Florida Administrative Code › 67 - FLORIDA HOUSING FINANCE CORPORATION › 67 - Departmental › Chapter 67-21 - NON-COMPETITIVE AFFORDABLE MULTIFAMILY RENTAL HOUSING PROGRAMS (MMRB/HC) › Part II - MULTIFAMILY MORTGAGE REVENUE BOND PROGRAM › Section 67-21.014 - MMRB Credit Underwriting Procedures

Current through Reg. 50, No. 138; July 16, 2024
Credit Underwriting is a de novo review of all information
					 supplied, received or discovered during or after any application scoring
					 process, prior to the closing on funding. The success of an Applicant in being
					 selected for funding is not an indication that the Applicant will receive a
					 positive recommendation from the Credit Underwriter or that the Development
					 team's experience, past performance or financial capacity is
					 satisfactory.
(1) An invitation into
				  Credit Underwriting shall require that the Applicant submit the Credit
				  Underwriting and appraisal fee and information required to complete the Credit
				  Underwriting, to the Credit Underwriter in accordance with the schedule
				  established by the Corporation upon the recommendation of the Credit
				  Underwriter. Failure to submit the Credit Underwriting and appraisal fee or
				  meet the deadlines as set forth in the schedule shall result in the immediate
				  termination of Credit Underwriting activities.
(2) The Credit Underwriter shall in Credit
				  Underwriting analyze and review all information in the Application, or any
				  proposed changes made subsequent thereto, in order to make a recommendation to
				  the Board of Directors on the feasibility of the Development, without taking
				  into account the willingness of a Credit Enhancer to provide Credit
				  Enhancement. Credit Underwriting services shall include a comprehensive
				  analysis of the Applicant, the real estate, the economics of the Development,
				  the ability of the Applicant and the Development team to proceed, and the
				  evidence of need for affordable housing in order to determine that the
				  Development meets the MMRB Program requirements. The Credit Underwriter shall
				  determine a recommended Bond amount that should be made to a Development,
				  whether an initial loan or a refunding.
(a) If
				  the Credit Underwriter determines that special expertise is required to review
				  information submitted to the Credit Underwriter which is beyond the scope of
				  normal underwriting procedures, the cost of such expertise shall be borne by
				  the Applicant.
(b) The Credit
				  Underwriter shall review the proposed financing structure to determine whether
				  the MMRB Loan is feasible. The Credit Underwriter shall also request and review
				  such other information as it deems appropriate to determine whether or not to
				  provide a positive recommendation in connection with a proposed Development. In
				  making that determination the Credit Underwriter will consider the prior and
				  recent performance history of the Applicant, Developer, any Financial
				  Beneficiary of the Applicant or Developer, and the General Contractor in
				  connection with any other affordable housing development. The performance
				  history shall consider instances involving a foreclosure, deed in lieu of
				  foreclosure, financial arrearage, or other event of material default in
				  connection with any affordable housing development or the documents governing
				  financing or operation of any such development.
(c) Unless the Credit Underwriter determines
				  that mitigating factors exist, or that underwriting conditions can be imposed,
				  sufficient to mitigate or offset the risk, the existence of the following shall
				  result in a negative recommendation of the proposed Development by the Credit
				  Underwriter:
1. Considering all affordable
				  housing developments in which any party named above has been involved, if:
a. During the period prior to August 1, 2010,
				  5 percent or more of that party's developments have been the subject of a
				  foreclosure or deed in lieu of foreclosure, or in financial arrearage or other
				  material default and such arrearage or material default remained uncured for a
				  period of 60 days or more, or
b.
				  During the period beginning on or after August 1, 2010, any of that party's
				  developments have been the subject of a foreclosure or deed in lieu of
				  foreclosure, or in financial arrearage or other material default and such
				  arrearage or material default is uncured at the present or, if cured, remained
				  uncured for a period of 60 days or more.
