[Federal Register Volume 59, Number 38 (Friday, February 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4246]
[[Page Unknown]]
[Federal Register: February 25, 1994]
_______________________________________________________________________
Part V
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner
_______________________________________________________________________
Administrative Guidelines; Limitations on Combining Low Income Housing
Tax Credits With HUD and Other Government Assistance; Notice
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner
[Docket No. N-94-3722; FR-3334-N-01]
Administrative Guidelines; Limitations on Combining Low Income
Housing Tax Credits With HUD and Other Government Assistance
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Notice of Administrative Guidelines to be Applied in
Implementing the Requirements of Section 911 of the Housing and
Community Development Act of 1992 (HCDA '92), (42 U.S.C. 3545 note) and
Section 102 of the Department of Housing and Urban Development Reform
Act of 1989 (HRA '89), (42 U.S.C. 3545).
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SUMMARY: This document sets forth the Administrative Guidelines which
qualified Housing Credit Agencies (HCAs), as defined under Section 42
of the Internal Revenue Code of 1986, must follow in implementing the
requirements of Section 911 of HCDA '92. HUD Field Offices will also
follow these Guidelines, in accordance with HUD instructions, which
will be made available to HUD Field Offices at the time these
Guidelines are effective. These Guidelines were designed to ensure that
participants in multifamily projects do not receive excessive
compensation by combining sundry HUD Housing-administered program
assistance with assistance from other Federal, State, or local agencies
(Other Government Assistance) and/or low income housing tax credits
(LIHTCs).
DATES: Comment due date: April 26, 1994.
Effective Date: February 25, 1994.
ADDRESSES: Interested persons are invited to submit comments regarding
this Notice to the Rules Docket Clerk, Office of General Counsel, room
10276, Department of Housing and Urban Development, 451 Seventh Street
SW., Washington, DC 20410. Communications should refer to the above
docket number and title. All comments will be available for public
inspection and copying between 7:30 a.m. and 5:30 p.m. weekdays at the
above address.
FOR FURTHER INFORMATION CONTACT: For questions, write to the attention
of Helen Dunlap, Deputy Assistant Secretary, Multifamily Housing
Programs, room 6106, or call (202) 708-2495. Please note that this
phone number is not toll free.
SUPPLEMENTARY INFORMATION: This document sets forth the Administrative
Guidelines which qualified Housing Credit Agencies (HCAs), as defined
under Section 42 of the Internal Revenue Code of 1986, must follow in
implementing the requirements of Section 911 of HCDA '92. HUD Field
Offices will also follow these Guidelines, in accordance with HUD
instructions, which will be made available to HUD Field Offices at the
time these Guidelines are effective. These Guidelines were designed to
ensure that participants in multifamily projects do not receive
excessive compensation by combining sundry HUD Housing-administered
program assistance with assistance from other Federal, State, or local
agencies (Other Government Assistance) and/or low income housing tax
credits (LIHTCs).
HUD Housing assistance includes at least the following: Project-
Based Certificates; Mortgage Insurance; Capital Advances; Mortgage
Relief (i.e., Partial Payments of Claims); HUD Refinancing of a HUD-
assisted project; Prepayment Plans of Action; Section 8 Rent Increases
or Contracts for New or Additional Units; Flexible Subsidy;
Foreclosure, Negotiated, or Competitive Sales; Section 8 Project-Based
Certificate projects; Section 8 Moderate Rehabilitation and Single Room
Occupancy Moderate Rehabilitation and any other HUD Housing-approved
Source which pays for what these Guidelines allow as a project Use. See
24 CFR 12.50 for a more complete list of types of HUD assistance, and
24 CFR 12.32 for aggregate amounts which necessitate applicant
disclosure.
Other Government Assistance includes at least the following:
Grants/Loans from a Federal, State, or Local source; Low Income Housing
Tax Credits (LIHTCs) or Historic Tax Credits received from a Housing
Credit Agency (HCA); Tax-Exempt Bond Financing received from a Housing
Finance Agency, with or without tax credits; State Housing Tax Credits
received in connection with the project; and any other governmental
Source which pays for allowable project Uses. Other Government
Assistance is defined as ``any loan, grant, guarantee, insurance,
payment, rebate, subsidy, credit, tax benefit, or any other form of
direct or indirect assistance from the Federal Government, a State, or
a unit of general local government, or any agency or instrumentality
thereof.'' 24 CFR 12.30
These Guidelines also advise qualified HCAs having tax credit
allocation authority of how they may fulfill section 911, HCDA '92
requirements to carry out the responsibilities of Section 102(d) of the
HUD Reform Act for projects receiving HUD-housing assistance and
receiving or allocated LIHTCs by certifying that the sum total of all
assistance awarded to an individual project ``shall not be any more
than is necessary to provide affordable housing.'' The Guidelines
should make the subsidy layering review process more efficient for
housing industry participants who rely on the LIHTC, combined with HUD
and possibly other forms of Other Government Assistance, to produce low
income housing. Readers may note that the primary emphasis throughout
this publication is on HUD mortgage insurance and HCA LIHTC assistance.
However, combination of these and other forms of HUD Housing-
administered and Other Government Assistance is possible, and is also
subject to the same limitations discussed herein, as administered in
conjunction with HUD's Instructions. In accordance with section 911,
however, HCAs can only perform the subsidy layering function for
projects that are at least receiving HUD housing assistance and are
receiving or allocated a LIHTC. Below are relevant dates and HUD
contacts, followed by the Procedural Description, Guideline Standards,
Glossary, and related Attachments.
The Office of Housing currently applies previously published
Guidelines (See Federal Register dated April 9, 1991 at 56 FR 14436)
and other instructions to project submissions received as of this date.
Section 911 of HCDA '92 provides that for projects receiving HUD
assistance and receiving or allocated LIHTCs, HCAs may perform the
subsidy layering review function originally assigned to HUD under
section 102 of HRA '89 (42 U.S.C. 3545) provided they certify to HUD
that they will properly apply the Guidelines which HUD establishes.
HCAs must also certify pursuant to Guidelines established for section
911 implementation that the total assistance provided to any one
project is not more than is necessary to provide affordable housing.
This publication establishes such Guidelines effective immediately.
HUD will follow these Guidelines for LIHTC projects in cases where
an HCA has not been delegated section 911 authority or where an HCA has
had its section 911 authority revoked by HUD. HUD has reserved until
this time implementation of its regulations at 24 CFR part 12, subpart
D (as well as implementation of conforming changes made to HUD's
program regulations) for subsidy layering review of Non-LIHTC projects
under Section 102 of HRA '89. These regulations are now fully effective
by publication of these Guidelines for all forms of Other Government
Assistance combined with HUD assistance. These Guidelines are
immediately effective and supersede HUD's previously published notices,
memoranda, and Administrative Guidelines relating to tax credits and
subsidy layering.
For cases involving FHA mortgage insurance, only projects which
have not reached final endorsement may be reviewed by HCAs pursuant to
Section 911 of HCDA '92 and in accordance with these Guidelines. If the
Sponsor submitted Attachment #4, Form HUD-2880, ``Applicant/Recipient
Disclosure/Update Form,'' to HUD with its mortgage insurance
application and indicated no intention to apply for or receive LIHTCs,
and the application has been processed through to a commitment as of
this date, and the Sponsor now submits Form HUD-2880 revisions
indicating application for or receipt of LIHTCs, then a ``significant
deviation'' from the Form HUD-92013, ``Application for Multifamily
Housing Project,'' is proposed, and new processing fees are required
(See Procedural Description below for cases processed hereafter
indicating application for or receipt of LIHTCs).
As noted, instructions detailing HUD responsibilities for
monitoring HCA subsidy layering review activities, and also for
performing section 102 responsibilities in cases where HCAs cannot or
elect not to, will be effective and applied by the Field Office at the
time of publication of this notice.
HUD will consider public comments on these Guidelines, and make a
final revision effective by publication following the 60-day comment
period. Thereafter, HUD may annually review numerical standards
throughout these Guidelines, or more frequently as market conditions
dictate, and make any adjustments deemed necessary.
