4420\. 1

CHAPTER 2. PROJECT PROCESSING

2-1. THE STAGES OF PROJECT PROCESSING. The HUD-FHA multifamily

coordinator (Program Manager) who is the point of contact with

the sponsor, will schedule project processing in one, two, or

three stages.

a\. Under single-stage processing, the sponsor provides

at the first submission all necessary exhibits

conforming to HUD-FHA requirements. The sponsor\'s

firm commitment is then issued. Total elapsed time

between the first contact and HUD-FHA\'s issuance of

the commitment is approximately 30 days.

b\. Under multiple-stage processing, the sponsor may be

unable to satisfy all of the HUD-FHA requirements

in the first submission. In this instance, the

sponsor will go through two or three stages - the

first leading to a feasibility letter, the second

leading to a conditional commitment, and the third

to a firm commitment.

c\. The total processing procedure is as follows:

\(1\) The initial conference is the first

contact between the sponsor and the Field

Office on the proposal.

\(2\) Sponsor\'s preparation of a request for

feasibility analysis (FHA Form 2013)

outlining his proposal.

\(3\) Preparation for the feasibility

conference by both the sponsor and the

Field Office.

\(4\) The Feasibility Conference and issuance

of a feasibility letter.

\(5\) Preparation and submission through an

approved mortgagee, of an application for

mortgage insurance (FHA Form 2013) with

exhibits, preliminary sketches, brief

specifications and payment of the

application fee. Processing may be for

either conditional or firm commitment

depending on sponsor\'s wishes and/or

degree of preparation as determined by

the Director of Technical Services or the

Chief Underwriter.

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\(6\) Processing of the sponsor\'s submission.

If the processing is for a firm

commitment there must be a complete

architectural design of the project with

full working drawings and specifications

submitted to HUD-FHA with payment of the

commitment fee. If for a conditional

commitment, only schematic drawings are

required. HUD-FHA then issues the

conditional and/or firm commitment.

\(7\) Initial endorsement of the original

mortgage, referred to as the initial

closing.

\(8\) Pre-Construction Conference.

\(9\) Construction of the Project.

2-2. INFORMATION REQUIRED FROM THE SPONSOR FOR FEASIBILITY

DETERMINATION.

a\. The Sponsor should be prepared to give the

multifamily coordinator (Program Manager) all the

information not marked with solid triangles on the

application (FHA Form 2013 Rev.). This application

form is used in all stages as a sponsor\'s summary

and preapplication in the feasibility stage and as

the mortgagee\'s application at the conditional and

firm commitment stages.

b\. The Only Required Information is that necessary to

identify the site, the access to the site, the

number of units, the expected income, a rough

estimate of total construction and improvement

costs, and a requested loan amount and the details

of the management plan. The sponsor should have a

clear idea of the demand for the project he

proposes, the extent of competition with which he

will be confronted, the vacancy rates in similar

projects, and the prevailing unit rentals in the

area. He should also know the equipment and

services included in the rentals of competing

projects and whether his site location is

acceptable to the type of tenants he wishes to

attract. He should know whether zoning for his

site permits his proposed project. At this point,

it is also desirable that the sponsor have an

indication of the total construction and land

improvement costs of the proposed project.

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\*(2-2) c. Using Data Available in the Field Office, the HUD

Director Deputy Director, Housing Development/

Service Office Supervisor will analyze the

sponsor\'s information. From this study it will be

determined whether the project is economically

feasible in terms of site acceptability, number of

units or spaces, rents, expenses, net income, land

value, project budget, cash requirements and

mortgage amount. Economic feasibility refers to

the capability of the project to produce sufficient

income to pay the operating and fixed expenses,

meet the mortgage requirements, and leave a

reasonable net return to the sponsor.

d\. Assignment of Project Number. An official project

number shall be assigned to a case upon

determination by the HUD Director/Deputy Director,

Housing Development/Service Office Supervisor that

submission is sufficiently complete for processing.

The project number is to be recorded on Form FHA-2530,

Previous Participation Certificate, and other

documents before the copies are forwarded to the

Director, Office of Multifamily Housing

Development, Headquarters.

e\. Real Estate Tax Abatement or Exemption: If in any

case the sponsor claims that the project will

receive abatement or exemption from real estate

taxes, the concurrence of the Office of the

Regional Counsel in the validity of the claim must

be obtained before the claim may be accepted in

determining the feasibility of the proposed

project. The Area Manager/Service Office

Supervisor, therefore, must receive such

concurrence before issuing any SAMA letter. The

Area Manager\'s/Service Office Supervisor\'s

memorandum to the Regional Counsel transmitting the

sponsor\'s claim and supporting document, shall

include any information available regarding similar

projects in the Jurisdiction where abatement or

exemption was requested and whether or not allowed.