2. Mitigating factors to be considered by the
				  Credit Underwriter, to the extent such information is reasonably available and
				  verifiable, shall include the extent to which the party funded the operations
				  of the development from that party's own funds in an attempt to keep the
				  development afloat, the election by a party to forego financial participation
				  in a development in an attempt to keep the development afloat, the party's
				  satisfactory performance history over the last ten (10) years in connection
				  with that party's affordable housing developments, and any other extenuating
				  circumstances deemed relevant by the Credit Underwriter in connection with the
				  party's involvement in a development.
3. A negative recommendation may also result
				  from the review of:
a. An Applicant,
				  Developer, any Financial Beneficiary of the Applicant or Developer, and the
				  General Contractor in connection with any other affordable housing development,
b. Financial capacity of an
				  Applicant, Developer, any Financial Beneficiary of the Applicant or Developer,
				  and the General Contractor, and for Housing Credits, the Housing Credit
				  Syndicator, or
c. Any other
				  relevant matters relating to an Applicant, Developer, any Financial Beneficiary
				  of the Applicant or Developer, and the General Contractor if, in the Credit
				  Underwriter's opinion, one or more members of the Development team do not
				  possess the ability to proceed.
(d) In addition to operating expenses, the
				  Credit Underwriter must include an estimate for replacement reserves when
				  calculating the final net operating income available to service the debt. A
				  minimum amount of $300 per unit per annum must be deposited annually in the
				  replacement reserve account for all Developments. In the case of
				  rehabilitation, with or without acquisition, the greater of $300 per unit per
				  annum or the amount identified in the plan and cost review ordered by the
				  Credit Underwriter will be used.
1. The
				  initial replacement reserve will have limitations on the ability to be drawn
				  upon during the following time periods:
a. New
				  construction or Redevelopment Developments shall not be allowed to draw during
				  the first five (5) years or until the establishment of a minimum balance equal
				  to the accumulation of five (5) years of replacement reserves per unit,
				  or
b. Preservation or
				  Rehabilitation Developments (with or without acquisition) shall not be allowed
				  to draw until the start of the scheduled replacement activities as outlined in
				  the pre-construction capital needs assessment ('CNA') report subject to the
				  activities completed in the scope of rehabilitation, but not sooner than the
				  3rd year.
2. The amount
				  established as a replacement reserve shall be adjusted based on a CNA, prepared
				  by an independent third party, ordered by a first mortgage lender, third party
				  Credit Enhancer or a Housing Credit Syndicator, received by the Corporation or
				  its servicers, and acceptable to the Corporation and its servicers at the time
				  the CNA, is required, beginning no later than the 10th year after the first
				  residential building in the development receives a certificate of occupancy, a
				  temporary certificate of occupancy, or is placed in service, whichever is
				  earlier ('Initial Replacement Reserve Date'). A subsequent CNA, meeting the
				  parameters of this section, is required no later than the 15th year after the
				  Initial Replacement Reserve Date and subsequently every five (5) years
				  thereafter. If the Applicant does not provide a copy of a CNA to the
				  Corporation or its servicers, prepared by an independent third party and
				  acceptable to the Corporation and its servicers within the stated time frames,
				  then one shall be ordered by the Corporation or its servicers at the
				  Applicant's expense. The only events allowed to drop the balance below the
				  minimum are items related to life safety, structural and systems as approved by
				  the Corporation and its servicers. In the event the first mortgage lender or a
				  Housing Credit Syndicator requires replacement reserves with replacement
				  reserve deposit requirements that include the same or higher deposits, the
				  Corporation's rights to hold replacement reserves and to disburse such funds
				  shall be subject to the first mortgage lender or the Housing Credit Syndicator,
				  as applicable. The replacement reserve funds are not to be used by the
				  Applicant for normal maintenance and repairs but shall be used for structural
				  building repairs, major building systems replacements and other items included
				  on the Eligible Reserve for Replacement Items list, effective October 15, 2010,
				  which is incorporated by reference and available on the Corporation's website
				  under the Multifamily Programs link labeled Non-Competitive Funding Programs or
				  from
http://www.flrules.org/Gateway/reference.asp?No=Ref-02850
,
				  and/or such items that can be capitalized and depreciated over multiple years.