The Office of Public and Indian Housing (PIH) will be publishing a
separate set of guidelines which will apply to Section 8 Moderate
Rehabilitation projects developed under 24 CFR part 882, subparts D and
E, and the Project Based Certificate projects developed under part 882,
subpart G. However, until such time as PIH's guidelines are published,
these guidelines will be used to determine necessary assistance when
reviewing tax credit proposals related to the Section 8 Moderate
Rehabilitation and Project Based Certificate programs. For more
information, please contact G. DeWayne Kimbrough, Rental Assistance
Division, Office of Assisted Housing, PIH, (202) 708-7424; TDD: (202)
708-0850.
The Office of Special Needs Assistance Programs (SNAPS), of the
Office of Community Planning and Development, will issue its own set of
guidelines, tailored to its individual programs. Until that time,
subsidy layering reviews for the Section 8 Moderate Rehabilitation SRO
program will continue to be conducted at Headquarters. For these
reviews, SNAPS will generally adopt the standards contained in the
Office of Housing's revised guidelines published below. For more
information, please contact Mark R. Johnston, Deputy Director, SNAPS,
(202) 708-4300; TDD: (202) 708-2565.
Procedural Description
Intent to Participate
An interested HCA must signal to the HUD Field Office with
jurisdiction (i.e., the applicable HUD Office which performs full
Multifamily functions for the area) its intent to conduct the Section
911 review procedure by sending a brief letter, executed by an
authorized official of the HCA informing HUD that it: (1) Has reviewed
Section 911 and these Administrative Guidelines; and (2) understands
its responsibilities under the Section 911 and the Guidelines; and (3)
certifies that it will perform the Section 911 review process in
accordance with all Statutory, Regulatory, and Guideline requirements.
An individual HCA's questions or requests for clarification
relating to Section 911 implementation should be addressed to HUD
Headquarters, and should be answered by HUD prior to that HCA's
notification to the HUD Field Office of its intent to accept Section
911 authority. Where there are no outstanding issues affecting an
individual HCA's understanding of the Guidelines, and in all States or
areas where a qualified HCA having tax credit allocation authority has
so notified HUD of its intention to participate, HUD will delegate the
authority to perform the Section 911 review, and shall confirm its
delegation by the Field Office's written acknowledgement to the HCA.
This means that for all projects receiving or allocated tax credits
as well as (where present) other forms of other government assistance,
combined with some form of HUD assistance, participating HCAs will
conduct a subsidy layering review to determine whether any excess
subsidy is being provided. Such an HCA will check allowable Sources
against allowable Uses, and reduce the subsidy Source within its
control--i.e., the total tax credit allocation amount--whenever
necessary to balance a project's Sources and Uses Statement. If an HCA
is unable to award the full amount of the tax credits requested to a
particular project after application of its selection criteria, or
because only limited allocation authority and resources exist, then the
HCA should reflect that ``Additional Equity'' is required of the
Sponsor on the Sources and Uses Statement, and also indicate this on
the Attachment #1 Certification provided to HUD. Note: These are the
two primary lines of Attachment #2, Required Format--Section 221
Sources and Uses Statement or #3, Required Format--Section 223(f)
Sources and Uses Statement, as applicable, which require HCA analysis
and input for mortgage insurance cases. Other ``Uses'' lines appearing
near the bottom of the Statement which are payable by Sources other
than HUD mortgage insurance may, however, also require some analysis
and calculation.
HUD Field Offices will perform Section 102 subsidy layering review
functions using HUD Instructions for all projects located in states or
areas where the HCA having allocation authority has declined to accept
Section 911 authority, has not registered its intent with HUD and been
delegated the Section 911 authority by HUD, as described above, or has
been revoked by HUD for non-compliance with the Statute or implementing
Guidelines and instructions.
Typical Sequence of Events
Sponsors wishing to combine HUD assistance and HCA tax credit
assistance are encouraged to initially apply to HUD. Attachment #4,
Form HUD-2880, must accompany all applications. Generally, applicants
should know the level of approved HUD assistance before applying to the
HCA for tax credit assistance; otherwise, the HCA's determination of
the necessary allocation amount and its Section 911 responsibilities
will have to be repeated. HCAs may wish to consider this policy for
projects combining HUD mortgage insurance and HCA LIHTC assistance:
that only those which have already received a HUD commitment may apply
for a tax credit allocation (But see Attachment #6 caveats and
exceptions to the general sequential order and such a policy for other
forms of HUD assistance).
In all cases, HUD will process applications in accordance with the
applicable program's outstanding Handbook procedures and instructions.
For example, Section 221 new construction or substantial rehabilitation
mortgage insurance applications will be completely processed in
accordance with an assumed level of ``set-aside'' units (See
Attachments #4 and #5), where either tax credits will be sought or a
reservation has been obtained. HUD will make its best efforts, with all
available qualified staff, to process assistance requests in a timely
manner. HUD will also qualify its mortgage commitments, making them
dependent upon HCA determinations (See HUD Assistance Adjustment
below).
Sponsors which have received a commitment for HUD mortgage
insurance should include all processing and financing details in their
application materials to an HCA. When LIHTC applicants are able to show
an HCA HUD's processing details and results--including estimated
mortgage amounts, replacement costs, and cash requirements--the HCA
will be in a better position to review the project's tax credit
requests and needs, and make an appropriate allocation to selected
projects in accordance with its own criteria.
Initial HCA Allocations
For every project selected to receive HCA tax credit assistance
combined with HUD assistance, HCAs must establish a Net Syndication
Proceeds Estimate on a case-by-case basis (See Glossary definition).
The Net estimate used must be no greater than is necessary to balance
the Sources and Uses Statement.
Therefore, an HCA may wish to work in reverse, completing the Uses
portion of the Statement, and the known other Sources, before
establishing the Net Syndication Proceeds ``gap filler'' needed.
The HCA may add to this Net Proceeds amount estimated Syndication
and Bridge Loan Expenses to ``build up'' to an estimated sum of the
total allocation needed. The sum total allocation estimated to be
necessary in these cases may be less than the amount the HCA otherwise
generally estimates based on the applicable credit percentage and
eligible project costs. The HCA may reconcile the difference (alter the
estimated allocation necessary) by either lowering the credit
percentage, or, by lowering the number of units eligible for the
credit. Generally, HCAs should reduce the credit percentage for such
projects, because a reduction in the number of eligible units affects
the unit set-aside percentage, and, the net estimate of what investors
of the syndication would pay, creating circular recalculation problems.
Lowering the number of eligible units which HUD has initially agreed
are marketable should be avoided unless the HCA projects absorption
difficulties HUD did not recognize earlier in processing.
HCAs should also use past syndication data and current market and
industry sources of data to assist them in determining accurate Net
Syndication Proceeds Estimates and necessary allocation amounts for an
individual project. However the HCA chooses to analyze the problem and
estimate Net proceeds, where the initial estimation of Net Syndication
Proceeds indicates that total Sources exceed total Uses, estimated
necessary allocations should be reduced proportionately and
commensurately to balance the Statement prior to making actual
allocation awards to, and executing allocation agreements with, the
Sponsor.
HCAs should assume that the Sponsor retains no more than a 1-5
percent ownership in the project pursuant to its General Partnership
capacity in a syndication to Limited Partners. HCAs must examine
syndication and partnership documentation to determine what the
Sponsor's interest will be. Where greater than a 5 percent ownership
interest will be retained, the HCA must assume a Net Syndication
Proceeds estimate as if only a 5 percent interest was being retained.
Initial allocation determinations shall be conveyed by an HCA to HUD on
Attachment #2 or #3 for mortgage insurance cases, along with an initial
Attachment #1 Certification.
Standards and Certification
There are basically two standards the HCA may choose to apply
before making its Certification: ``Safe Harbor'' or ``Ceiling.'' If all
applicable Safe Harbor standards (See Guideline Standards below) are
met, the allocation and Section 911 Certification are exclusively
within the HCA's authority to make and relay to HUD. But if a Safe
Harbor standard is exceeded, then HCAs must submit a Special Authority
Request, together with supporting data and rationale justifying the
deviation up to an ``Absolute Ceiling'' amount, to the HCA's Governing
Board for review and approval (or Approving Authority where no existing
Governing Board oversees the HCA). The Governing Board or Approving
Authority must conduct a public hearing for all Special Authority
Requests prior to approval. The Board may Approve the Request, Approve
the Request Subject to Modification, or Reject the Request, making
findings by signed Resolution. After the Governing Board has returned
its decision, HCAs shall make adjustments in accordance with it,
allocate tax credits to balance the Sources and Uses Statement, make
its Section 911 Certification to HUD, and forward to HUD the applicable
Sources and Uses Statement and Governing Board's executed Resolution
finding to exceed a Safe Harbor Standard(s), in cases where the
Governing Board approves the Special Authority Request (with or without
modification) to exceed the Safe Harbor Standard(s).
