled in

Section I, Determination of Maximum Insurable Mortgage

and Section II, Total Requirements for Settlement?

2\. How are non-prepaid special assessments handled.

3\. Are the correct per unit limits being used in

Criterion 4, Amount Based on Limitations Per Family Unit?

4\. Did the Delegated Processor correctly compute the cost

not attributable?

5\. Did the Delegated Processor capitalize saving resulting

from tax abatement in Criterion 5, Amount Based on Debt

Service Ratio?

6\. Does Section II, Total Requirements for Settlement,

reflect:

a\. Cost in excess of HUD\'s estimate for the architect,

general contractor and housing consultant?

b\. A split rate interest escrow in those cases where the

construction loan interest rate is higher than the

permanent loan interest rate?

c\. An indemnification escrow if the subject project is

using GNMA Mortgage Back Securities?

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21

CHIEF UNDERWRITER REVIEW AND RECOMMENDATIONS

Review to determine that the chief underwriter has thoroughly

reviewed and analyzed the underwriting analysis, documentation

and conclusions. The file must contain an underwriting summary

signed by the chief underwriter. This summary must include an

analysis of the underwriting aspects, including a discussion of

the major conclusions reached (e.g., location, development team,

rent, expenses, etc.), significant considerations, positive and

negative, influencing the decision to recommend (or not

recommend) issuance of a litter/commitment, and any changes or

adjustments made by the chief underwriter to technical findings

and reasons for those changes.

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ATTACHMENT E

DELEGATED PROCESSING MONITORING AND TRACKING REQUIREMENTS

In order for the Department to monitor, evaluate and improve

the Delegated Processing Program, it is necessary to record and

report information on delegated processing activity in a

systematic manner. There is a critical need for immediate

information. Therefore, certain reporting requirements are

hereby established.

Immediately upon receipt of this Notice, each Field Office

should begin collecting the information specified on the next

three pages. The first report covers the period April 15-30,

1991, and should be submitted by May 6, 1991. Similar reports

should be submitted by the third working day of each subsequent

month for the prior month\'s activity. A report should be

submitted even if there was no activity for the reporting period.

The reports are to be sent to Headquarters, Attention: Jessica

A. Franklin, Director, Policies and Procedures Division, at

FHCPOST7: to the Regional Housing Director, and to the Regional

Contracting Officer by cc:mail.

As soon as possible, the Department\'s automated systems will

be further developed to incorporate the information requirements

of the Delegated Processing Program. These reporting

requirements will be phased out at that time.

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2

Delegated Processing Program

Monitoring Report

Field Office:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

As of (Date):
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(end of month)

Eligible Project Application

a\. Project Number: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

b\. Section of Act
(221(d)/223(f)232):\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

c\. Type of Project: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(NC/Sub Rehab/Existing)

d\. Project Name: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

e\. Location: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Street Address

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

City, State and Zip Code

f\. Number of Units/beds:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

g\. Mortgage Amount Reqd on 92013:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

h\. Date application received:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

i\. Processing Stages Requested:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(SAMA/FEASIBILITY/CC/FC)

j\. Recommended for Delegated Proc:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Yes or No)

k\. Approved for Delegated Processing:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Yes or No)

l\. Date Task Order Issued:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(if applicable)

m\. Factors Considered in Decision to

Use/Not Use Delegated Processing:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

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

n\. Names of Task Order Respondents:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

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

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

3

Delegated Processing Program

Monitoring Report

Delegated Processor Selected

a\. Delegated Processor Name:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

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

b\. Project Number: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

c\. Project Name: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

d\. SAMA/Feasibility Price Awarded:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

e\. Conditional Price Awarded:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

f\. Firm Price Awarded:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

g\. Date of Award: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

4

Delegated Processing Program

Monitoring Report

Review of Delegated Processor\'s Processing

a\. Delegated Processor\'s Name:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

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

b\. Project Number: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

c\. Tax Credits: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Yes or No)

d\. Loans/Grants: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Yes or No)

e\. Bond Financed: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Yes or No)

f\. Protracted Environmental
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Yes or No \>30 days)

g\. Date of DP Submission:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

h\. Processing Stage under Review:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(SAMA/Feas/CC/FC)

i\. Date Returned for Reprocessing:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(if applicable)

j\. Date Processing Accepted:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

k\. DP Recommended Mortgage Amount:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

l\. HUD Approved Mortgage Amount:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

m\. Date Letter/Commitment Issued:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

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n\. Quality of Performance\*: (Good, Fair, Poor)

Chief
Underwriter:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

Review
Arch/Engineering:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

Review
Appraiser:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

Review
Cost:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

Review Mortgage
Credit:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

o\. Date GTM Authorizes Payment:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

ATTACHMENT D

EXAMPLES OF PROCESSING EVALUATION

I. Architectural Comments

Plans and specifications are incomplete and contain errors.

A firm commitment may not be issued until drawings and

specifications are complete and correct.

A. Your Review Architect performed architectural reviews

dated October 1990. The review states that there are

still items requiring correction. Additionally, our

examination of the plans and specifications indicates

that items A.1.a. (3), (6), (10), (12), (15), (16),

(17), (21), (22), (23), (24), (28), (33), (38) and

(39), and A.1.b. (5), (6), (10) and (11) of the October

review have not been corrected.

