Housing Finance Agencies (HFA) Risk Sharing

Under Section 542(c), HUD provides credit enhancement for mortgages for multifamily housing projects whose loans are underwritten, processed, serviced, and disposed of by Housing Finance Agencies (HFA).

HUD and the Housing Finance Agencies share in the risk of the mortgage.

The program
was originally designed as a pilot program to assess the feasibility of risk-sharing partnerships between HUD and qualified State and local HFAs in providing affordable housing for the Nation.

The Section 542(c)program is now permanent multifamily insurance program.

Agency - Department of Housing and Urban Development

The Department of Housing and Urban Development's mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. HUD fulfills this mission through high ethical standards, management and accountability, and by forming partnerships with community organizations.

Office - Persons are encouraged to communicate with the nearest local HUD Multifamily Hubs and Program Centers listed at http://www.hud.gov/offices/hsg/mfh/mfbroch/hubs_pcs.cfm or the nearest HUD Field Office listed in the Appendix IV of the Catalog.


Program Accomplishments

In Fiscal Year 2007 HUD insured mortgages for 36 projects with 3,277 units totaling $173.3 million. It is estimated that a larger number of projects will be insured in Fiscal Year 2008.

Uses and Use Restrictions

Participating qualified State and local Housing Finance Agencies (HFAs) may underwrite, originate, service, and dispose of properties financed under Section 542(c).

Program provides full HUD mortgage insurance to enhance HFA bonds to investment grade.

HFA reimburses HUD in the event of a claim pursuant to terms of Risk Sharing Agreement.

HFAs may elect to share risk with HUD from 10 to 90 percent of the loss.

The program provides new independent insurance authority not under the National Housing Act.

Eligibility Requirements

Applicant Eligibility

Eligible mortgagors, who include investors, builders, developers, public entities, and private nonprofit corporations or associations, may apply to a qualified HFA.

To be eligible for HUD's approval, the HFA must: (1) carry the designation of "top tier" or its equivalent as evaluated by Standard and Poors or another nationally recognized rating agency; (2) receive an overall rating of "A" for the HFA for its general obligation bonds from a nationally recognized rating agency; or (3) otherwise demonstrate its capacity as a sound, well-managed agency that is experienced in financing multifamily housing.

Beneficiary Eligibility

Individuals, families, and property owners may be eligible for affordable housing.

Credentials/Documentation

Documentation regarding the characteristics of the property and the qualifications of the mortgagor are submitted with the application to a qualified HFA. Proof of nonprofit status is required of nonprofit organizations. Projects must qualify as affordable housing as defined by Section 42(g) of the Internal Revenue Code of 1986.

Aplication and Award Process

Preapplication Coordination

To obtain mortgage insurance an applicant should consult the HFA as the single point of contact for more information on the process.

The sponsor will have a preapplication meeting with the HFA.

This program is excluded for coverage under E.O.

12372.

Application Procedures

An applicant submits a formal application directly to a HUD-approved HFA.

Award Procedures

The HFAs are vested with the maximum amount of processing responsibilities and decision-making to approve or reject individual projects. However, HUD retains authority for environmental review. The HUD-approved HFA is responsible for making the award once the project qualifies for mortgage insurance.

Deadlines

Deadlines are established on a case-by-case basis by HFAs, and are mutually agreed to at the pre-commitment conference.

Authorization

Housing and Community Development Act of 1992, Section 542(c), Public Law 102-550, 12 U.S.C. 1707. HUD's fiscal year 2001 Appropriations Bill amended Section 235 of the Housing and Community Development Act of 1992 to extend the 542 Risk Sharing Program to a permanent multifamily mortgage insurance program.

Range of Approval/Disapproval Time

Processing time depends upon the degree of preparation by the sponsor.

Appeals

If an application for mortgage insurance is refused, HFA will state the reasons for the refusal. If reapplication is desired, the applicant may modify the application and reapply.

Renewals

HUD will provide mortgage insurance on multifamily housing projects whose loans were underwritten, processed, serviced, and disposed of by HFAs.

Assistance Considerations

Formula and Matching Requirements

Not applicable.

Length and Time Phasing of Assistance

Not applicable.

Post Assistance Requirements

Reports

Any change of the mortgagor during the period of mortgage insurance must be approved by the HFA.

Defaults in meeting the mortgage terms must be reported.

All mortgagors are required to submit an annual financial statement to the HFA.

Audits

The Department of Housing and Urban Development reserves the right to audit the accounts of the HFA and the mortgagor in order to determine their compliance and conformance with HUD regulations and standards.

Records

HFAs are required to service and maintain records in accordance with acceptable mortgage practices of prudent lending institutions and the implementing regulations. HFAs must also monitor construction/inspection process.

Financial Information

Account Identification

86-4077-0-3-371.

Obigations

(loans insured) FY 07 $93,880,377; FY 08 est $90,000,000; and FY 09 est $120,000,000.

Range and Average of Financial Assistance

In FY 2007, loan sizes ranged from $475,000 to $10,400,000, with an average of $4.8 million. Project sizes ranged from 34 to 216 units with an average of 91 units.

Regulations, Guidelines, and Literature

The regulatory authority for this program is regulation 24 CFR Part 266. HUD Handbook 4590.1, Housing Finance Agency Risk-Sharing Pilot Program, is located on www.hudclips.org.

Information Contacts

Regional or Local Office

Persons are encouraged to communicate with the nearest local HUD Multifamily Hubs and Program Centers listed at http://www.hud.gov/offices/hsg/mfh/mfbroch/hubs_pcs.cfm or the nearest HUD Field Office listed in the Appendix IV of the Catalog.

Headquarters Office

Office of Multifamily Development, Department of Housing and Urban Development, 451 7th Street, S.W., Washington, DC 20410-8000. Telephone: (202) 708-1142. Use the same number for FTS.

Criteria for Selecting Proposals

Not applicable.



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