Sponsor's Additional Equity Contributions
Where no additional allocation authority exists to meet estimated
allowable project Uses, HCAs should reflect the additional equity
required of the Sponsor to balance the Sources and Uses Statement. The
HCA must submit this Statement to HUD together with its Section 911
Certification so that HUD may determine the Sponsor's ability to meet
such cash requirements prior to initial closing for mortgage insurance
cases, or contract execution for all other cases involving preliminary
HUD assistance approval.
HUD Assistance Adjustment
If a project does not receive the allocation anticipated and
assumed in HUD processing of the original request--for example, only 40
percent of the units receive tax credits and are set aside for low
income use, while the HUD processing assumption was 100 percent--then
the HCA will advise HUD through its Attachment #1, Section 911
Certification; the sponsor must submit an updated Attachment #4, Form
HUD-2880; and the mortgagee must submit an amended Form HUD-92013. In
the case of a lower set aside, HUD will re-estimate income assuming the
rents reflected on Line 1 of Form HUD-92264-T, ``Rent Estimates for Low
or Moderate Income Units in Non Section 8 Projects Involving Tax Exempt
Financing or Low Income Housing Tax Credits,'' Attachment #5, for units
not being set aside. This Form HUD-92013 application revision does not
constitute a ``significant deviation,'' and no new fees will be
required.
If a higher set-aside than that assumed by HUD in processing is
awarded, then HUD will similarly re-estimate income assuming the rents
reflected on Line 6 of Form HUD-92264-T for the additional rent
restricted units. Operating Expense estimates may be affected by
varying set-aside assumptions. Revised set-aside assumptions can result
in either an increase or a decrease in the maximum insurable mortgage
depending on whether the set-aside proportion assumption has been
decreased or increased, and the effect that this has on rents and
expenses. More significantly, projects with set-aside assumptions
different from those initially assumed by HUD may be subject to
different overall market need or economic feasibility conclusions.
In the event the HCA awards more or fewer tax credits to the
project than amounts originally assumed by HUD in processing, HUD may
revise its market need analysis and conclusion. HUD's market need
analysis should assist HCAs in determining whether, and to what extent,
set-aside assumptions may be changed without altering, or perhaps
completely eliminating, HUD mortgage insurance assistance. HUD's Office
of Housing Management will similarly determine and convey in
preliminary approvals whether varying set-aside proportions can be
acceptably combined with HUD assistance it administers.
HUD will reserve the right in its mortgage insurance commitments to
reconsider all underwriting conclusions affected by changes in LIHTC
assumptions. For example, HUD will recalculate its operating deficit
estimate if the set-aside proportion changes, and this estimate may
either increase or decrease depending on the relative absorption rates
and rent and expense levels of market and unsubsidized rent-restricted
units. Working Capital requirements may change. Where fewer tax credits
are awarded, HUD will gauge the effect on unmet cash requirements. In
short, these caveats mean that the commitments issued in conjunction
with this procedure will be highly qualified. EMAS or Valuation
recommendations to reject revised applications due to lack of market
need, or Mortgage Credit rejection recommendations on the basis of
unmet cash requirements, must be anticipated by Sponsors. HUD may
unilaterally modify commitment terms, or cancel its commitment
altogether, if original HUD processing assumptions associated with
LIHTCs subsequently change.
Allocation Adjustments
HCAs must advise HUD of any adjustments made to its initial
allocation in a timely manner. HUD must advise HCAs of any changes in
estimated project uses or HUD controlled assistance also in a timely
manner. For example, positive construction change-orders, occurring
during construction and approved by HUD, may change estimated project
uses. Similarly, HUD's mortgage amount is subject to change at cost
certification. Therefore, HUD must transmit the results of its cost
certification procedure to HCAs in a timely manner so that HCAs may
complete the final review.
An HCA must submit a final Section 911 Certification and balanced
Sources and Uses Statement after HUD's cost certification procedure is
completed. Thus, the HCA's third and final stage of review at placement
in service will be delayed until cost certification results have been
received from HUD. Subsequent to the placement in service date of any
of the project's units or HUD's final endorsement date, whichever
occurs first, the HCA may not revise the rent restricted unit set-aside
proportion without the HUD Field Office's prior approval.
HUD Monitoring
As discussed above, HCAs must submit Section 911 Certifications and
Sources and Uses Statements for all projects to HUD Field Offices. HCAs
must allow designated HUD personnel, including the Office of Inspector
General, access to all HCA Section 911 subsidy layering records and on-
site inspection of the same. HUD Field Offices will, in accordance with
instructions issued to them, monitor for Guideline compliance,
correspond with HCAs concerning any review deficiencies, and make
determinations regarding the HCA's Section 911 authority to continue
performing subsidy layering reviews. HCAs may appeal Field Office
determinations to revoke Section 911 authority to Headquarters.
Similarly, any cases involving deficiencies in HCA Governing Board
decisions may be appealed to Headquarters for final determination.
Guideline Standards
Separate Standards Appear Below
If all Safe Harbor standards are met, the HCA may make its tax
credit allocation and Section 911 Certification, and directly submit
these and the Sources and Uses Statement to HUD. But if any Safe Harbor
standard is exceeded, HCAs must submit Special Authority Requests to
the HCA Governing Board as outlined above.
Applicability Exceptions
An HCA may grant a limited number of exceptions to the standards
referenced below, i.e., it may exclude the greater of either 5
individual projects or 10 percent of the total number of projects which
the standards apply to in a single calendar year from any or all of the
standards below. These exceptions should be granted in a consistent
manner (i.e., that in granting exceptions projects with similar
characteristics shall be treated consistently). Also, there should be a
rational basis to support any project being excepted from Guideline
Standards, while another is not. All exceptions must be approved by the
HCA Governing Board under the procedures previously described for
Special Authority Requests. For example, a small project of 5-20 units
may receive a Builder's Profit of greater than 6 percent as one
exceptional case, if approved by the Board.
As another example, a project located in a qualified census tract
may receive a Developer's Fee of greater than 15 percent and may incur
Syndication Expenses for private placement of greater than 12 percent
of gross proceeds as a second exceptional case. Additionally, for these
cases, the HCA will determine that the amount of equity capital and the
project costs satisfy the mandates in section 911(b) of the HCDA '92.
1. Builder's Profit
Safe Harbor Standard
Where there is no Identity-of-Interest (See Glossary) between the
Builder and the Sponsor/Developer, the Builder's Profit may not exceed
HUD's estimate reflected on Line G44 of Form HUD-92264, ``Rental
Housing Project Income Analysis and Appraisal.'' Where there is an
Identity-of-Interest, the combined Builder's Profit and Sponsor's
Profit/ Developer's Fee is limited to BSPRA, as reflected on Line G68.
Such allowances may be reflected by the HCA on the Mortgageable
Replacement Cost Uses portion of the Sources and Uses Statement.
Alternatively, HCAs may reflect no Builder's Profit or BSPRA on the
Mortgageable Uses portion of the Statement, and may instead reflect up
to 4 percent of Total Development Costs (See Glossary) under the Non-
Mortgageable Uses portion of the Statement.
Ceiling Standard
Following the alternative funding pattern above, the HCA may
reflect Builder's Profit of up to 6 percent of Total Development Costs
under the Non-Mortgageable Uses portion of the Statement where approved
by the Governing Board or Approving Authority.
Note: The Safe Harbor and Ceiling Alternatively-funded Standards
may be raised from the 4 and 6 percent levels, if the HUD Field
Office having jurisdiction approves of an increase, and establishes
new Safe Harbor and Ceiling Alternative percentages for a defined
area.
