Federal Housing Administration (FHA): Small Building Risk Sharing Initiative Final Notice, 42105-42108 [2015-17464]
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Federal Register / Vol. 80, No. 136 / Thursday, July 16, 2015 / Notices
proposed facility or modification to an
existing facility, must submit an LOI to
the Captain of the Port of the zone in
which the facility is or will be located.
Under 33 CFR 127.009, after receiving
an LOI, the Captain of the Port issues a
Letter of Recommendation (LOR) as to
the suitability of the waterway for LNG
or LHG marine traffic to the appropriate
jurisdictional authorities. The LOR is
based on a series of factors outlined in
33 CFR 127.009 that relate to the
physical nature of the affected waterway
and issues of safety and security
associated with LNG or LHG marine
traffic on the affected waterway.
The purpose of this notice is to solicit
public comments on the proposed
construction of a Marine Terminal as
part of a Liquefaction Facility at Nikiski,
Alaska, for production of liquefied
natural gas for export, as submitted by
ExxonMobil Alaska LNG LLC on behalf
of the Alaska LNG Project, the
participants in which are Alaska Gasline
Development Corporation, BP Alaska
LNG LLC, ConocoPhillips Alaska LNG
Company, ExxonMobil Alaska LNG
LLC, and TransCanada Alaska
Midstream LP. Input from the public
may be useful to the COTP with respect
to developing the LOR. The Coast Guard
requests comments to help assess the
suitability of the associated waterway
for increased LNG marine traffic as it
relates to navigation, safety, and
security.
On January 24, 2011, the Coast Guard
issued Navigation and Vessel Inspection
Circular (NVIC) 01–2011, Guidance
Related to Waterfront Liquefied Natural
Gas (LNG) Facilities. NVIC 01–2011
provides guidance for owners and
operators seeking approval to construct
and operate LNG facilities. The Coast
Guard will refer to NVIC 01–2011 for
process information and guidance in
evaluating the project included in the
LOI and WSA submitted by ExxonMobil
Alaska LNG LLC. A copy of NVIC 01–
2011 is available for viewing in the
public docket for this notice and on the
Coast Guard’s Web site at https://
www.uscg.mil/hq/cg5/nvic/2010s.asp.
This notice is issued under authority
of 33 U.S.C. 1223–1225, Department of
Homeland Security Delegation Number
0170.1(70), 33 CFR 127.007 and
127.009.
Dated: June 25, 2015.
Paul Mehler III,
Captain, U.S. Coast Guard, Captain of the
Port, Western Alaska.
[FR Doc. 2015–17461 Filed 7–15–15; 8:45 am]
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DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
[Docket No. FR–5728–N–02]
Federal Housing Administration (FHA):
Small Building Risk Sharing Initiative
Final Notice
Office of the Assistant
Secretary for Housing—Federal Housing
Commissioner, HUD.
ACTION: Notice.
AGENCY:
This Final Notice announces
HUD’s implementation of an Initiative
under the Risk Sharing Program (the
‘‘Initiative’’), authorized by Section
542(b) of the Housing and Community
Development Act of 1992, to facilitate
the financing of small multifamily
properties. Through this Final Notice,
HUD invites applications for the
Initiative described in this Notice from
high capacity Community Development
Finance Institutions (CDFIs), other nonprofit lenders, and public and quasipublic agencies (collectively referred to
as Mission Based Lenders), and private,
for-profit lenders approved as FHA
Multifamily Accelerated Processing
(MAP) lenders (referred to as Private
Lenders), to participate in HUD’s Risk
Sharing Program as Qualified
Participating Entities (QPEs).
DATES: Effective Date of Initiative: July
16, 2015.
Application Date for Mission Based
Lenders: Applications will be completed
in a two-stage process: Pre-Qualification
and Final Application. Pre-Qualification
Applications from Mission Based
Lenders will be accepted starting on the
effective date of this Notice. If the PreQualification Application is approved
by HUD the applicant will have 90 days
from receipt of HUD’s approval to
complete its FHA Lender application
online and deliver a Final Application
to HUD.
Application Date for Private Lenders:
Applications will be completed in a
two-stage process: Pre-Qualification and
Final Application. Pre-Qualification
Applications from Private Lenders will
be accepted starting six (6) months from
the effective date of this Notice. If the
Pre-Qualification Application is
approved by HUD the applicant will
have 90 days from receipt of HUD’s
approval to deliver a complete Final
Application to HUD. (Note Private
Lenders must be FHA MAP Lenders in
good standing in order to apply;
therefore separate FHA Lender
applications are not required.)
ADDRESSES: Interested parties are
invited to submit applications including
information outlined below, within the
time frames described above.