Copies of the transmittal memorandum are to be sent

to the Director, Office of Multifamily Housing

Development, Headquarters. Outlined below are the

procedures to be followed:

\(1\) Sponsor submission: The sponsor must

submit a full statement of the facts,

including a copy of the application for

the abatement or exemption which has been

or will be presented to the local

authorities. The statement of facts and

application must correctly describe the

project and its proposed operation on

which the claim is based. Also to be

submitted is an opinion letter from the

prospective mortgagor\'s attorney, making

reference to the statement of facts \*

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(2-2) and application, advising the basis and extent

of the claimed exemption or abatement, and

that except for a future change in the statute

or material change in the facts, the project

will be entitled to the exemption or abatement

claimed. The letter must cite the state

statute involved and must attach any other

material supporting the claim, i.e., local

administrative rulings or court decisions,

opinions of local private or public counsel or

the state attorney general.

\(2\) Exemptions based on special legislation: In

some states, special legislation has been

passed granting tax exemption to particular

types of housing, e.g., housing located in

urban renewal areas or housing for low or

moderate income groups or for other social

needs. Generally, tax exemption pursuant to

such legislation may be safely assumed. If

after review, the Regional Counsel determines

that the proposed project meets the special

criteria of the legislation, the director will

be advised that the project may be processed

on a tax exempt basis without guaranty.

\(3\) Exemptions based on general charitable and

eleemosynary statutes: Exemption under a

general statute exempting projects for

charitable or eleemosynary purposes is a risky

assumption, which dictates an entirely

different treatment than claims under (2)

above. Even though an exemption may be

obtained initially, it is not safe to assume

that the exemption will continue throughout

the life of the mortgage. Therefore, it is

necessary that adequate safeguards be adopted.

After review of the proposal and the

appropriate statute, the determination of the

Office of the Regional Counsel will result in

either:

\(a\) Exemption assured: If there is assurance

that the tax exemption will be initially

granted, the director will be advised

that the project may be processed on a

tax exempt basis but that the Sponsor

will be required to execute a guaranty

agreement on form FHA 1708, assuring the

payment of taxes In the event the project

loses its exemption in the future. The

amount of the guarantee to be inserted in

Item 1. of the form will be determined by

the Director and will be

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sufficient to reduce the mortgage to an

amount which would permit the mortgage to

be carried by the mortgagor on a tax

paying basis. Under the agreement, the

sponsor will either pay taxes as they

become due or make a lump sum prepayment

of the mortgage in the above guaranteed

amount and have the mortgage recast. In

addition to the guarantee requirement,

the director must determine that the

credit reputation of the guarantor is

acceptable and that analysis of a current

financial and operating statement

indicates clearly its financial ability

to perform under the guarantee; and that

the sponsor has presented legal assurance

satisfactory to the regional attorney

that it has the legal capacity to execute

the guarantee agreement.

\(b\) Exemptions not assured: If it is

determined that there is no assurance of

tax exemption, the director will be so

advised and the project will be processed

solely on a tax paying basis. Sponsors

will not be permitted to obtain tax

exempt processing on the basis of

offering to execute the guarantee

agreement.

f\. HUD-FHA does not Require design drawings to

determine economic feasibility. Therefore, the

sponsor may or may not retain an architect at this

point. This is his option. If the sponsor has

retained an architect, he should accompany the

sponsor to the feasibility conference to discuss

the program, procedures, and the target dates upon

which economic feasibility is predicated.

2-3. THE FEASIBILITY CONFERENCE AND ISSUANCE OF A FEASIBILITY

LETTER.

a\. Determination of Feasibility. The final

determination of project economic feasibility is

made, and agreement between the sponsor and HUD-FHA

is reached, at the feasibility conference. If the

sponsor\'s estimated project replacement cost and

requested loan amount do not exceed by more than

2%, the maximum cost and mortgage amount which can

be supported by the project net income as initially

calculated by HUD-FHA the project generally can be

considered economically feasible.

