542(c) FHA-Insured Multifamily (Risk Share)

Purpose

Construction and permanent loans for affordable rental developments. Risk Share loans (no size limit) may be used as credit enhancement for bond transactions, which provide the funding. Loans up to $2,000,000 (i.e. ACCESS loans) may be funded by MFA and are designed to minimize transaction/due diligence costs and expedite processing for small projects.

Eligible Borrowers

Single asset mortgagors including nonprofit organizations, for-profit corporations, joint ventures, limited liability companies and partnerships. A single asset mortgagor is an entity whose sole asset is the real property financed by the Risk Share loan.

Eligible Projects

New construction, substantial rehabilitation, refinancing or acquisition of projects having no less than five units per site. Eligible projects may include detached, semi-detached, row houses or multifamily structures.

Ownership

Fee simple, renewable lease for at least 99 years or government agency lease for at least 10 years beyond the end of the term of the loan.

Secondary Financing

MFA mortgage loan must have the first lien on the property. Subordinate financing may be allowed, subject to MFA approval.

Interest Rates & Payments

Current interest rates are based on the following calculation:
10 Year Treasury rate + current HUD-approved total MIP* + 25 bps +  MFA servicing fee + 2.00%

24-month rate locks are also available at an additional 1% fee to the borrower. Payments are interest-only during construction, and amortization occurs over the remaining life of the loan beginning at conversion.

*Current HUD-approved total MIP is 0.25% as of April 1, 2016.

Loan Terms

Amortization periods of up to 35 years for existing properties and 40 years for new construction projects plus up to 24 months for construction.

Maximum loan amount will be the lesser of:

1. Seventy-four percent loan-to-value (LTV) based on MFA approved appraisal at market rents. This results in a 90/10 risk sharing between FHA/MFA. Higher LTVs, up to 90 percent (new construction) or 85 percent (existing properties) may be considered on an exception basis. However, these higher LTVs result in MFA taking a higher risk percentage and have generally not been preferred,
2. Eighty-seven percent loan to MFA approved cost (new construction) or 85 percent loan to MFA approved cost (existing properties), or
3. The loan amount that allows for a total debt service coverage ratio of no less than 120 percent on all must-pay debt.

Prepayment

Prepayment is prohibited for the first 10 years of the amortization period (ACCESS loan) or longer if required for bond transactions.

Recourse Provisions

Loans may be non-recourse to the borrower except for limited environmental indemnifications and construction loan period guaranties.

Reserve Requirements

Operating deficit or sustaining occupancy reserves may be required prior to permanent loan closing. Initial replacement reserve (RR) may be required prior to permanent loan closing and ongoing RR will be based on an MFA approved Capital Needs Assessment. Current minimums are $250 per unit per annum (PUPA) for senior projects and $300 PUPA for all others, increasing at no less than 3 percent per annum.

Affordability Requirements

Owners must meet one of two minimum set-aside requirements which include both income and rent restrictions. Rents are set at 30 percent of the applicable income limit, adjusted for family size and utility costs.

• Option A:
  Forty percent of the units must be rented to households whose annual income does not exceed 60 percent of area median income. An additional 20 percent of the units must be rented to households whose income does not exceed 120 percent of area median income, adjusted for family size as determined by HUD.
• Option B:
  Twenty percent of the units must be rented to households whose annual income does not exceed 50 percent of area median income. An additional 5 percent of the units must be rented to households whose income does not exceed 80 percent of area median income; and an additional 35 percent of the units must be rented to households whose income does not exceed 120 percent of area median income, adjusted for family size as determined by HUD.

Underwriting Approval

Approvals are conditioned upon MFA's satisfactory review of the appraisal; site and market analysis; development team capacity, design, rehabilitation and other development costs; affirmative fair housing marketing plans; operating budget and environmental reports. HUD approvals are required for principals' previous participation and environmental assessments. Risk Share loans are subject to an MFA subsidy layering review.