2. Sponsor's Profit/ Developer's Fee
Safe Harbor Standard
Where there is no Identity-of-Interest (See Glossary) between the
Sponsor/Developer and the Builder, SPRA will be recognized as a
limitation by HUD in Section 221 mortgage insurance application
processing, and may be transferred by HCAs to the Mortgageable
Replacement Cost Uses portion of the Sources and Uses Statement (See
Attachment #2). Where there is an Identity-of-Interest, BSPRA will be
recognized as the Safe Harbor standard limitation for the combined
Builder's Profit and Developer's fee, and may be reflected on the
Mortgageable Replacement Cost Uses portion of the Statement.
Alternatively, HCAs may reflect no BSPRA/SPRA on the Mortgageable
Replacement Cost Uses portion of the Statement, and may instead reflect
up to 10 percent of Total Development Cost under the Non-Mortgageable
Uses portion of the Statement.
Ceiling Standard
Following the alternative funding pattern above, the HCA may
reflect Developer's Fees of up to 15 percent of Total Development Costs
under the Non-Mortgageable Uses portion of the Statement where approved
by the Governing Board or Approving Authority.
Note on Standards #1 and #2: Ceiling Standards may not be
exceeded except for a limited number of exceptional cases. An HCA
may, in its discretion, permit Builder's Profit or Developer's Fees
which are less than the indicated Safe Harbor standards above in
accordance with market data. Between Safe Harbor and Ceiling
standards, HCAs are also to use their discretion in awarding
incremental Builder's Profit or Developer's Fees depending on
project risk factors. However, where amounts greater than Safe
Harbor standards are permitted, the HCA must justify the allowance
it recommends by reference to special building or development risks,
and the Governing Board must make the final determination. These
risk factors include, but are not limited to, the following:
location in a ``qualified census tract'' (See Glossary); size
(generally, small projects should receive a higher percentage than
otherwise comparable large projects); scattered site development of
a particular type of housing (e.g., three bedroom family units may
be especially needed in a particular area of noncontiguous parcels,
and such development may involve greater compensable risk than
contiguous site development of one bedroom units); location--i.e.,
other distressed neighborhoods not included by HUD in qualified
census tracts (an HCA must document the nature of distress or blight
and additional risk associated with the applicable site area, and
provide adequate description in narrative form to the HCA Governing
Board, so that it can make the determination of whether the Safe
Harbor standard should be exceeded); challenging substantial
rehabilitation with many unknown contingencies (because of the
unforeseen, such projects have greater inherent risk to the
Developer than new construction); and finally, whether there is an
Identity-of-Interest between the Developer and the Builder that may
affect recognized fees. Other factors not mentioned may be developed
and considered by the HCAs and the HCA Governing Board.
Note also: Because HUD analyzes and determines the allowance for
Builder's Overhead in processing (See Line G43 of Form HUD-92264),
extraordinarily high overhead may not be cited as a factor
justifying a higher Developer's fee. Similarly, where relatively
high local development fees are involved, HUD already includes these
fees under the rubric ``Other Fees,'' Line G48 of Form HUD-92264,
and this factor will not justify higher fees.
For Section 221 substantial rehabilitation cases the ``Total
Development Cost'' of only the new improvements will serve as the base
for calculating the Developer's fee allowance (See Glossary). For
Section 223(f) the Builder's Profit and Developer's Fee percentages
must be based on only the hard cost of ``required repairs'', and must
be reflected under the Non-Mortgageable Uses portion of the Sources and
Uses Statement (See Glossary and Attachment #3), i.e. existing property
value or acquisition price and soft costs are not included in the base
for fees. For Section 241 proposals, Builder's Profit and Developer's
Fee percentages are based on only the Total Development Cost of the
supplemental improvements being made.
3. Syndication Expenses
Safe Harbor Standard: The sum total of expenses, excluding bridge
loan costs, incurred by the owner in obtaining cash from the sale of
tax credits to investors through public offerings may not exceed 15
percent of the gross syndication proceeds. The sum total incurred
pursuant to private offerings may not exceed 5 percent of the gross
syndication proceeds.
Ceiling Standard: The sum total of expenses, excluding bridge loan
costs, incurred by the owner in obtaining cash from the sale of tax
credits to investors through public offerings may not exceed 24 percent
of the gross syndication proceeds. The sum total incurred pursuant to
private offerings may not exceed 12 percent of the gross syndication
proceeds.
4. LIHTC Net Syndication Proceed Estimates
HCAs may not estimate net syndication proceeds (see Glossary) of
less than 42 cents per dollar of the total allocation. However, where
the proposed syndication of a project receiving a combination of any
form of HUD assistance and LIHTCs reflects that greater than 51 cents
per dollar of total allocation in net syndication proceeds will be
received as a Source, the project is not subject to further Section 911
review, i.e., the Guideline Safe Harbor and Ceiling Standards above do
not apply. HCAs should indicate to HUD whether this threshold has been
surpassed on the Certification forwarded to HUD.
Glossary
Bridge Loan Interest and Costs
Interim financing costs incurred by an owner on loans obtained by
the pledge of investors' deferred capital contributions to the project
receiving tax credits. HCAs must analyze these costs on an ``arm's
length'' basis, i.e. there should be no Identity-of-Interest between
the lender and any partners holding any interest in the project. HCAs
must verify that no Identity-of-Interest exists between the lender and
Sponsor, and for private offerings, between the lender and all general
and limited partners. Where an Identity-of-Interest does exist, the HCA
may recognize only reasonable market rate interest or other costs to
avoid the excess profits which may result when loans are not negotiated
through arm's length transactions.
BSPRA/SPRA
Line G68, Form HUD-92264 BSPRA for Identity-of-Interest Builder/
Developers is calculated as follows: (1) not more than 10 percent of
the sum of Lines G50, G63, and G67, and (2) no profit will be allowed
on Line G44. Line G68, Form HUD-92264 SPRA for non Identity-of-Interest
Developer/Sponsors is calculated as follows: 1.) not more than 10
percent of the sum of Lines G45, G46, G63, and G67, and 2.) profit may
be allowed on Line G44.
Conventional and Below-Market Debt or Equity Financing
Where conventional financing is used to meet project uses (for
example, a bridge loan at initial closing), it may not be reflected on
the Sources and Uses Statement unless it is subordinated to any HUD
insured mortgage and, is an obligation of a third party who is not the
mortgagor. Where below-market debt or equity financing is provided to
meet allowable project Uses, HCAs should reflect the amount under
Sources if all Uses of such funds are properly itemized and identified
within the Uses portion of the Statement. HUD requires that certain
formats be used for projects insured by HUD under Sections 221, 241, or
223(f) (See Attachments #2 and #3), and may not be altered, including
tax-exempt bond-financed cases with LIHTCs insured under those
sections. Formats for other HUD Housing-administered non-mortgage
insurance assistance cases will be included in HUD's Special
Instructions. A format may be developed by the HCAs and approved by HUD
Headquarters for use in Section 542 (of HCDA '92) risk sharing pilot
program subsidy layering reviews.
Developer's Fees
The amount reflected on the developer's fee line of the Sources and
Uses Statement is the ``paper'' allowance for Developer's Fees. A
developer's actual net fee will be affected by whether acquisition
costs exceed (or are less than) recognized HUD value, and whether there
are third party consultants involved whom the developer must pay, or
other costs or reserves which the developer must fund, which are not
recognized or reflected on the Sources and Uses Statement.
Grants
HCAs should recognize all grant amounts available for any allowable
project Uses. In mortgage insurance cases, grants available for
mortgageable item Uses are subtracted by HUD in the determination of
the mortgage Source. However, all such grant amounts, plus the
remaining grant amounts available to meet allowable project Uses
outside of the mortgage, should be reflected on the Sources and Uses
Statement.
Gross Syndication Proceeds
All amounts paid by purchasers of tax credits before subtraction of
syndication and bridge loan costs. The Sponsor's or Sponsor's
Syndicator's estimate may only be relied upon if the HCA's past
experience and current market data support such reliance. The Sponsor
must report and certify to the HCA the actual gross and net amounts
received from the sale of tax credits, and this must be made a part of
the project file available for HUD review.
Identity-of-Interest
A financial, familial, or business relationship that permits less
than arm's length transactions. Includes, but is not limited to,
existence of a reimbursement program or exchange of funds; common
financial interests; common officers, directors, or stockholders; or
family relationships between officers, directors, or stockholders.