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b\. During Feasibility Conference, the Multifamily

Coordinator or Program Manager will discuss the

types of additional information and exhibits which

will be required from the sponsor. The necessary

material is outlined on the application form (FHA

2013 Rev.) for the various stages of processing.

Only the material requested for the particular

stage (conditional or firm) is necessary, although

any exhibits already available should be furnished.

c\. Feasibility Letter. Following a feasibility

conference where agreement has been reached on all

of the matters discussed a feasibility letter will

be issued to the sponsor. This letter includes not

only the rents, dollar limitations on cost,

mortgage and land value and the cash requirements,

but also the expected processing time and target

date for sponsor submissions. Wherever possible, a

HUD-FHA Design Representative will be assigned to

the project as Well.

2-4. ELIGIBILITY FOR IMMEDIATE FIRM COMMITMENT PROCESSING. HUD-FHA

encourages the knowledgeable and responsible sponsor to come

in with a complete project submission on which an immediate

determination of the acceptability of risk and mortgage amount

can be made with assurance that HUD-FHA will make a prompt

decision. If the sponsor is experienced in bringing a

completed package into a conventional mortgage lender for

decision, he can do the same with HUD-FHA and receive equally

prompt action. At the same time, HUD-FHA assures all other

sponsors, that we stand ready to assist them throughout the

total processing and provide held and guidance they need to

develop a successful Multifamily housing project.

a\. The following criteria will be applied to determine

the eligibility of on-hand applications and future

applications.

\(1\) The sponsor is thoroughly knowledgeable

and has a record of proven dependability

for producing economically sound

projects.

\(2\) The sponsor\'s architect has established a

record of successful design that would

justify reliance upon his certification

as to compliance of the proposal with

HUD-FHA Minimum Property Standards and

other applicable requirements and,

further, that his design concepts and

execution could reasonably be relied upon

to produce a readily marketable housing

project.

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(2-4) (3) The sponsor\'s land planner and engineering

services are similarly reliable, knowledgeable

and responsible.

\(4\) The site is under the sponsor\'s control and is

appropriately zoned.

\(5\) The submission is accompanied by adequate

market data showing that schools and other

community facilities are or will become

available to meet the needs of the project and

its occupants. This data should establish an

effective demand for the number of units at

the rents that will be required.

\(6\) The builder must show that he is bondable.

\(7\) HUD-FHA must have assurance that the builder

has firm commitment of adequate construction

and mortgage financing, contingent only upon

approval of the project for mortgage

insurance.

\(8\) The sponsor must have complete plans

meeting all HUD-FHA requirements

accompanying his submission and ready to

proceed.

b\. It is not intended that feasibility processing and

the feasibility determination will be omitted. The

sponsor will be informed of the feasibility finding

and given a very short period to inform the office

of his intention to proceed or to modify the

proposal. This interval is required in order to

fix the time when the application fee is earned and

no longer available for refund.

2-5. IDENTIFICATION OF PRIORITY APPLICATION. Responsibility for

identifying applications to be resolved in the future, that

are eligible for immediate firm commitment processing is

assigned to the Multifamily Coordinator/Assistant Director

Technical Services. He shall review the applications and

inform the Field Office Director of those applications that

are eligible for immediate firm commitment processing. When

he has the Director\'s concurrence, he shall mark the cases for

immediate firm commitment processing (IFCP) and direct

appropriate processing action.

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2-6. TRANSFERS TO IFC PROCESSING. Sponsors of projects that were

determined initially to be ineligible for immediate firm

commitment processing may have the classification changed at

any time in the processing sequence by submitting all required

architectural exhibits and evidence that the application and

the sponsor meet the special eligibility criteria set forth

above. When eligibility for priority IFC processing is

demonstrated, the application shall be reclassified and

handled on an immediate action basis for the remainder of the

processing cycle.