SUMMARY:
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FOR FURTHER INFORMATION CONTACT:
Diana Talios, Office of Multifamily
Housing Programs, Office of Production,
Department of Housing and Urban
Development, 451 7th Street SW., Room
6148, Washington, DC 20410; email
address Diana.J.Talios@HUD.gov and
telephone number (202) 402–7125 (this
is not a toll-free number). Persons with
hearing or speech impairments may
access this number through TTY by
calling the toll-free Federal Relay
Service at 800–877–8339.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Purpose
Under the Initiative, applicants
qualified as QPEs will rely on a 50
percent risk sharing arrangement with
HUD to underwrite, originate, and
service loans that (1) are secured with
properties of 5 or more rental dwelling
units, and (2) do not exceed the amount
of $3,000,000, or, in the case of projects
located in ‘‘High Cost Areas’’ annually
designated by HUD, (most recently in
Mortgagee Letter 2014–14 1), the amount
of $5,000,000.
B. Proposed Statutory Changes
HUD intends to pursue statutory
changes to Section 542(b) of the
Housing and Community Development
Act of 1992 that would, through loans
originated by lenders that have
demonstrated experience in affordable
housing lending, remove affordability
restrictions currently required under
Section 542(b). The change is intended
to reduce the burden on owners who
access this capital in order to provide
affordable housing in their
communities. The language would also
authorize Ginnie Mae to securitize loans
on small buildings made under Section
542(b), which could significantly
enhance the impact and utility of the
Initiative. If granted this authority by
the Congress, HUD would invite
applicants that participate under the
authority of this Final Notice to modify
their agreements to take advantage of
such new authority. Until such statutory
changes are made, lenders participating
in this Initiative may have access to
low-cost long-term financing through
the Federal Financing Bank (FFB). The
FFB Risk Sharing Initiative announced
June 26, 2014, now provides capital for
multifamily loans insured under Section
542(c) of the Risk Sharing Program.
HUD and the Treasury Department are
currently formalizing an agreement to
expand this capital source to lenders
1 See https://portal.hud.gov/hudportal/documents/
huddoc?id=14-14ml.pdf.
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participating in the Small Buildings
Initiative. Additional application
criteria and program standards may be
required by HUD and the Treasury
Department in order to qualify for FFB
financing under this Initiative.
C. Initiative Description
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Lenders approved to participate in the
Initiative will be authorized to originate,
underwrite, and service loans for HUD
multifamily mortgage insurance for
project acquisition, refinancing,
rehabilitation (up to and including
substantial rehabilitation) and/or equity
take outs, but excluding new
construction. The amount of the equity
take-out, or ‘‘cash out’’, cannot exceed
the scope of work that is paid for by the
Risk Sharing loan proceeds. Further, the
rehabilitation must address all of the
capital needs in the Capital Needs
Assessment (CNA) and satisfy the
reserve requirements for the life of the
loan. The cornerstone of the Risk
Sharing Program is that the lender
shares the insurance risk with FHA.
Since lenders will cover 50 percent of
the risk of loss under this Initiative,
FHA offers participants significantly
more flexibility with respect to
underwriting terms, and ongoing
compliance than is found in Risk
Sharing Program elements with higher
risk allocations to FHA, and in other
FHA Multifamily insurance programs.
Upon presentation of appropriate
project information and certifications,
HUD will endorse such loans for full
mortgage insurance. QPEs will be
responsible for the full range of loan
management, servicing, and property
disposition activities.
Through a Risk Sharing Agreement
(RSA) QPEs will contract to assume 50
percent of the risk on each loan they
underwrite. In turn, upon a default,
HUD will commit to pay an initial claim
amount based on 100 percent of the
unpaid principal balance of an insured
mortgage note plus interest at the
mortgage note rate from the date of
default to the date of an initial claim
payment upon default of the loan and
filing of a claim. The loss, if any, will
be determined at a later date and HUD
and the QPE will share such loss in
accordance with the fifty-fifty share of
risk assumed by each under the RSA.
D. Contents
This document contains information
on applicant eligibility, application
requirements, application process, the
timeframe for decisions on applications,
and other program features and
requirements.
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II. Background
HUD’s 2012 Rental Housing Finance
Survey (RHFS) data indicates there are
approximately 495,574 small (5–49
units) multifamily rental properties in
the United States, constituting more
than a quarter of rental units across the
nation (2012 Rental Housing Finance
Survey). Small multifamily properties
tend to be older, located in low-income
neighborhoods, and to have lower
median rents and higher shares of
affordable units than larger multifamily
rental properties. The 2012 RHFS also
suggests that 87 percent of the owners
of this stock are individuals, households
and estates, compared to 8 percent of
larger properties with 50 or more units.
Similarly, according to the RHFS, just
52 percent of small multifamily
properties are mortgaged compared to
87 percent of the larger multifamily
properties.
Worst case housing needs are defined
as renters with very low incomes (below
half the median in their area) who do
not receive government housing
assistance and who either paid more
than half their monthly income for rent,
lived in severely substandard
conditions, or both. Worst case housing
needs were 7.7 million in 2013, down
from a historic high of 8.5 million in
2011, ending a sustained period of large
increases. This represents a 9 percent
decline since 2011 yet remains 9
percent greater than in 2009 and 49
percent greater than 2003. Worst case
needs affect very low-income renters
across racial and ethnic groups, and all
types of households.2
Long-term fixed rate mortgages made
through this Initiative will be especially
valuable because smaller properties
tend to command modest rents and
owners are often unable to raise rents to
cover upward interest rate adjustments
without causing vacancies.
