FEDERAL AGENCY:

HOUSING, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

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.

Under this program, 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.

TYPES OF ASSISTANCE:

Guaranteed/Insured Loans. Place Cursor Here for Definition

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.

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

Award Procedure:   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.

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 mortgages insurance on multifamily housing projects whose loans were underwritten, processed, serviced, and disposed of by HFAs. Congress has authorized 99,500 units of which 84,119 units have been allocated to HFAs to provide affordable housing. Authority to make the program permanent was contained in HUD's FY 2001 Appropriation Act.

ASSISTANCE CONSIDERATIONS:

Formula and Matching Requirements:   The program is a pilot designed to assess the feasibility of risk-sharing partnerships between HUD and other financial agencies.

Length and Time Phasing of Assistance:   The program is now permanent.

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.

Obligations:   (loans insured) FY 01 $324,404,206; FY 02 est $650,000,000; and FY 03 est $650,000,000.

Range and Average of Financial Assistance:   Loan sizes range from $290,000 to $48,000,000 with an average loan of some $4.8 million. Project sizes range from 8 to 775 units with an average of 116 units.

In fiscal year 2001, HUD insured mortgages for 81 projects with 9,061 units, totaling $451 million. The Department expects to insure a similar number of mortgages in fiscal year 2002.

REGULATIONS, GUIDELINES, AND LITERATURE:

The regulatory authority for this pilot program is regulation, 24 CFR Part 266.

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.

Web Site Address:   http://www.hud.gov/fha/mfh/fhamfbus.html

EXAMPLES OF FUNDED PROJECTS:

Not applicable.

CRITERIA FOR SELECTING PROPOSALS:

Not applicable.