				  An Applicant may choose to fund a portion of the replacement reserves at
				  closing from moneys other than the proceeds of the Bonds. Unless approved by
				  the Corporation and the Credit Underwriter, this partial funding cannot exceed
				  50 percent of the required replacement reserves for two (2) years and must be
				  placed in escrow with the Bond Trustee at closing. Applicants with Credit
				  Enhancement may employ a different replacement reserve structure with the
				  Corporation's approval.
(e) At a minimum, each general partner
				  (whether individual or entity) or each manager/managing member (whether
				  individual or entity), as applicable, of the Applicant shall provide a
				  guarantee for completion of construction. In addition, one or more entities or
				  individuals (other than a general partner or manager/managing member) having an
				  ownership interest, either directly or indirectly, in the Applicant or in the
				  general partner or managing member of the Applicant shall be required to
				  provide guarantees or personal guarantees, as applicable, for completion of
				  construction as recommended by the Credit Underwriter or as otherwise required
				  by the Corporation. The Corporation shall consider the following when
				  determining the need for additional construction completion guarantees based on
				  the recommendations of the Credit Underwriter:
1. Liquidity of any guarantee
				  provider.
2. Applicant's,
				  Developer's and General Contractor's history in successfully completing
				  Developments of similar nature.
3.
				  The past performance of the Applicant, Developer, General Contractor, or any
				  other guarantee provider, in developing or constructing Developments financed
				  by the Corporation or its predecessor.
4. Percentage of the Corporation's funds
				  utilized compared to Total Development Costs. If, after evaluation of
				  subparagraphs 1. through 4. above, by the Corporation and the Credit
				  Underwriter, it is determined that additional surety is needed, the Applicant
				  will be required to provide a letter of credit or payment and performance
				  bond.
(f) The Credit
				  Underwriter shall review and make a recommendation to the Corporation whether
				  the number of existing loans and construction commitments of the Applicant and
				  its Principals will impede its ability to proceed with the successful
				  development of each proposed Corporation Development.
(g) The Credit Underwriter shall consider the
				  appraisal of the Development and other market study documentation to make a
				  recommendation as to whether the market exists to support both the demographic
				  and income restriction set-asides committed to within the Application. The
				  Credit Underwriter shall consider the market study and other documentation to
				  make a recommendation of whether to approve or disapprove an allocation when
				  the proposed Development would financially impair an existing Development
				  previously funded by the Corporation.
(h) For a Development utilizing
				  Corporation-issued MMRB that has rehabilitation with or without acquisition, a
				  CNA, prepared in accordance with generally accepted industry investment grade
				  standards as reflected in the Non-Competitive Application, shall be ordered by
				  the Credit Underwriter from a Corporation-approved CNA provider. Its findings
				  shall be used to determine the amount of rehabilitation that will be carried
				  out and to set replacement reserves.
(i) If the Credit Underwriter requires
				  additional clarifying materials in the course of the underwriting process to
				  complete the Credit Underwriting Report, the Credit Underwriter shall request
				  the information from the Applicant. Such requested information shall be
				  submitted within the timeframe established by the Credit Underwriter. Failure
				  for any reason to submit required information on or before the specified
				  deadline shall result in immediate termination of Credit Underwriting
				  activities.
(j) At a minimum, the
				  Credit Underwriter shall require the following information during Credit
				  Underwriting:
1. For Credit Enhancers, audited
				  financial statements for their most recent fiscal year ended, if published;
				  otherwise the previous year's audited statements will be provided until the
				  current statements are published or Credit Underwriting is complete. The
				  audited statements may be waived if the credit enhancer's senior long term debt
				  rating is at least "A3" by Moody's, or "A-" by Standard and Poor's or
				  Fitch.