Additionally, the ‘‘mom and pop’’
ownership of this inventory faces more
constraints in accessing financing in
recent years due to increasingly high
credit standards and diminished
lending, following a significant loss of
many community and regional banks in
the wake of the 2008 recession.
HUD has chosen to include both
Mission Based Lenders (defined to
include CDFIs, other nonprofits and
quasi-public and public agency lenders)
as well as for-profit, private lenders
(Private Lenders). Mission Based
Lenders will be eligible for the first
application round, beginning on the
effective date of this Final Notice, while
Private Lenders may apply 6 months
2 See https://www.huduser.org/portal/
Publications/pdf/WorstCase2015_summary.pdf.
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later. Although the Initial Notice
allowed for the admission of consortia
or joint ventures comprised of Private
Lenders under the control of a Mission
Based Lender, HUD determined this
would complicate program operations
and introduce unnecessary complexity
into the program. However, a newly
formed organization could be created.
The new entity will have to meet all the
requirements of this Final Notice
including qualifying as an approved
FHA non-supervised mortgagee.
The Initiative implemented by this
Final Notice is intended to encourage
eligible Mission Based and Private
Lenders to move into this market or to
serve it more fully with an additional
source of capital. One common problem
facing non-depository CDFIs and other
Mission Based Lenders is access to longterm capital, which may limit their
ability to provide housing finance to
their communities. These organizations
can qualify as QPEs by demonstrating
that they meet minimum criteria
including designation as non-profit
entities or as public or quasi-public
benefit corporations under the laws of
their States of formation, and exemption
from Federal income taxation pursuant
to the Internal Revenue Code of 1986.
These Mission Based Lenders, as well as
Private Lenders, must demonstrate that
they meet various financial standards,
and that a minimum amount of their
recent loan activity has been dedicated
to the financing of affordable housing.
III. Authority
Section 542(b) of the Housing and
Community Development Act of 1992,
as amended by Section 307 of the
Multifamily Housing Property
Disposition Reform Act of 1994,
authorizes HUD to enter into RSAs with
QPEs. QPE is broadly defined in Section
542(b) to allow HUD to enter into
agreements with a range of lenders.
Following full consideration of the
comments submitted in response to the
Initial Notice, HUD is hereby issuing
this Final Notice to provide details of
the implementation of the Initiative
along with descriptions of changes
made to the Initiative in response to
public comment and/or further
consideration of HUD as to how the
Initiative should be structured or
implemented.
IV. Key Changes Made to Initial Notice
HUD announced a request for
comments through a notice published in
the Federal Register on November 4,
2013, at 78 FR 66043, which solicited
public comment for a period of 60 days.
The November 4, 2013, notice is
referred to as the ‘‘Initial Notice.’’
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The following highlights key changes
made to the Initial Notice. HUD
received 41 public comments from
approximately 28 different sources of
interest. Respondents included CDFIs
and FHA/MAP lenders, but the most
prominent respondent group was
comprised of nonprofit organizations,
mainly membership organizations
engaged in affordable housing
preservation activities. All public
comments may be viewed in their
entirety online under docket number
FR–5728–N–01 at https://
www.regulations.gov/
#!docketDetail;D=HUD-2013-0102. Also
posted on HUD’s Multifamily Web site
at https://portal.hud.gov/hudportal/
HUD?src=/program_offices/housing/
mfh/progdesc/progsec542b is a
summary of the public comments and
HUD’s responses to the comments
received to the Initial Notice.
A. General Comments
Virtually all commenters recognized a
pervasive need for programs to deliver
capital to small scale lenders, and to
promote the preservation of unassisted,
affordable, small rental buildings, and
they were largely supportive of the
Initiative concept and program purposes
as described by HUD in the Initial
Notice. Some specifically supported the
use of HUD’s Risk Sharing Program for
this purpose as well. Comments made
with respect to inclusion of coop
housing were consistently positive.
Virtually all of the commenters that
mentioned HUD’s parallel legislative
efforts to enhance the program
(described in Section I.B. of this Final
Notice) were supportive of them.
Although largely supportive of the
Initiative, commenters recommended
modifications to virtually all elements
of the design of the proposed Initiative.
Their recommendations addressed the
types of lenders and consortia allowed
to participate, the standards with which
participating lenders should be selected,
and the borrowers’ ongoing financial
and reporting requirements. Even the
most fundamental parameters of the
Risk Sharing Program drew comments.
These included the affordability
requirements, loan standards, loan
application requirements, and various
federal review requirements such as
environmental reviews, etc. In some
cases recommendations were
contradictory, for example some
recommended more restrictive
affordability requirements while others
recommended less restrictive
requirements. This section summarizes
the key changes made by HUD to the
Initial Notice. Complete application
requirements and program details can
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be found at https://portal.hud.gov/
hudportal/HUD?src=/program_offices/
housing/mfh/progdesc/progsec542b.
Specific Changes are highlighted
below.