2-7. COMMITMENT PROCESSING. The decision to move the proposal to

conditional or all the way to firm commitment is dependent

upon the extent of the sponsor\'s preparation. Assuming the

preparation up to now is at the minimum required for

determination of feasibility, the sponsor will move to a

conditional commitment and then to the firm commitment. It

must be emphasized that the sponsor with a complete package

may move from feasibility to firm commitment directly. The

description of the complete step-by-step process is for

illustrative purposes only. Complete processing flexibility

is tailored to the sponsor\'s preparation and degree of

sophistication.

a\. The Mortgagee will submit to HUD-FHA a conditional

commitment application with fee, accompanied by the

drawings and exhibits agreed upon at the

feasibility conference, within the time agreed upon

at the feasibility conference. HUD-FHA project

processing to the conditional commitment will

require generally less than 30 days following the

case submission. After the processing is

completed. HUD-FHA will contact the mortgagee to

schedule a conditional commitment conference. The

conditional commitment will be issued to the

mortgagee and its provisions discussed with the

sponsor. This document is non-transferrable by the

sponsor, i.e., neither the sponsor nor the

mortgagor may be changed without FHA approval. The

mortgagee will be invited to submit an application

for a firm commitment with the final contract

drawings and documents.

b\. An Important Short Cut in processing is

accomplished by the BUD-FHA design representative

discussing proposed plans with the sponsor\'s

architect. Although the HUD-FHA design

representative will in no instance approve or sign

plans, he will answer any questions about

compliance with HUD-FHA policies and consult, where

necessary, to assure design of a project on which

HUD-FHA can insure a mortgage.

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c\. The Design Representative will be available for

consultation on both preliminary and designing

development plans.

2-8. EXHIBITS REQUIRED FOR CONDITIONAL COMMITMENT.

a\. HUD-FHA Requires Schematic Drawings and Brief

Specifications to be submitted before the

conditional commitment is issued. Schematic

drawings shall be drawn to scale and include a site

plan showing:

Lot lines and dimensions

Adjacent buildings (show outline and number of floors)

Proposed buildings, outline and over-all dimensions

Parking area and total number of cars that can be parked

Driveways

Adjacent streets and utilities and their size

Patios, recreation and other areas

Any off-site work

Unit dimensions

b\. Conditional Commitment Conference. If the

schematic drawings are acceptable and the project

otherwise conforms to that which was agreed upon

during the feasibility conference, then a

conditional conference will be scheduled.

2-9. EXHIBITS REQUIRED FOR FIRM COMMITMENT.

a\. After the Sponsor Receives the Conditional

Commitment he must develop the documents. Rapid

processing by HUD-FHA depends to a large extent

upon the ability of the sponsor\'s engineer, planner

or architect to produce these within a minimum

amount of time.

b\. The Construction Documents include working drawings

and trade specifications and shall contain all

necessary information for bidding and constructing

the project. The specifications shall include the

latest edition of the \"General Conditions of the

Construction\", AIA Document A201; \"Supplementary

General Conditions of the Contract for

Construction\", FHA 2554; and any other

supplementary conditions.

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2-10. AMENDMENT TO CONSTRUCTION CONTRACT IN CASES INVOLVING THE

REHABILITATION OF OCCUPIED DWELLING UNITS.

a\. Amendment to Construction Contract. In all cases

involving rehabilitation where tenants must vacate

the living units prior to rehabilitation either the

lump sum FHA Form 2442 or cost plus FHA Form 2442-A

form of construction contract may be amended by

adding the following rider to Article 2,

subparagraph A, of either contract:

\"Any claim made by the contractor for the

extension of time to complete the work under

the provisions of the AIA General Conditions

which is based upon a delay resulting from

failure to vacate the building according to a

plan for relocation of the occupants shall be

deemed to be a delay beyond the contractor\'s

control.\"

b\. Notification of Mortgagor-Owner. In every case

where one or more of the living units are occupied

by tenants, at the time of initial closing, the

mortgagor-owner will be instructed by the Field

Office Director that it is the mortgagor\'s

responsibility to take prudent action to have the

unit vacated promptly and in a timely manner to

avoid delay of the orderly process of completing

the rehabilitation.

2-11. FINAL REVIEW AND FIRM COMMITMENT CONFERENCE. The sponsor

will submit to HUD-FHA for review three sets of the

construction documents together with firm costs tabulated

on FHA Form 2328. Each set of specifications and

drawings must include a white cover sheet with project

identification and spaces for signatures. Certification

must be provided snowing that the construction documents

conform to the schematic drawings, brief specifications,

commitment conditions and applicable codes and

ordinances.

a\. When HUD-FHA Review Results in a Positive Decision,

a firm commitment conference will be scheduled at

which a firm commitment will be issued.

b\. Before Closing, the firm commitment should be

reviewed by the sponsor to make certain that there

are no discrepancies between its conditions and the

construction documents.

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