Net Syndication Proceeds Estimate
The net estimated by the HCA shall be the net present value of all
syndication proceed installments as of the ``placement in service''
date. For the purpose of making estimates, installments received
subsequently will be discounted at the bridge loan interest rate.
Installments received prior to placement in service will be
commensurately credited in accordance with the same rate. Thus, the
difference between ``early'' (credited) and ``late'' (discounted)
installments centered around the placement in service date will affect
the net estimate. The owner must provide its syndication and financing
plan to HUD and the HCA in accordance with Chapter 18, HUD Handbook
4470.1 REV-2 for mortgage insurance cases.
Operating Deficit Reserve
An escrow established to fund net operating losses projected to
occur between the date of initial occupancy and the date by which the
project's operating income is expected to cover replacement reserve
deposits, debt service, expenses, and ground rent, if any, related to
operation of the rental project. HCAs may not establish separate
reserve accounts not estimated and approved by HUD (see also working
capital reserve and resident initiative fund reserve below). If the
reserve is funded by LIHTC-proceeds, then the Sponsor must agree to
enter into HUD's standard Escrow Agreement for the amount involved,
except that that agreement is amended to provide that any escrow
remaining after the escrow period will be transferred to the project's
Replacement Reserve account rather than being returned to the Sponsor
(Form HUD-92476-A, ``Escrow Agreement Additional Contribution by
Sponsors,'' clause 4 must be amended). Disbursements must be approved
by HUD Housing Management in accordance with established rules and
policy. Note: If reserves are to be funded by a Letter of Credit, the
Sponsor should indicate this in the financing plan submitted to HUD
Mortgage Credit, and also, include only the costs of obtaining the
Letter as a Use on Form HUD-2880. The HCA and HUD will allow only the
costs associated with obtaining a Letter on the appropriate Sources and
Uses Statement.
Property Value
The HCA will accept HUD's estimates of allowable value when
performing the Section 911 review, i.e. Line G73 of Form HUD-92264. HUD
estimates this value without considering any additional subsidies to be
made available to the project, or any LIHTCs or other tax benefits the
owner will receive. This permits Sponsors to acquire property for new
construction or rehabilitation at its market value, and assures that
present fee simple owners receive the value of their property, but no
excess subsidy. By using ``as-is'' market value of improvements and/or
land instead of investment value or acquisition cost, HUD seeks to
eliminate any value attributable to the tax credits the owner/purchaser
seeks, and prevent unearned windfall profits.
Note: HUD will not require appraisals for property purchased
from HUD, or at a foreclosure sale where HUD is the foreclosing
mortgagee. In these cases, the allowable amount will be the purchase
price when a project is competitively sold based on the high bid
price at either a foreclosure sale or HUD-owned sale. When HUD sells
a property at a pre-determined price, as in a negotiated sale, the
allowable amount is that price and is not subject to adjustment.
Also, for acquisition or refinance and rehabilitation of projects
which will remain subject to existing HUD-insured loans, HCAs will
only permit the outstanding indebtedness of the insured loan on the
HUD Property Value line of the Uses portion of Attachment #2.
Public Versus Private Offerings
Public offerings are those syndications which must be registered
with the Securities and Exchange Commission; private offerings include
all others.
Qualified Census Tracts
Those census tracts, census enumeration districts, and/or block
numbering areas designated by the Secretary in accordance with Section
42(d)(5)(C)(ii)(I) of the Internal Revenue Code as amended.
Replacement Cost Uses
The ``Subtotal Mortgageable Replacement Cost Uses'' reflected on an
individual project's Sources and Uses Statement (See Attachment #2)
must be equal to HUD's Line G74 of Form HUD-92264, except for cases
where Standard #1 or #2 amounts are alternatively reflected as Non-
Mortgageable Uses.
Required Repairs
Those repairs which HUD multifamily staff include in the work
write-up pursuant to Section 223(f) processing, or determine to be
necessary in Section 241 processing.
Resident Initiative Fund Reserve
If such a reserve is to be combined with other HUD Housing-
administered assistance, it is required that: (1) The fund will be used
only for resident management/ownership initiatives, security/drug free
housing initiatives, job-training or other support services; and (2)
all initiatives or services will be targeted to the residents of the
project for which the fund is established. The HCA must coordinate any
tax-credit-proceed-funding of such reserve escrows with the affected
HUD Housing Office, e.g., the HUD Field Office responsible for
Multifamily Property Disposition should be consulted pursuant to the
activities described in Chapter 9 of HUD Handbook 4315.1 REV-1.
Preservation cases involving such activities will be analyzed in
accordance with Chapter 9, HUD Handbook 4350.6. Hope 2 resident
initiative activities for multifamily projects must be analyzed in
accordance with the Resident Initiative Office's ``Interim
Guidelines''. Generally, the HCA may include as much as it and HUD
deems necessary to support such activities, but the Sponsor must agree
as a term of the reserve escrow that any unused funds remaining after
10 years will be transferred to the Replacement Reserve account, or, in
the event of default, will immediately be applied to prepay HUD-insured
mortgage loans (if any are applicable).
Set-Aside Assumptions
HUD requires that the Sponsor provide the materials listed in
Attachment #4 regarding the amount of tax credits being sought at the
time any form of HUD assistance is requested, and update this
information as changes occur. LIHTC set-aside assumptions must be
detailed on the form.
Total Development Costs
For HUD mortgage insurance cases, Line G72 of Form HUD-92264, less
the sum of Lines G68 through G71, and less Line G44. It is also the sum
of Lines G50, G63, and G67 (but less Line G44). HUD believes that use
of well-known FHA procedures for estimating development costs will
limit such costs to commercially-reasonable amounts and facilitate HUD
cost certification and monitoring of the section 911 review process.
Note: For section 221, BSPRA, if allowed under Standards #1 or #2, is
not included in development cost base when calculating Developer's fee;
but BSPRA is a percentage of the development cost base. See
instructions above for calculating BSPRA/SPRA. Note also: property
value, typically Line G73 of Form HUD-92264, is not included in the
development cost base for calculating Developer's fee. Similarly, when
establishing development cost bases for Standards #1 and #2 for
Sections 223(f) or 241, the fees themselves and property value are not
included. Note further: For Section 223(f) the HCA will use HUD's Form
HUD-92264-A, ``Supplement to Project Analysis,'' to complete the
Sources and Uses format (Attachment #3). Note finally: For Property
Disposition sales the estimates may have to be increased if initial
repair estimates prove to be inadequate.
Total Project Cost (Uses)
All project Uses must be identified and the total cost must appear
on the Sources and Uses Statement. If allowable total project Uses
exceed total available Sources, additional equity is required of the
Sponsor to ``balance'' Sources and Uses. If total available Sources are
greater than allowable total Uses then, generally, too much assistance
has been provided to the project, and one of the Sources must be
reduced. In such cases, HCAs will reduce the assistance within its
control, i.e., tax credit allocations. Where HCAs do not accept section
911 review authority, or HUD revokes an individual HCA for non-
compliance with these Guidelines, then HUD will reduce the applicable
assistance within its control, as necessary, to ``balance'' sources and
uses, e.g., reduce the mortgage, section 8 assistance, etc.
Working Capital Reserve
For Profit-Motivated Sponsors developing new construction proposals
the HCA may allow HUD's estimated working capital reserve of 2 percent
of newly insured mortgages, but the reserve must be funded by non-
mortgage sources. HUD also determines whether any working capital is
necessary for substantial rehabilitation cases, and will communicate
any necessary amounts on Form HUD-92264A. If this reserve is to be
funded by a Letter of Credit, only the costs associated with obtaining
the Letter may be reflected as a Use on the Sources and Uses Statement.
Other Matters
HUD Negotiated or Competitive Sales
In addition to the restrictions described above, HUD reserves the
right to negotiate/impose other conditions when it sells real estate.