1. Lender Eligibility: Expansion of
lender eligibility to invite FHA MAP
lenders to participate. Their
participation will be deferred by 6
months from the initiation of the
program, so that CDFIs and other
nonprofit, public, or quasi-public
organizations can start first and provide
HUD with an opportunity to fine tune
the program before having to manage
larger numbers of participants.
2. Applicant/Lender Qualification
Requirements
a. Demonstrable experience in
affordable housing finance: Applicants
are required to provide recent
experience in lending for the production
and/or preservation of ‘‘affordable
housing’’ which for this purpose meets
the minimum requirements of the Risk
Sharing Program. During the past 2
years, no less than 20 percent or 20 of
the applicant’s multifamily housing
loans originated, must have been made
for affordable housing as their primary
purpose. The Initial Notice required 33
percent of the applicant’s loans over the
past 2 years or 33 percent of dollars
loaned to be dedicated to affordable
housing purposes.
b. Financial Capacity: Minimum
financial capacity requirements were
added since the Initial Notice.
Applicants must either have a 20
percent net asset ratio and a minimum
net worth of $7.5 million, or a CAMELS
composite rating of 1 or 2 under the
Uniform Financial Institutions Rating
System (UFIRS) 3 or equivalent
nationally recognized rating system, and
a minimum net worth of $7.5 million.
No additional reserves are required so
long as this standard is maintained. If
the QPE can no longer meet this
standard, a dedicated reserve must be
established in a financial institution
acceptable to HUD.
c. Lender Staff Experience: The Initial
Notice required lender’s staff to
demonstrate 3 years of originating FHA
insured loans. This requirement was
changed to permit alternative
multifamily housing finance experience
so long as it is substantial and fully
described in the application.
d. Lender’s Net Income: Applicants
will demonstrate financial solvency by
disclosing annual income, as well as
expenses and net income for each of the
past 5 calendar years, and provide a
3 See https://www.occ.gov/publications/
publications-by-type/comptrollers-handbook/bsp2.PDF.
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computation of positive net income
from the best 3 of those 5 years.
e. Lender Staff Capacity: Applicants
must demonstrate experience with
multifamily housing mortgage servicing,
and asset management, provide written
procedures for work-outs, and describe
management responsibilities.
f. Certification of Compliance with
Fair Housing and Civil Rights
Requirements: An applicant must certify
that it is the not subject of a suit filed
by the Department of Justice or has an
outstanding finding of noncompliance
with a civil rights statute.
3. Eligible Projects and Loan Size
Limits: Projects must consist of 5 or
more rental dwelling units (including
cooperative dwelling units) on one site.
Scattered sites can be considered so
long as each site has a minimum of 5
units, and can demonstrate it is one
marketable and manageable real estate
asset. Loan amounts have been
increased from $3 million to $5 million
in certain high cost areas. Areas will be
designated in HUD’s ‘‘Annual Base City
High Cost Areas’’ Mortgagee Letter. In
the Initial Notice, eligible projects
consisted of either 5–49 units, or if the
project consisted of more than 49 units,
the loan amount could not exceed
$3,000,000.
4. Building Owner Requirements:
Audited financial statement
requirements may be waived by the QPE
when it can be justified by the nature of
the project and that the borrower has
sufficient capacity to successfully
manage the property.
5. Loan Terms: Loan terms are
changed to allow for balloon payments
at the end of year 15 or thereafter, with
an amortization term of no more than 30
years. Alternatively, loans may fully
amortize over a term of up to 40 years.
V. HUD’s Decisions on Applications
HUD will act on Pre-Qualification
submissions based on the criteria
provided in the Application
Requirements posted on the Web at
https://portal.hud.gov/hudportal/
HUD?src=/program_offices/housing/
mfh/progdesc/progsec542b, within
approximately 30 days of the date HUD
deems the application to be complete,
either by denying the request or by
inviting the applicant to submit a Final
Application. HUD will act on Final
Applications within approximately 60
days from the date of receipt of the Final
Application. This will include notifying
applicants determined to be eligible as
QPEs, and delivering a RSA. It is
important to note that Mission Based
Lenders must be approved as FHA Nonsupervised Mortgagees in advance of
their approval as a QPE. An FHA Lender
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Approval Application, Form 92001–A,
can be downloaded from HUD’s Web
site at: https://portal.hud.gov/hudportal/
documents/huddoc?id=92001-a.pdf.
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
VI. Evaluation of the Initiative
Affirmatively Furthering Fair Housing
Assessment Tool: Solicitation of
Comment—30-Day Notice Under
Paperwork Reduction Act of 1995
One of the principal purposes of the
Initiative is to determine whether, by
providing Federal credit enhancement
for refinancing and rehabilitation of
small multifamily housing, the Initiative
is successful in increasing the flow of
credit to small multifamily properties.
HUD will, therefore, undertake an
evaluation of the Initiative to determine
the success of the Initiative and will
expect participation by selected lenders.