2. For guarantors, audited
				  financial statements or financial statements compiled or reviewed by a licensed
				  Certified Public Accountant for the most recent fiscal year ended, credit
				  check, banking and trade references, and deposit verifications. If financial
				  statements that are either audited, compiled or reviewed by a licensed
				  Certified Public Accountant are not available, unaudited financial statements
				  prepared within the last 90 days and reviewed by the Credit Underwriter and the
				  two (2) most recent years tax returns. If any of the applicable entities are
				  newly formed (less than 18 months in existence as of the date that Credit
				  Underwriting information is requested), a copy of any and all tax returns with
				  related supporting notes and schedules. The financial statements and
				  information provided for review should be in satisfactory form and shall be
				  reviewed in accordance with Part IIIA, Sections 401 through 408 and 410, of the
				  Fannie Mae Multifamily Selling and Servicing Guide, in effect as of June 10,
				  2015, which is incorporated by reference and available on the Corporation's
				  website under the Multifamily Programs link labeled Non-Competitive Funding
				  Programs or from
http://www.flrules.org/Gateway/reference.asp?No=Ref-07357
.
				  A certification meeting the criteria of the Multifamily Underwriting
				  Certificate outlined in Section 407 may be used in lieu of the Multifamily
				  Underwriting Certificate.
3. For
				  the General Contractor, audited financial statements or financial statements
				  compiled or reviewed by a licensed Certified Public Accountant for the most
				  recent fiscal year ended, credit check, banking and trade references, and
				  deposit verifications. The audited or compiled statements may be waived if a
				  payment and performance bond equal to 100 percent of the total construction
				  cost is issued in the name of the General Contractor by a company rated at
				  least "A-" by AMBest & Co.
4.
				  For the Applicant and general partner, audited financial statements or
				  financial statements compiled or reviewed by a licensed Certified Public
				  Accountant for the most recent fiscal year ended, credit check, banking and
				  trade references, and deposit verifications. If the entities are newly formed
				  (less than 18 months in existence as of the date that Credit Underwriting
				  information is requested), a copy of any and all tax returns with related
				  supporting notes and schedules.
(k) The Credit Underwriter shall require an
				  operating deficit guarantee. Upon written request of the guarantor(s) to the
				  Corporation, the Credit Underwriter, or the servicers, the operating deficit
				  guarantee will be released upon achievement of a 1.15x debt service coverage
				  ratio for the MMRB Loan, as determined by the Corporation or its agent, and 90
				  percent occupancy, and 90 percent of the gross potential rental income, net of
				  utility allowances, if applicable, all for a period equal to 12 consecutive
				  months, all as certified by an independent Certified Public Accountant. The
				  calculation of the debt service coverage ratio shall be made by the Corporation
				  or its agent. The Credit Underwriter or servicer will determine whether all of
				  the requirements described above have been met, including receipt, acceptance
				  and verification of the documentation provided by the Certified Public
				  Accountant, and will then submit a letter to the Corporation containing a
				  positive or negative recommendation concerning the release of the operating
				  deficit guarantee. If the Corporation's decision is to deny the release of the
				  operating deficit guarantee, the Board shall consider the facts and
				  circumstances of the Applicant's request and the Corporation's denial, and make
				  a determination of whether to grant the requested release. Notwithstanding the
				  above, the operating deficit guarantee shall not be released prior to the
				  earlier of the date which is three (3) years following the issuance of a final
				  certificate of occupancy (or, in the event a final certificate of occupancy is
				  not routinely provided by the applicable jurisdiction, such other information
				  evidencing completion of the Development which is deemed acceptable to the
				  Corporation), or the date on which the MMRB Loan is repaid.
(l) The Credit Underwriter shall also require
				  environmental indemnity and recourse obligation guarantees.
(m) Required appraisals, market studies,
				  pre-construction analyses, physical needs assessments, capital needs
				  assessments and environmental studies (other than Phase I Environmental Site
				  Assessments) shall be completed by professionals approved by the Credit
				  Underwriter. Approval of appraisers and contractors to complete market and
				  environmental studies shall be based upon review of qualifications,
				  professional designations held, references and prior experience with similar
				  types of Developments.
