[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]


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Part V





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner



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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