VII. Findings and Certifications
A. Paperwork Reduction Act
The information collection
requirements contained in this
document have been approved by the
Office of Management and Budget
(OMB) under the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501–3520) and
assigned OMB control number 2502–
0500 and 2502–0541. In accordance
with the Paperwork Reduction Act,
HUD may not conduct or sponsor, and
a person is not required to respond to,
a collection of information unless the
collection displays a currently valid
OMB control number.
B. Environmental Impact
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A Finding of No Significant Impact
(FONSI) with respect to the
environment has been made for this
notice in accordance with HUD
regulations at 24 CFR part 50, which
implement Section 102(2)(C) of the
National Environmental Policy Act of
1969 (42 U.S.C. 4332(2)(C)). The FONSI
is available for public inspection
between 8 a.m. and 5 p.m. weekdays in
the Regulations Division, Office of
General Counsel, Department of
Housing and Urban Development,
4517th Street SW., Room 10276,
Washington, DC 20410–0500. Due to
security measures at this HUD
Headquarters Building, an advance
appointment to review the FONSI must
be scheduled by calling the Regulations
Division at 202–708–3055 (not a toll free
number).
Dated: June 30, 2015.
Edward L. Golding,
Principal Deputy Assistant Secretary for
Housing.
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[Docket No. FR–5173–N–05]
AGENCY:
Office of General Counsel,
HUD.
ACTION:
Notice.
This notice solicits public
comment, for a period of 30 days,
consistent with the Paperwork
Reduction Act of 1995 (PRA), on the
Assessment Tool that would be
provided by HUD for use by program
participants in completing their
assessment of fair housing as required
by HUD’s Affirmatively Furthering Fair
Housing (AFFH) rule. The purpose of
the assessment of fair housing (AFH) is
to aid HUD program participants in
carrying out their statutory duty to
affirmatively further fair housing. The
Assessment Tool is designed to guide
HUD program participants in
undertaking a more thorough evaluation
of fair housing issues in their respective
jurisdictions, and setting goals to
overcome issues that are barriers, among
other things, to fair housing choice and
opportunity. As stated in HUD’s
September 26, 2014, notice, this
Assessment Tool is designed primarily
for entitlement jurisdictions and for
entitlement jurisdictions partnering
with public housing agencies to use in
submitting an AFH. The ‘‘primary’’
design is also for local governments and
consortia required to submit
consolidated plans under HUD’s
Consolidated Plan regulations. Although
in the September 26, 2014, notice, HUD
previously stated this assessment tool
would not be used for regional
collaborations, HUD believes that, given
the changes made to this assessment
tool based on comments received, this
assessment tool can also be used for
regional collaborations.
The Assessment Tool published on
September 26, 2014 provided a 60-day
comment period, which commenced the
notice and comment process required by
the PRA. This 30-day notice completes
the public comment process required by
the PRA. With the issuance of this
notice, and following consideration of
public comments received in response
to this notice, HUD will seek approval
of the Assessment Tool from the Office
of Management and Budget (OMB) and
assignment of an OMB control number.
In accordance with the PRA, the
Assessment Tool will undergo this
SUMMARY:
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public comment process every 3 years to
retain OMB approval.
With this 30-day notice, HUD is
publishing two formats of the same
assessment tool, each with the same
content but slightly different
organization. Specifically, the
placement of the contributing factor
analysis is the only difference between
the two formats of the assessment tool.
HUD is seeking comments on which
format would be the most effective and
efficient for program participants to use
in conducting the required analysis of
contributing factors and related fair
housing issues.
DATES: Comment Due Date: August 17,
2015.
ADDRESSES: Interested persons are
invited to submit comments regarding
this notice to the Regulations Division,
Office of General Counsel, Department
of Housing and Urban Development,
451 7th Street SW., Room 10276,
Washington, DC 20410–0500.
Communications must refer to the above
docket number and title. There are two
methods for submitting public
comments. All submissions must refer
to the above docket number and title.
1. Submission of Comments by Mail.
Comments may be submitted by mail to
the Regulations Division, Office of
General Counsel, Department of
Housing and Urban Development, 451
7th Street SW., Room 10276,
Washington, DC 20410–0500.
2. Electronic Submission of
Comments. Interested persons may
submit comments electronically through
the Federal eRulemaking Portal at
www.regulations.gov. HUD strongly
encourages commenters to submit
comments electronically. Electronic
submission of comments allows the
commenter maximum time to prepare
and submit a comment, ensures timely
receipt by HUD, and enables HUD to
make them immediately available to the
public. Comments submitted
electronically through the
www.regulations.gov Web site can be
viewed by other commenters and
interested members of the public.
Commenters should follow the
instructions provided on that site to
submit comments electronically.
Note: To receive consideration as public
comments, comments must be submitted
through one of the two methods specified
above. Again, all submissions must refer to
the docket number and title of the rule.
No Facsimile Comments. Facsimile
(fax) comments are not acceptable.
Public Inspection of Public
Comments. All properly submitted
comments and communications
submitted to HUD will be available for
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Agencies
[Federal Register Volume 80, Number 136 (Thursday, July 16, 2015)]
[Notices]
[Pages 42105-42108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17464]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-5728-N-02]
Federal Housing Administration (FHA): Small Building Risk Sharing
Initiative Final Notice
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Notice.