B. Our review of the plans and specifications indicates

additional incomplete or incorrect items not listed by

your Review Architect. Some examples follow:

1\. Drawing A-7 - Exterior Elevations:

Drawing is incomplete for fourth floor gable

configuration. Only one roof slope is shown and

there are no dimensions to show rise and run of

roof.

2\. Drawing A-8 - Wall Sections

a\. Drawing is incomplete. Overall dimensions

for pre-fabricated roof trusses are not shown

and only one slope for the upper chord of one

truss is shown. There is no complete section

to show configuration of roof trusses.

b\. Toilet exhaust chase in Detail E shows one

layer of 5/8 inch type X gypsum board

covering the chase for each wall, giving a

1-hour fire rating. This conflicts with the

typical Exhaust Riser Detail on Drawing

AC-1, which requires a 2-hour fire rating for

chases.

II\. Cost Comments

Cost processing is acceptable.

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

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III\. Valuation Comments

A. The appraisal used as a basis for this submission was

prepared by \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ on February 2, 1989, and

was updated by \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ almost a
year

later. Most of the data that was used in this report

dated back to the summer of 1988. More than 6 months

have passed since the update. This appraisal must be

updated by the appraiser who originally prepared it in

order for it to have any meaning and substance. As a

part of that update, a market study with rents that

reflect current market conditions should be included.

Our field review indicated that the level of rents in

the area of the subject average approximately \$77 per

month, or 11 percent, less than the rents that were

used in processing.

B. This present processing was submitted for review on

June 2, 1990. The HUD Market Approval that was issued

for this project and included in this package is almost

18 months old and was originally processed as a tax

exempt case. On June 29, 1990, Notice H 90-42 (HUD)

was issued that states that market approvals are only

valid for a period of 1 year. \"At the end of 1 year,

HUD will review the earlier approval. HUD will either

approve the project from a market needs standpoint or

withdraw the formal approval as conditions warrant.\"

Although the Notice was issued subsequent to your

submission, you should submit a request to the

\_\_\_\_\_\_\_\_\_\_HUD Office for the renewal of your market

approval based on the intent of Notice H 90-42.

C. Much confusion surrounds the type, size, and number of

units that are to be included in this project. The

Form HUD-92273 used to estimate rents was developed

using walk-up, elevator and townhouse information. The

number of units was increased by four from the original

appraisal. The sizes of the units are different on the

Form HUD-92264 and Form HUD-92273. We are unable to

ascertain what the project really includes. This then

makes it difficult to determine what adjustments are

appropriate in estimating rent levels, etc.

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

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D. The Land Value is not well supported. The sales

comparables used by the appraiser were from locations

somewhat distant from the subject. Location

adjustments that were required lacked justification.

Many sales have taken place, in the recent past, in the

immediate vicinity of the subject. These sales offer

a substantial amount of quality data that would be

ideal for the purpose of this appraisal.

E. The occupancy rate that was selected, at 93 percent, is

somewhat questionable. The \_\_\_\_\_\_\_ market has softened

in recent months because of a great deal of

construction. A major update of the market conditions

for \_\_\_\_\_\_ County is planned by the Area Economist in

the \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ HUD Office.

F. The level of operating expenses, estimated by \_\_\_\_ at

\$2,576 per unit per annum is within an acceptable

range.

G. The following calculations have been made using the

indicated market rents reported by our Field Office.

The use of 93 percent as the occupancy rate is for this

exercise only and should not be construed as our

recommended rate for this project. The actual

occupancy rate will be established in the new market

determination letter as issued by our \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Office.

HUD

Gross Income 1,838,400 1,633,440

Occupancy rate x .9 x .93

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

Effective gross 1,709,712 1,519,099

Operating Expenses - 566,686 - 566,686

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

Net Operating Income(NOI) 1,143,026 952,413

Loan ratio x .90 x .90

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

Funds Available for D.S. 1,028,723 857,171

Debt Service rate -9.547129% -9.547129%

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

Debt Service Mortgage 10,775,208 8,978,319

Rounded 10,775,200 8,978,300

Indicated mortgage reduction \$1,796,900

This represents overmortgaging of 20 percent and could

possibly change following the new market determination

by the \_\_\_\_\_\_\_\_\_\_\_\_ Office.

H. This submission is a valuation reject. To receive HUD

approval to issue a firm commitment, you must do the

following:

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

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1\. Receive HUD Market Approval - Renewal.

2\. Update appraisal (by (NAME) )

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

3\. Resubmit package with consistent unit sizes, unit

types, etc.

4\. Receive satisfactory review of resubmission of

corrected and updated package.

IV\. Mortgage Credit Comments

A. Financial statements were not submitted for review. A

financial analysis prepared and submitted for one of

the principals included, in the working capital

computation, a credit for an accounts receivable to a

related party. Prudent financial analysis dictates the

exclusion of assets from related parties for the

working capital computation.

B. No evidence of a credit investigation was submitted.

C. Documentation supporting land indebtedness was not

submitted.

D. The GNMA escrow requirement is 4 percent during the

construction period, reducing to 1 percent at final

closing. The lender, in prior submissions, has

indicated that the lender is providing 3 of the 4

percent requirement. This creates an identity of

interest with the mortgagor. Accordingly, the lender\'s

fees are limited to only those fees included on Form

HUD-92264, Project Income and Analysis.

\* U.S. G.P.O.:1991-281-928:21071