# Presentation: 683501

## Ancient History

-    _FHA __	__	__1934 - 1986_
- 			31,987 loans
- 			3,180,693 units
- 			about **61,000** units/year

**Notes:**
Some history – you may not want to spend time on this one (or the next slide).

## More recent history

-    _FHA __	__	__1987 - 2006_
- 			17,166  loans
- 			2,389,844 units
- 				about **60,000** units per 				year financed, or refinanced

**Notes:**
Some more history.  If you divide, you see that it’s actually about 120,000 units per year, but many / most have been refinanced and so we don’t want to be counting the same units twice.

## Market Rate

-   Rents  vs  Subsidy
-   Mortgage and Interest Rate

**Notes:**
Explain that when we use the term market rate, we are typically talking about both the rents paid (vs Section 8 or other subsidies, or LIHTC rent restrictions), and that the mortgage itself is a “conventional” product – that is, there are no interest rate subsidies such as in the older assisted FHA or in a tax exempt bond transaction.

## Initial attraction

-   Market
-   Identification of a site
-   What can go wrong?

**Notes:**
If it’s built, will anyone live here?
Can it be built in this location?
What can go wrong???? – another way to ask this question is “Why isn’t there a project already being built here?”

Evidence of Site Control
Deed – no impermissible reverter language
b. Purchase Agreement – does it give enough time to get deal done? Add clause making purchase contingent on issuance of HUD commitment 

## Flirting

-   Scope of the project - market
-   Local political landscape –   			zoning, design, traffic, etc.
-   Putting the team together

**Notes:**
Things the Developer is thinking about before anyone else.

## The First date

-   Developer
-   Investors
-   Lender
-   Architect
-   General Contractor
-   Lawyers
-   Management Agent

**Notes:**
Questions the developer (and the lender and HUD) will be asking:
Does the Borrower have the capacity to do this?  Who will be providing equity?  Who will be providing debt?   Who will design the property? Who will actually lay the concrete and drywall it?  Who will paper the deal?  Who will arrange for the lawn to be cut and hire the perky leasing agents?

Organizational Documents
Authority to enter into transaction
 Term of the organizational documents must be at least 10 years beyond the amortization.

Owner Architect Agreement
HUD amendments – briefly go over
 additional terms to deal with problems that have come up.  E.g. subject to arbitration?  Expiration date same as closing.  Liability/E&O Insurance.
 is there enough money?

## Going Steady

-  FHA vs other sources of financing?
-  Lender engagement
-  Zoning
-  Environmental

**Notes:**
Zoning – documentation from local unit of government stating that if project is constructed according to plans and specs, project will comply with all zoning requirements.  MAP requirements. 

Environmental – current ASTM (-05) standards.   4128 and Phase 1 issues.

## Meeting the Parents

-  Concept meeting with HUD
-  Timing
-   APPS
-   Waivers?

**Notes:**
Once the Lender is selected, we discuss the timeline for the rest of the process, the need to start on the APPS entries, and attempt to identify issues that may be a problem, including any necessary waivers.  While under MAP, Preapp meetings are not required or expected, we think it is a good idea to at least have a “concept” meeting with the local HUD office to see what if any issues they identify. This is particularly true if the Developer elects to skip the Pre-application Stage.

## A pre-engagement ring?

-  Preapplication submission
- 		Market
- 		Environmental
- 		Rents / Expenses

**Notes:**
You can skip this stage, but only recommended if experienced team, and no wrinkles in the deal.  If the deal goes directly to Firm, these issues still need to be dealt with.    The underwriter will be asking the following questions:
If they build it, will any one live here?
How much will they pay for the priviledge of doing so?
How long will it take to lease up?
Given the rental income, and the need to pay operating expenses, is there enough Net Operating Income to support the requested mortgage?
Is the site “clean”?