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SUMMARY: This Final Notice announces HUD's implementation of an
Initiative under the Risk Sharing Program (the ``Initiative''),
authorized by Section 542(b) of the Housing and Community Development
Act of 1992, to facilitate the financing of small multifamily
properties. Through this Final Notice, HUD invites applications for the
Initiative described in this Notice from high capacity Community
Development Finance Institutions (CDFIs), other non-profit lenders, and
public and quasi-public agencies (collectively referred to as Mission
Based Lenders), and private, for-profit lenders approved as FHA
Multifamily Accelerated Processing (MAP) lenders (referred to as
Private Lenders), to participate in HUD's Risk Sharing Program as
Qualified Participating Entities (QPEs).
DATES: Effective Date of Initiative: July 16, 2015.
Application Date for Mission Based Lenders: Applications will be
completed in a two-stage process: Pre-Qualification and Final
Application. Pre-Qualification Applications from Mission Based Lenders
will be accepted starting on the effective date of this Notice. If the
Pre-Qualification Application is approved by HUD the applicant will
have 90 days from receipt of HUD's approval to complete its FHA Lender
application online and deliver a Final Application to HUD.
Application Date for Private Lenders: Applications will be
completed in a two-stage process: Pre-Qualification and Final
Application. Pre-Qualification Applications from Private Lenders will
be accepted starting six (6) months from the effective date of this
Notice. If the Pre-Qualification Application is approved by HUD the
applicant will have 90 days from receipt of HUD's approval to deliver a
complete Final Application to HUD. (Note Private Lenders must be FHA
MAP Lenders in good standing in order to apply; therefore separate FHA
Lender applications are not required.)
ADDRESSES: Interested parties are invited to submit applications
including information outlined below, within the time frames described
above.
FOR FURTHER INFORMATION CONTACT: Diana Talios, Office of Multifamily
Housing Programs, Office of Production, Department of Housing and Urban
Development, 451 7th Street SW., Room 6148, Washington, DC 20410; email
address Diana.J.Talios@HUD.gov and telephone number (202) 402-7125
(this is not a toll-free number). Persons with hearing or speech
impairments may access this number through TTY by calling the toll-free
Federal Relay Service at 800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Purpose
Under the Initiative, applicants qualified as QPEs will rely on a
50 percent risk sharing arrangement with HUD to underwrite, originate,
and service loans that (1) are secured with properties of 5 or more
rental dwelling units, and (2) do not exceed the amount of $3,000,000,
or, in the case of projects located in ``High Cost Areas'' annually
designated by HUD, (most recently in Mortgagee Letter 2014-14 \1\), the
amount of $5,000,000.
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\1\ See https://portal.hud.gov/hudportal/documents/huddoc?id=14-14ml.pdf.
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B. Proposed Statutory Changes
HUD intends to pursue statutory changes to Section 542(b) of the
Housing and Community Development Act of 1992 that would, through loans
originated by lenders that have demonstrated experience in affordable
housing lending, remove affordability restrictions currently required
under Section 542(b). The change is intended to reduce the burden on
owners who access this capital in order to provide affordable housing
in their communities. The language would also authorize Ginnie Mae to
securitize loans on small buildings made under Section 542(b), which
could significantly enhance the impact and utility of the Initiative.
If granted this authority by the Congress, HUD would invite applicants
that participate under the authority of this Final Notice to modify
their agreements to take advantage of such new authority. Until such
statutory changes are made, lenders participating in this Initiative
may have access to low-cost long-term financing through the Federal
Financing Bank (FFB). The FFB Risk Sharing Initiative announced June
26, 2014, now provides capital for multifamily loans insured under
Section 542(c) of the Risk Sharing Program. HUD and the Treasury
Department are currently formalizing an agreement to expand this
capital source to lenders
[[Page 42106]]
participating in the Small Buildings Initiative. Additional application
criteria and program standards may be required by HUD and the Treasury
Department in order to qualify for FFB financing under this Initiative.
C. Initiative Description
Lenders approved to participate in the Initiative will be
authorized to originate, underwrite, and service loans for HUD
multifamily mortgage insurance for project acquisition, refinancing,
rehabilitation (up to and including substantial rehabilitation) and/or
equity take outs, but excluding new construction. The amount of the
equity take-out, or ``cash out'', cannot exceed the scope of work that
is paid for by the Risk Sharing loan proceeds. Further, the
rehabilitation must address all of the capital needs in the Capital
Needs Assessment (CNA) and satisfy the reserve requirements for the
life of the loan. The cornerstone of the Risk Sharing Program is that
the lender shares the insurance risk with FHA. Since lenders will cover
50 percent of the risk of loss under this Initiative, FHA offers
participants significantly more flexibility with respect to
underwriting terms, and ongoing compliance than is found in Risk
Sharing Program elements with higher risk allocations to FHA, and in
other FHA Multifamily insurance programs.
Upon presentation of appropriate project information and
certifications, HUD will endorse such loans for full mortgage
insurance. QPEs will be responsible for the full range of loan
management, servicing, and property disposition activities.