(n) An
				  appraisal report conforming to the Uniform Standards of Professional Appraisal
				  Practice in effect at the time of the appraisal and reported in a comprehensive
				  format, and a separate market study shall be ordered by the Credit Underwriter
				  from an appraiser qualified for the geographic area and development type not
				  later than when an Application enters Credit Underwriting. The Credit
				  Underwriter shall review the appraisals to properly evaluate the MMRB Loan
				  request in relation to the property value.
(o) Appraisals and separate market studies
				  which have been ordered and submitted by third party Credit Enhancers or
				  syndicators and which meet the above requirements and are acceptable to the
				  Credit Underwriter may be used instead of the appraisal or market study
				  referenced above.
(p) The Credit
				  Underwriting Report shall include a thorough analysis of the proposed
				  Development and a statement as to whether a MMRB Loan is recommended, and if
				  so, the amount recommended. The Credit Underwriter or the Corporation may
				  request such additional information as is necessary to properly analyze the
				  credit risk being presented to the Corporation and the Bond holders. For the
				  Credit Underwriter to make a favorable recommendation, the submarket of the
				  proposed Development must have:
1. An average
				  physical occupancy rate of 92 percent or greater; and,
2. For Developments with new construction
				  units, an average market rental rate, based on unit mix and annualized rent
				  concessions, of 110 percent or greater of a 60 percent of Area Median Income
				  rental rate.
(q)
				  Developer Fee shall be limited to 18 percent of Development Cost excluding land
				  and operating deficit reserves. Consulting fees, if any, and any financial or
				  other guarantees required for the financing must be paid out of the Developer
				  Fee. Consulting fees include payments for Application consultants, construction
				  management or supervision, Local Government consultants and property
				  acquisition brokerage fees when in excess of the appropriate limit. The maximum
				  brokerage fees shall be limited to the lesser of $300, 000 or a percent of the
				  acquisition price, which shall be set at 4 percent when the acquisition price
				  is $5 million or less, 3 percent when the acquisition price is $10 million or
				  less, and 2 percent when the acquisition price is in excess of $10 million.
				  Brokerage fees paid to an Affiliate of the Applicant or Developer or to
				  employees on the Developer's payroll will be considered part of the Developer
				  Fee. Fees of the Applicant's or Developer's attorney(s) awarded in conjunction
				  with litigation against the Corporation with respect to a Development shall
				  also not be included in Total Development Costs. Fees for services provided by
				  architects, accountants, appraisers, engineers or financial advisors engaged by
				  the Applicant as outlined in subsection
				  67-21.0045(5),
				  F.A.C., may be included as part of the Total Development Costs, except that
				  those fees for a financial advisor engaged by the Applicant that are in excess
				  of $18, 000 must be paid out of the Developer Fee. In the event of
				  extraordinary circumstances, Applicant may petition the Board for relief from
				  the cap on financial advisor fees engaged by the Applicant. The Corporation
				  shall not authorize fees to be paid for duplicative services or duplicative
				  overhead.
(r) General Contractor's
				  fees are inclusive of general requirements, profit and overhead and shall be
				  limited to 14 percent of actual construction costs. For the purpose of the HUD
				  Risk Sharing Program, if there exists an Identity of Interest as defined herein
				  between the Applicant or Developer and the General Contractor, the allowable
				  fees shall in no case exceed the amount allowable pursuant to the HUD subsidy
				  layering review requirements. Additionally, fees shall be allowed to be paid
				  only to the person or entity that actually meets the definitional requirements
				  to be considered a General Contractor. The Corporation shall not allow fees for
				  duplicative services or duplicative overhead. The General Contractor must meet
				  the following conditions:
1. Employ a
				  Development superintendent and charge the costs of such employment to the
				  general requirements line item of the General Contractor's budget inclusive of
				  the general requirement items related to construction costs identified in The
				  Final Cost Certification Application Package,
2. Charge the costs of the Development
				  construction trailer, if needed, and other overhead to the general requirements
				  line item of the General Contractor's budget,
3. Secure building permits, issued in the
				  name of the General Contractor,
4.