## Getting ready to pop the question

-  Preparation of Firm Commitment 	application
-  A&E
-  Cost – (Davis who?)
-   Valuation
-   Mortgage Credit

**Notes:**
Biggest delay is typically in the area of Architecture, Engineering, and Cost.   The Borrower’s Architect needs plans and specs with a greater level of specificity than typical on a conventional (non-HUD) loan.  For example, no “bidder-design” is allowed, and the typical phrase “or equal” can not be used in the specs.   Similarly, HUD has very specific requirements for the Contractor’s Cost Breakdown (using a Form 2328).  The Lender’s A&E/Cost Analyst needs to work with the Borrower’s team to get these submission document perfect.  

The reason HUD requires such specificity is because of the “insurance of advances” feature.  They can’t commit to a deal unless they know what they are getting.   

One of the other big issues in the last couple of years is increased construction costs.  Feasibility can be limited by statutory limits on the mortgageable cost in some cases, and in other cases Davis Bacon Wage Requirements can result in higher costs.

Valuation issues: Land Value, updating rents/expenses, Initial Operating Deficit requirements.

Mortgage Credit issues: Liquidity test for GC.  Borrower Financial statements, credit reports, 2013-Supp’s, land draw.

## Getting ready to pop the question

-  Preparation of Firm Commitment 	application
-  Asset Mgt issues
-  Fair Housing
-  Legal

**Notes:**
Make sure the 2530 has been submitted through APPS

Review the Affirmative Fair Housing Marketing Plan

Capability of the proposed Management Agent, staff to be charged against the project, sample lease, various HUD Form Management Documents.

Title Commitment
Legal Description 
Check status of taxes due 
Schedule B exceptions 
    i.      Acceptable:
           1.      utility easements 
    ii.      Not Acceptable:
             1.      liens
             2.      restrictions with reversionary clauses
Survey
Certification – per HUD form 92457 with revision date of 2/06
Legal Description – must be consistent with title commitment, metes and bounds (not just lot numbers) 
Tracing
Encroachments – if noted, must be on title policy and insured over
3. Surveyor’s Report
Correct form – 2/06
Numbers 1-10 answered correctly (not just..as shown on survey)
c. Signed and sealed by surveyor 
4.  Construction Contract – need correct form
Cost Plus vs. Lump Sum 
          i.      Lump Sum – no identity of interest
         ii.      Cost Plus – identity of interest 
Type of assurance of completion – performance and payment bond or completion assurance agreement with letter of credit or cash

## The ring . . .

-  Firm Commitment application 	submitted to HUD
-   Deficiencies?
-   Firm Commitment issued

## Planning the big day

-  Firm Commitment accepted
-   Rate lock – GNMA security
-   Prep the closing documents

**Notes:**
Submission of draft closing documents to HUD.
Once the Firm Commitment has been issued by HUD, the Lender’s legal team will start preparing closing documents.  HUD will want to see the draft documents at least 15 days prior to the requested closing date.  This gives a chance for review and any necessary revisions or questions to be addressed.

## The Happy Day

-  Conditions to the Firm?
-   Pre-closing passing papers
-   Pre-Construction conference
-   Meet with Asset Mgt
-   Bring Donuts

**Notes:**
READ THE CONDITIONS to the firm.   Particularly the Special Conditions at the bottom.  If you haven’t read and dealt with those prior to closing, this will not be such a happy day.
It is often helpful to have a pre-closing meeting with the Lender and the Borrower and their counsel a day or two before closing. This let’s us pre-record some documents, and facilitates smoother execution at the actual closing table.   This is helpful not only to minimize potential problems with the closing, but also to allow more focus on 2 important meetings that typically occur on or around the day of closing.  
PreConstruction conference:  The HUD Construction Management staff will typically host this, and discuss draw requirements, inspection process, and change orders.  Labor Relations will discuss the Davis Bacon requirements.
Many HUD offices require or strongly encourage a meeting with Asset Mgt prior to closing, or as part of the closing process, to discuss the Regulatory Agreement, Annual Financial Statements, and limitations on timing of distributions.  

Owner’s Organizational Documents:
a. Duration of ownership entity – 10 years beyond mortgage maturity date
b. HUD required provisions – (summarize)