Through a Risk Sharing Agreement (RSA) QPEs will contract to assume
50 percent of the risk on each loan they underwrite. In turn, upon a
default, HUD will commit to pay an initial claim amount based on 100
percent of the unpaid principal balance of an insured mortgage note
plus interest at the mortgage note rate from the date of default to the
date of an initial claim payment upon default of the loan and filing of
a claim. The loss, if any, will be determined at a later date and HUD
and the QPE will share such loss in accordance with the fifty-fifty
share of risk assumed by each under the RSA.
D. Contents
This document contains information on applicant eligibility,
application requirements, application process, the timeframe for
decisions on applications, and other program features and requirements.
II. Background
HUD's 2012 Rental Housing Finance Survey (RHFS) data indicates
there are approximately 495,574 small (5-49 units) multifamily rental
properties in the United States, constituting more than a quarter of
rental units across the nation (2012 Rental Housing Finance Survey).
Small multifamily properties tend to be older, located in low-income
neighborhoods, and to have lower median rents and higher shares of
affordable units than larger multifamily rental properties. The 2012
RHFS also suggests that 87 percent of the owners of this stock are
individuals, households and estates, compared to 8 percent of larger
properties with 50 or more units. Similarly, according to the RHFS,
just 52 percent of small multifamily properties are mortgaged compared
to 87 percent of the larger multifamily properties.
Worst case housing needs are defined as renters with very low
incomes (below half the median in their area) who do not receive
government housing assistance and who either paid more than half their
monthly income for rent, lived in severely substandard conditions, or
both. Worst case housing needs were 7.7 million in 2013, down from a
historic high of 8.5 million in 2011, ending a sustained period of
large increases. This represents a 9 percent decline since 2011 yet
remains 9 percent greater than in 2009 and 49 percent greater than
2003. Worst case needs affect very low-income renters across racial and
ethnic groups, and all types of households.\2\
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\2\ See https://www.huduser.org/portal/Publications/pdf/WorstCase2015_summary.pdf.
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Long-term fixed rate mortgages made through this Initiative will be
especially valuable because smaller properties tend to command modest
rents and owners are often unable to raise rents to cover upward
interest rate adjustments without causing vacancies. Additionally, the
``mom and pop'' ownership of this inventory faces more constraints in
accessing financing in recent years due to increasingly high credit
standards and diminished lending, following a significant loss of many
community and regional banks in the wake of the 2008 recession.
HUD has chosen to include both Mission Based Lenders (defined to
include CDFIs, other nonprofits and quasi-public and public agency
lenders) as well as for-profit, private lenders (Private Lenders).
Mission Based Lenders will be eligible for the first application round,
beginning on the effective date of this Final Notice, while Private
Lenders may apply 6 months later. Although the Initial Notice allowed
for the admission of consortia or joint ventures comprised of Private
Lenders under the control of a Mission Based Lender, HUD determined
this would complicate program operations and introduce unnecessary
complexity into the program. However, a newly formed organization could
be created. The new entity will have to meet all the requirements of
this Final Notice including qualifying as an approved FHA non-
supervised mortgagee.
The Initiative implemented by this Final Notice is intended to
encourage eligible Mission Based and Private Lenders to move into this
market or to serve it more fully with an additional source of capital.
One common problem facing non-depository CDFIs and other Mission Based
Lenders is access to long-term capital, which may limit their ability
to provide housing finance to their communities. These organizations
can qualify as QPEs by demonstrating that they meet minimum criteria
including designation as non-profit entities or as public or quasi-
public benefit corporations under the laws of their States of
formation, and exemption from Federal income taxation pursuant to the
Internal Revenue Code of 1986. These Mission Based Lenders, as well as
Private Lenders, must demonstrate that they meet various financial
standards, and that a minimum amount of their recent loan activity has
been dedicated to the financing of affordable housing.
III. Authority
Section 542(b) of the Housing and Community Development Act of
1992, as amended by Section 307 of the Multifamily Housing Property
Disposition Reform Act of 1994, authorizes HUD to enter into RSAs with
QPEs. QPE is broadly defined in Section 542(b) to allow HUD to enter
into agreements with a range of lenders. Following full consideration
of the comments submitted in response to the Initial Notice, HUD is
hereby issuing this Final Notice to provide details of the
implementation of the Initiative along with descriptions of changes
made to the Initiative in response to public comment and/or further
consideration of HUD as to how the Initiative should be structured or
implemented.
IV. Key Changes Made to Initial Notice
HUD announced a request for comments through a notice published in
the Federal Register on November 4, 2013, at 78 FR 66043, which
solicited public comment for a period of 60 days. The November 4, 2013,
notice is referred to as the ``Initial Notice.''
[[Page 42107]]
The following highlights key changes made to the Initial Notice.
HUD received 41 public comments from approximately 28 different sources
of interest. Respondents included CDFIs and FHA/MAP lenders, but the
most prominent respondent group was comprised of nonprofit
organizations, mainly membership organizations engaged in affordable
housing preservation activities. All public comments may be viewed in
their entirety online under docket number FR-5728-N-01 at https://www.regulations.gov/#!docketDetail;D=HUD-2013-0102. Also posted on
HUD's Multifamily Web site at https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/progdesc/progsec542b is a summary of the
public comments and HUD's responses to the comments received to the
Initial Notice.