				  If deemed necessary by the Corporation and the Credit Underwriter in their
				  evaluation of construction completion guarantees in paragraph (2)(e), above,
				  secure a payment and performance bond whose terms do not adversely affect the
				  Corporation's interest, issued in the name of the General Contractor, from a
				  company rated at least "A-" by AMBest & Co., or a Corporation-approved
				  alternate security for the General Contractor's performance such as a letter of
				  credit issued by a financial institution with a senior long term (or
				  equivalent) credit rating of at least "Baa3" by Moody's, or at least "BBB-" by
				  Standard & Poor's or Fitch, or a financial rating of at least 175 by IDC
				  Financial Publishing,
5. Ensure
				  that none of the General Contractor duties to manage and control the
				  construction of the Development are subcontracted,
6. Ensure that no construction or inspection
				  work is performed by the General Contractor, with the following exceptions:
a. The General Contractor may perform its
				  duties to manage and control the construction of the Development; and
b. The General Contractor may self-perform
				  work of a de minimis amount, defined for purposes of this sub-subparagraph as
				  the lesser of $350, 000 or 5 percent of the construction contract,
7. For Developments with
				  a Development category of new construction, unless otherwise approved by the
				  Corporation for a specific Development, ensure that not more than 20 percent of
				  the construction cost, not to include the General Contractor fee or
				  pass-through fees paid by the General Contractor, is subcontracted to any one
				  entity or any group of entities that have common ownership or are Affiliates of
				  any other subcontractor, with the exception of a subcontractor (or any group of
				  entities that have common ownership or are Affiliates of any other
				  subcontractor):
a. Contracted to deliver the
				  building shell of a building of less than five (5) stories which may not have
				  more than 25 percent of the construction cost in a subcontract, unless
				  otherwise approved by the Corporation for a specific Development; or
b. Contracted to deliver the building shell
				  of a building of at least five (5) stories which may not have more than 31
				  percent of the construction cost in a subcontract, unless otherwise approved by
				  the Corporation for a specific Development; or
c. Contracted to deliver the building shell
				  of a Development located in the Florida Keys Area, which may not have more than
				  31 percent of the construction cost in a subcontract, unless otherwise approved
				  by the Corporation for a specific Development. With regard to said approval,
				  the Corporation shall require an analysis from the Credit Underwriter and
				  consider the facts and circumstances of each Applicant's request, inclusive of
				  construction costs and the General Contractor's fee. For purposes of
				  subparagraph 7., "Affiliate" has the meaning given in subsection
				  67-21.002(5),
				  F.A.C., except that the term "Applicant" therein shall mean "subcontractor";
				  and,
8. For Developments
				  with a Development category of Rehabilitation or Substantial Rehabilitation,
				  unless otherwise approved by the Corporation for a specific Development, ensure
				  that not more than 20 percent of the construction cost, not to include the
				  General Contractor fee or pass-through fees paid by the General Contractor, is
				  subcontracted to any one entity or any group of entities that have common
				  ownership or are Affiliates of any other subcontractor, with the exception of a
				  subcontractor (or any group of entities that have common ownership or are
				  Affiliates of any other subcontractor) contracted to perform work on both the
				  HVAC and electrical components of a building of at least seven (7) stories
				  which may not have more than 31 percent of the construction cost in a
				  subcontract, unless otherwise approved by the Corporation for a specific
				  Development. With regard to said approval, the Corporation shall require an
				  analysis from the Credit Underwriter and consider the facts and circumstances
				  of each Applicant's request, inclusive of construction costs and the General
				  Contractor's fees. For purposes of this paragraph, "Affiliate" has the meaning
				  given in subsection 67-21.002(5),
				  F.A.C., except that the term "Applicant" therein shall mean "subcontractor";
				  and,
9. Ensure that no construction
				  cost is subcontracted to any entity that has common ownership or is an
				  Affiliate of the General Contractor, Developer, or Applicant. For purposes of
				  this paragraph, "Affiliate" has the meaning given it in subsection
				  67-21.002(5),
				  F.A.C., except that the term "Applicant" therein shall mean "General
				  Contractor."