Environmental Review
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50,
which implement section 102(2)(C) of the National Environmental Policy
Act of 1969. The Finding of No Significant Impact is available for
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the
Office of the Rules Docket Clerk, Office of the General Counsel,
Department of Housing and Urban Development, room 10276, 451 Seventh
Street, SW., Washington, DC 20410.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this notice
does not have ``federalism implications'' because it does not have
substantial direct effects on the States (including their political
subdivisions), or on the distribution of power and responsibilities
among the various levels of government.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, the Family, has determined that this notice does not have
potential significant impact on family formation, maintenance, and
general well-being. It sets forth the administrative guidelines which
HUD and Housing Credit Agencies must follow to ensure that participants
in multifamily projects do not receive excessive compensation by
combining low income housing tax credits with sundry HUD program
assistance, or with assistance from other Federal, State, local, or
private agencies.
List of Forms Referenced
Forms HUD-92013; 92264; 92264-A; 92476-A: Available through HUD
insuring offices
Form HUD-92264-T: See Attachment #5
Form HUD-2880: See Attachment #4
Dated: February 17, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing; Federal Housing Commissioner.
Attachment #1--Section 911 Certification
Pursuant to Section 911 of the Housing and Community Development
Act of 1992 (HCDA '92), and in accordance with HUD's Administrative
Guidelines for implementation thereof published at ________ FR ______
on ______, 1994, (name of HCA) of (location of HCA) hereby certifies
that (project name and HUD project number)
____________ will be receiving tax credits for the number of units and
set-aside proportion your office previously assumed;
OR,
____________ will not be receiving tax credits in the amount assumed by
HUD in processing assistance requests, with the following revisions to
be noted by your office:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Attached hereto please find the applicable approved Sources and
Uses Statement. Pursuant to the subsidy layering review performed under
the Administrative Guidelines for projects receiving tax credits I can
also certify that:
____________ all ``Safe Harbor'' standards contained within the
Administrative Guidelines have been met, and no line item amounts
exceed Guideline allowances,
OR,
____________ at least one ``Ceiling'' standard was applied, but the
project received the HCA Governing Board's approval (copy attached) in
accordance with Guideline allowances,
OR,
____________ at least one ``Ceiling'' standard was exceeded, but the
HCA has determined that this is an exceptional case requiring such
additional amounts and the HCA has received the HCA Governing Board's
approval (copy attached),
OR,
____________ the Guideline Safe Harbor and Ceiling standards do not
apply because the project ownership will net at least 51 cents per
dollar of total allocation (See Sources and Uses Statement attached).
(name of HCA) certifies that it has properly implemented the
Administrative Guidelines and that the mandates of section 911(b) of
the HCDA '92 have been satisfied. (name of HCA) further certifies that,
in accordance with Section 911 and the Administrative Guidelines, and
as indicated above, the combination of tax credits, HUD Assistance--
(specify here, e.g. mortgage insurance, Section 8 HAP contract, etc.)--
and any other Other Government Assistance, being provided to meet
allowable project uses, is not more than is necessary to provide
affordable housing.
----------------------------------------------------------------------
(Authorized HCA Official)
----------------------------------------------------------------------
Date
Attachment #2 Required Format--Section 2211 Sources and Uses
Statement
----------------------------------------------------------------------------------------------------------------
Program Mortgage
----------------------------------------------------------------------------------------------------------------
SOURCES
Debt Sources:
HUD loans/programs2....................................................... *____________ ____________
Other loans (specify)..................................................... ............... ____________
Other (specify)........................................................... ............... ____________
Equity Sources:
Grants available for project uses......................................... ............... ____________
Estimated Net Syndication Proceeds3....................................... ............... ____________
Additional Sponsor Equity Necessary4...................................... ............... ____________
Other Equity Sources (specify)............................................ ............... ____________
Total Sources........................................................... ............... $____________
Project Uses............................................................
Mortgageable Replacement Cost Uses:
Total Land Improvements................................................... ............... $____________
Total Structures.......................................................... ............... ____________
General Requirements...................................................... ............... ____________
Builder's General Overhead................................................ ............... ____________
Builder's Profit5......................................................... ............... xxxxxx
Architects' Fees.......................................................... ............... ____________
Bond Premium.............................................................. ............... ____________
Other Fees................................................................ ............... ____________
Construction Interest..................................................... ............... ____________
Taxes..................................................................... ............... ____________
Insurance................................................................. ............... ____________
Mortgage Insurance Premium................................................ ............... ____________
Examination Fee........................................................... ............... ____________
Inspection Fee............................................................ ............... ____________
Financing Fee............................................................. ............... ____________
FNMA/GNMA Fee............................................................. ............... ____________
Title & Recording......................................................... ............... ____________
Legal..................................................................... ............... ____________
Organization.............................................................. ............... ____________
Cost Certification Fee.................................................... ............... ____________
Contingency Reserve (Sub Rehab)........................................... ............... ____________
BSPRA/SPRA (if applicable)................................................ ............... ____________
HUD Property Value6....................................................... ............... xxxxxx
Subtotal Mortgageable Replacement Cost Uses............................. ............... $____________
Non-Mortgageable Uses (i.e. Uses Payable by Sources Other than the Mortgage)7:
Resident Initiative Fund.................................................. ............... ____________
Working Capital Reserve (or LC costs)8.................................... ............... ____________
Operating Deficit Reserve (or LC costs)9.................................. ............... ____________
Alternative Builder's Profit10............................................ ............... ____________
Alternative Developer's Fee11............................................. ............... ____________
Section 241 Developer's Fee12............................................. ............... ____________
Subtotal Non-Mortgageable Uses.......................................... ............... ____________
Total Project Uses...................................................... ............... ____________
Estimated Net Syndication Proceeds:
The HCA may use this format before completing the Net Syndication Proceeds
estimate line above on the Sources and Uses Statement, and must use this
format to reflect final allocation determination assumptions.
Total Tax Credit Allocation............................................... ............... $____________
Estimated Gross Syndication Proceeds...................................... ............... $____________
Syndication Expenses:
Accountant's Fee.......................................................... ............... $____________
Syndicator's Fee.......................................................... ............... $____________
Attorney's Fee13.......................................................... ............... $____________
HCA Fee................................................................... ............... $____________
Organizational Expense14.................................................. $____________
Other (Specify)........................................................... ............... $____________
Subtotal Syndication Expenses15......................................... ............... $____________
Bridge Loan Costs less Interest (if applicable)........................... ............... $____________
Adjustment for Early and Late Installments (See Glossary, Net Syndication
Proceeds)................................................................
Estimate for adjustment explanation)...................................... ............... $____________
Total Reductions from Gross............................................. ............... $____________
Estimated Net Syndication Proceeds............................................ ............... $____________
----------------------------------------------------------------------------------------------------------------
1This same format may be used for cases previously insured by HUD for which a Section 241 supplemental loan is
proposed, but see Attachment #6 caveats.
2The HCA may assume HUD commitment amounts for the subsidy layering review. HUD may have to adjust its mortgage
if set-aside proportions change from those the Sponsor and HUD anticipated. For Section 241 loans being added
to existing HUD-insured loans which will not be expunged, include separately the new supplemental loan (if
any) and only the outstanding indebtedness on the existing loan regardless of whether it will be assumed by a
purchaser or held by an owner.
3The amount obtainable by the owner from the syndication of the project being awarded tax credits (i.e., gross
proceeds less syndication expenses and bridge loan interest and costs). A format at the bottom of this
Statement must be used by HCAs to reflect the results of their analyses.
4HCAs may use this line for the additional amount needed from the Sponsor to balance Sources against Uses when
no additional monies are available from other Sources.
5Builder's Profit for non-Identity-of-Interest cases (a SPRA allowance may also be added below). See also
Standard #1 safe harbor and ceiling standard alternatives before completing. The Mortgageable Use lines
relating to Builder's Profit and Developer's Fee may be left blank if alternative funding standards are used,
and the amounts are reflected below.
6See Glossary. For new construction proposals the HCA should include the ``warranted price of land'' here. For
supplemental loans the ``warranted price of land'' attributable to new parcels, if any, may be added to the
outstanding indebtedness of the HUD-insured property. If property is valued within a Section 221 substantial
rehabilitation proposal, HUD will determine and the HCA shall reflect the non-subsidized, market rate rental
use value ``As Is''.
7Note that syndication expenses are included below in the estimation of Net tax credit proceeds for this
Statement, and therefore, are not included within this Statement.
8Only Letter of Credit Costs may be included if the reserve is funded by a Letter of Credit.
9Indicate the full cash reserve amount if funded by LIHTC proceeds. Indicate only the costs of obtaining a
Letter of Credit for the reserve if funded by a Letter of Credit at initial closing.
10See Standard #1 for alternative funding option and standards. If Builder's Profit or BSPRA are reflected above
under Mortgageable Uses, then this line should be left blank.
11See Standard #2 for alternative funding option and standards. If BSPRA or SPRA are reflected above as
Mortgageable Uses, this line should be left blank.
12See Standard #2, the Glossary under ``Total Development Cost,'' and Attachment #6 below regarding
chronological issues and Section 241 assistance. Any Developer's Fee under Section 241 must be reflected here.
13Such fees may not duplicate legal charges already recognized on Line G64, Form HUD-92264, nor title work as
reflected on Line G62. On these lines, HUD accounts for legal fees associated with typical non-LIHTC projects.
Therefore, only fees associated with the additional legal service associated with LIHTC projects should be
recognized here by the HCA.
14Such expenses may not include HUD mortgage insurance application fees. Organizational expenses are already
included for non-LIHTC projects under Line G65, Form HUD-92264, and should not be duplicated. Therefore, only
extraordinary organizational expenses incurred because of the additional LIHTC-associated application
preparation activities should be included here.
15See Guideline Standard #3 for separate safe harbor and ceiling limitations for private and public offerings.
Attachment #3 Required Format--Section 223(f) Sources and Uses
Statement16
------------------------------------------------------------------------
Program Mortgage
------------------------------------------------------------------------
SOURCES
Debt Sources:
HUD loan17--.................................. 223(f) ________
Other loans (specify)--................... ........... ________
Other (specify)--......................... ........... ________
Equity Sources:
Grants available for project uses--....... ........... ________
Estimated Net Syndication Proceeds--...... ........... ________
Additional Sponsor Equity Necessary--..... ........... ________
Other Equity Sources (specify)--.......... ........... ________
Total Sources........................... ........... $________
Project Uses:
Use Limitations Related to Value & Mortgage
Financing:
Use Limitation ``A'': ``Fair Market
Value'' of the Property Including
Required Repairs, from Section L, Form
HUD-92264--.............................. ........... $________
Use Limitation ``B'': (for projects being
acquired) Item 7g., Form HUD-92264A18--.. ........... $________
Use Limitation ``C'': (for projects owned)
Item 10g., Form HUD-92264A\19\........... ........... $________
Subtotal Value Uses Related to Mortgage
Financing:
For Property Acquired (lesser of ``A'' or
``B'')--................................. ........... $________
For Property Owned (lesser of ``A'' or
``C'')--................................. ........... $________
Non-Mortgageable Uses: (i.e. Uses Payable by
Sources Other than the Mortgage)
Resident Initiative Fund--................ ........... $________
Initial Deposit to Replacement Reserve
Account--................................ ........... $________
Operating Deficit Reserve--............... ........... $________
Builder's Profit--........................ ........... $________
Developer's Fee20--....................... ........... 21$________
Subtotal Non-Mortgageable Uses.......... ........... $________
Total Project Uses...................... ........... $________
Estimated Net Syndication Proceeds:
The HCA may use this format before completing
the Net Syndication Proceeds estimate line
above on the Sources and Uses Statement, and
must use this format to reflect final
allocation determination assumptions.
Total Tax Credit Allocation--............. ........... $________
Estimated Gross Syndication Proceeds--.... ........... $________
Syndication Expenses:
Accountant's Fee--........................ $________ ...........
Syndicator's Fee--........................ $________ ...........
Attorney's Fee--.......................... $________ ...........
HCA Fee--................................. $________ ...........
Organizational Expenses--................. $________ ...........
Other (specify)--......................... $________ ...........
Subtotal Syndication Expenses--......... ........... $________
Bridge Loan Costs less interest (if
applicable)--............................ ........... $________
Adjustment for Early and Late Installments
(See Glossary, Net Syndication Proceeds
Estimate for adjustment explanation)--... ........... $________
Total Reductions from Gross--........... ........... $________
Estimated Net Syndication Proceeds--.. ........... $________
------------------------------------------------------------------------
16This format is only appropriate for projects which HCAs award
``rehabilitation'' LIHTCs, but proposed repairs are less than HUD's
substantial rehabilitation eligibility test.
17The HCA may assume HUD commitment amounts for the subsidy layering
review; HUD may have to adjust its commitment amount, or change
underwriting conclusions if fewer LIHTCs are awarded than processing
assumes.
18See HUD Handbook 4480.1, pages 2264A-18a. through 18d; see also Notice
H 92-31.
19See HUD Handbook 4480.1, pages 2264A-18g. through 18j; see also Notice
H 92-31.
20Standard #1 and #2's Safe Harbor and Ceiling percentages relating to
Builder's Profit and Developer's Fee shall use HUD's ``required
repairs'' cost estimate as the multiplicand.
21Please note that working capital reserves do not apply to Sec. 223(f)
loans, and thus, are not an allowable use. Also, as a matter of
policy, HUD will not permit unfinished work write-up escrow amounts to
be funded through LIHTC proceeds. Therefore, such escrow amounts may
not be included on this Statement.
BILLING CODE 4210-27-M
TN25FE94.003
TN25FE94.004
TN25FE94.005
TN25FE94.006
TN25FE94.007
TN25FE94.008
TN25FE94.009
BILLING CODE 4210-27-C
Attachment #5--Processing HUD Insured Projects Involving Low Income
Housing Tax Credits Using Form HUD-92264-T
A. Purpose. This attachment provides modified underwriting
instructions for processing projects where owners will receive low
income housing tax credits (LIHTCs).
B. Background. The Tax Reform Act of 1986 amended the Internal
Revenue Code to create new Federal Tax Credits for owners of low income
rental housing. In Public Law 101-239, dated December 19, 1989, the
applicable maximum affordable monthly rents for most apartment sizes
are to be based on the program income limits by household size assuming
an occupancy of 1.5 persons per bedroom and efficiency units without a
separate bedroom would have income limits based on occupancy by one
person. In order for a household to qualify as tax credit assisted they
must have an income at or below the program income limit for their
respective household size.
The calculation of the maximum affordable monthly rents for tax
credit units is based on tenants paying at least 30 percent of income
for rent. Analysis of program participation has shown that few
households in tax credit projects spend more than 40 percent of income
for rent. This means that, if rents are set at the maximum, the
potential market is restricted to income-eligible households with
incomes between 75 and 100 percent of the respective income limit. Most
households with incomes lower than this would be unable to afford the
statutory maximum rents. As a result, when the proposed rents are set
at the statutory maximums, the market for a tax credit assisted project
is comprised of a relatively narrow band of income eligible renters,
which can result in a problem with the market feasibility of the
project. Therefore, depending on the particular market area and the
rental market conditions in that area, there may be an insufficient
number of potential renters that meet the income limit criteria and who
are also willing and able to pay the maximum allowable rent.
Program data show that this potential marketability problem has
been dealt with either by charging lower rents or obtaining other
subsidies to lower the rent. The available information on tax credit
assisted units shows that most projects have established rents below
the maximum permitted by the statute. In addition, over 80 percent of
projects funded had some other form of assistance to further reduce
tenant rents.
The extent to which there is an adequate supply of units with rents
at or below those proposed would also limit the market. An analysis of
the market prospects of a proposed project, therefore, requires
information on the current market conditions for this type of project,
and information on the marketability of the proposed project relative
to other options available to those income-eligible households.
Thus, market demand for tax credit units depends on several
factors: The number of income qualified households and the willingness
of those same households to pay the proposed rents; the supply of
comparable units at rents equal to or less than the proposed rents;
and, the marketability of the proposed units in comparison to the
existing supply.
Therefore, if the Field Office determines that there is
insufficient demand for the units at the proposed rents the Field
Office should set the rents at lower amounts, as necessary to broaden
the market band sufficiently to attract the potential tenants needed to
ensure market feasibility. This determination should take into
consideration the current and anticipated supply/demand conditions in
the overall rental market, and potential depth of the market of income
eligible households in comparison to the number of units at the
proposed rents, and the marketability of the proposed units taking into
account the project's amenities, rents and location relative to
comparable and competitive projects and other options available to
those income eligible households.
C. Special Processing Instructions. In order to make the rent
estimates based on income limits as close as possible to the income
limits described in the legislation, the following instructions for
processing HUD-insured projects involving LIHTCs using revised Form
HUD-92264-T shall be used. Using this form and the following
directions, the Department will determine the appropriate processing
rents for the low income units required by the Tax Credits. (In the
case of projects with ``deep skewed'' rental units, it may be necessary
to complete two separate revised Forms HUD-92264-T, since two different
qualifying income limits may apply to lower income units of the same
size.)
1. Line 1 of Form HUD-92264-T--For each affected unit size, enter
the market rental estimates from Form HUD-92273.
2. Line 2--If utility costs are to be paid by the tenant, enter an
estimated Personal Benefit Expense (PBE) for services or utilities not
included in the market rental estimate.
3. Line 3--Enter the applicable income limit. For purposes of this
rent estimation exercise, the applicable income limits by unit size are
as follows:
------------------------------------------------------------------------
Column A* applicable limit Column B* applicable Column C* applicable
if 20%/50% restriction limit if 40%/60% limit if 15%/40%
applies restriction applies restriction applies
------------------------------------------------------------------------
Eff. 1 Person Section 8..... 120% of Column 80% of Column.
Very Low Income Limit....... A Limit A Limit.
1-BR 1.5-Person Section 8... 120% of Column 80% of Column.
Very Low Income Limit**..... A Limit A Limit.
2-BR 3-Person Section 8..... 120% of Column 80% of Column.
Very Low Income Limit....... A Limit A Limit.
3-BR 4.5-Person Section 8... 120% of Column 80% of Column.
Very Low Income Limit**..... A Limit A Limit.
4-BR 6-Person Section 8..... 120% of Column 80% of Column.
Very Low Income Limit....... A Limit A Limit.
------------------------------------------------------------------------
*The use of these limits by HUD for underwriting purposes is not meant
to imply that the Internal Revenue Service will necessarily use the
same limits in determining whether tenants will qualify as low income
for purposes of the Tax Credit.
**The one and one-half-person Section 8 very low income limit is
computed by adding the one person Section 8 very low income limit to
the two-person limit, then dividing the sum by 2. Likewise, the four
and-one-half-person Section 8 very low income limit is the sum of the
four-person limit and the five-person limit, divided by 2.
4. Line 4--Compute and enter the estimated maximum affordable
monthly rent for each affected unit size. Compute that rental estimate
as follows:
a. Multiply the income limit on line 3 of the form by 30 percent
(.30);
b. Divide the product obtained in step a by 12;
c. Subtract the monthly PBE (if any) on Line 2 from the quotient
obtained in step b.
5. Line 5--Where the Valuation staff has evidence that the
project's tax credit assisted units would not be marketable to income
eligible households at the lesser of the maximum affordable monthly
rents (Line 4) or the rent by market comparison (Line 1), based on the
market analysis review by the EMAS, enter the recommended estimated
monthly rent obtainable for the restricted units, as approved by the
Director, HD Division. For Section 223(f) cases involving projects with
existing Section 8 contracts, use this line to enter the processing
rents calculated in accordance with the outstanding instructions
involving the refinancing or purchase of Section 8 projects with
outstanding project based contracts.
6. Line 6--Monthly Rent Estimate for Restricted Units. Enter the
least of lines 1, 4, or 5.
7. Line 7--Enter the number of each unit type with income limits
shown on line 3.
8. Line 8--Enter the number of each unit type shown on another Form
HUD-92264-T with other income limits.
9. Line 9--Enter the number of each unit type with no income limits
using unsubsidized market rents from line 1.
D. For Further Information--Any questions concerning this
attachment and completion of revised Form HUD-92264-T which follows
should be directed to the Office of Insured Multifamily Housing
Development, Technical Support Division, Valuation Branch, (FTS 8-202-
708-0624).
Form HUD-92264-T.--Rent Estimates for Low or Moderate Income Units in Non Section 8 Projects Involving Tax
Exempt Financing or Low Income Housing Tax Credits
----------------------------------------------------------------------------------------------------------------
Unit size 0 BR 1 BR 2-BR 3-BR 4-BR
----------------------------------------------------------------------------------------------------------------
1. Rent by Market Comparison...................
2. Personal Benefit Expense (if any)...........
3. The Percentage of Median Income (adjusted
for family size) used for income limits: 40%,
50%, 60% (circle only one; then enter the
applicable dollar income limit for each unit).
4. Estimated Maximum Affordable Monthly Rent
for Restricted Units:* (.30 x Line 3)--Line
2 (12)...............................
5. Estimated Obtainable Monthly Rent for
Restricted Units**............................
6. Monthly Rent Estimate for Restricted Units
(least of lines 1, 4, or 5)***................
7. Number of each unit type with income limits
shown on line 3...............................
8. Number of each unit type shown on another
form HUD-92264-T with other income limits.....
9. Number of each unit type with no income
limits using unsubsidized market rents from
line 1........................................
----------------------------------------------------------------------------------------------------------------
Asterisks:
*Where State or local laws, ordinances or regulations limit the rent to an amount lower than this formula
estimate, or the Sponsor's proposed rent is less than this formula estimate, enter the lower amount and
explain below.
**Where the Valuation staff has evidence that the project's tax credit assisted units would not be marketable to
income eligible households at the lesser of the maximum affordable monthly rents (Line 4) or the rent by
market comparison (Line 1), based on the market analysis review by the EMAS, enter the recommended estimated
monthly rent obtainable for the restricted units, as approved by the Director, HD Division. For Section 223(f)
cases involving projects with existing Section 8 contracts, use this line to enter the processing rents
calculated in accordance with the outstanding instructions involving the refinancing or purchase of Section 8
projects with outstanding project based contracts.
***Enter in Section C of Form HUD-92264.
Attachment #6--Chronology Associated With Seeking Various Forms of HUD
Assistance in Combination With LIHTCs
Generally, the Guidelines assume that Sponsors will apply for HUD
assistance first, and HCA LIHTC assistance after the amount of HUD
assistance is known. However, there are certain types and combinations
of HUD assistance which, when combined with HCA LIHTC assistance,
suggest the opposite order, i.e. Sponsors will sometimes probably
benefit from seeking HCA LIHTC assistance before seeking any available
HUD assistance. This reverse order of application may be more
appropriate when HUD's process for awarding assistance is based on
protracted Notices of Fund Availability (NOFAs), or other competitive,
short-term, or limited funding programs.
For example these may include:
1. Section 201 Flexible Subsidy Capital Improvement Loans (For
project eligibility, a particular existing HUD-insured loan must
already be in place);
2. Section 8 Loan Management Set-Aside Assistance (additional
project-based units), whether to support existing construction and
repairs, new construction, or moderate or substantial rehabilitation;
3. Project-Based Section 8 Rental Assistance Increases and Section
241 Supplemental Loans (For project eligibility, a HUD-insured loan and
an existing project-based Section 8 contract must be in place).
4. Property Disposition Sale Offerings
Elaborating on Examples 1 and 2: Sponsors must weigh the
probability and timetable for getting necessary repairs funded through
these HUD assistance programs, against the probability and timetable of
receiving HCA LIHTC assistance to provide for the repairs. Note:
application for and refusal of assistance from one source does not
preclude seeking assistance from the other source thereafter. Some
Sponsors may prefer to seek HCA assistance first in these cases, and to
apply for such HUD assistance as may be necessary after receiving the
HCA's response. HUD's applicable program guidelines for the estimation
and certification of costs must be complied with in either case.
Elaborating on the third example: Any Sponsor-contemplated repair
program to a HUD-insured project, if it is to be supported by new HUD
assistance, must generally fall within any excess available Section 8
contract authority. This means that HUD would probably be unable to
support any significant repair program. Sponsors should also note the
improbability of any available amendment funds to support repair cost
financing. Thus, necessary repairs are more likely to be financed
through an HCA's award of LIHTCs and the Sponsor's syndication of the
project to receive net syndication proceeds to pay for the repairs.
Sponsors are encouraged to determine whether necessary repairs may be
funded out of any existing available HUD contract authority--and if
not, as will often be the case--to apply to the HCA for LIHTC
assistance.
[FR Doc. 94-4246 Filed 2-24-94; 8:45 am]
BILLING CODE 4210-27-P