A. General Comments
Virtually all commenters recognized a pervasive need for programs
to deliver capital to small scale lenders, and to promote the
preservation of unassisted, affordable, small rental buildings, and
they were largely supportive of the Initiative concept and program
purposes as described by HUD in the Initial Notice. Some specifically
supported the use of HUD's Risk Sharing Program for this purpose as
well. Comments made with respect to inclusion of coop housing were
consistently positive. Virtually all of the commenters that mentioned
HUD's parallel legislative efforts to enhance the program (described in
Section I.B. of this Final Notice) were supportive of them.
Although largely supportive of the Initiative, commenters
recommended modifications to virtually all elements of the design of
the proposed Initiative. Their recommendations addressed the types of
lenders and consortia allowed to participate, the standards with which
participating lenders should be selected, and the borrowers' ongoing
financial and reporting requirements. Even the most fundamental
parameters of the Risk Sharing Program drew comments. These included
the affordability requirements, loan standards, loan application
requirements, and various federal review requirements such as
environmental reviews, etc. In some cases recommendations were
contradictory, for example some recommended more restrictive
affordability requirements while others recommended less restrictive
requirements. This section summarizes the key changes made by HUD to
the Initial Notice. Complete application requirements and program
details can be found at https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/progdesc/progsec542b.
Specific Changes are highlighted below.
1. Lender Eligibility: Expansion of lender eligibility to invite
FHA MAP lenders to participate. Their participation will be deferred by
6 months from the initiation of the program, so that CDFIs and other
nonprofit, public, or quasi-public organizations can start first and
provide HUD with an opportunity to fine tune the program before having
to manage larger numbers of participants.
2. Applicant/Lender Qualification Requirements
a. Demonstrable experience in affordable housing finance:
Applicants are required to provide recent experience in lending for the
production and/or preservation of ``affordable housing'' which for this
purpose meets the minimum requirements of the Risk Sharing Program.
During the past 2 years, no less than 20 percent or 20 of the
applicant's multifamily housing loans originated, must have been made
for affordable housing as their primary purpose. The Initial Notice
required 33 percent of the applicant's loans over the past 2 years or
33 percent of dollars loaned to be dedicated to affordable housing
purposes.
b. Financial Capacity: Minimum financial capacity requirements were
added since the Initial Notice. Applicants must either have a 20
percent net asset ratio and a minimum net worth of $7.5 million, or a
CAMELS composite rating of 1 or 2 under the Uniform Financial
Institutions Rating System (UFIRS) \3\ or equivalent nationally
recognized rating system, and a minimum net worth of $7.5 million. No
additional reserves are required so long as this standard is
maintained. If the QPE can no longer meet this standard, a dedicated
reserve must be established in a financial institution acceptable to
HUD.
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\3\ See https://www.occ.gov/publications/publications-by-type/comptrollers-handbook/bsp-2.PDF.
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c. Lender Staff Experience: The Initial Notice required lender's
staff to demonstrate 3 years of originating FHA insured loans. This
requirement was changed to permit alternative multifamily housing
finance experience so long as it is substantial and fully described in
the application.
d. Lender's Net Income: Applicants will demonstrate financial
solvency by disclosing annual income, as well as expenses and net
income for each of the past 5 calendar years, and provide a computation
of positive net income from the best 3 of those 5 years.
e. Lender Staff Capacity: Applicants must demonstrate experience
with multifamily housing mortgage servicing, and asset management,
provide written procedures for work-outs, and describe management
responsibilities.
f. Certification of Compliance with Fair Housing and Civil Rights
Requirements: An applicant must certify that it is the not subject of a
suit filed by the Department of Justice or has an outstanding finding
of noncompliance with a civil rights statute.
3. Eligible Projects and Loan Size Limits: Projects must consist of
5 or more rental dwelling units (including cooperative dwelling units)
on one site. Scattered sites can be considered so long as each site has
a minimum of 5 units, and can demonstrate it is one marketable and
manageable real estate asset. Loan amounts have been increased from $3
million to $5 million in certain high cost areas. Areas will be
designated in HUD's ``Annual Base City High Cost Areas'' Mortgagee
Letter. In the Initial Notice, eligible projects consisted of either 5-
49 units, or if the project consisted of more than 49 units, the loan
amount could not exceed $3,000,000.
4. Building Owner Requirements: Audited financial statement
requirements may be waived by the QPE when it can be justified by the
nature of the project and that the borrower has sufficient capacity to
successfully manage the property.
5. Loan Terms: Loan terms are changed to allow for balloon payments
at the end of year 15 or thereafter, with an amortization term of no
more than 30 years. Alternatively, loans may fully amortize over a term
of up to 40 years.
V. HUD's Decisions on Applications
HUD will act on Pre-Qualification submissions based on the criteria
provided in the Application Requirements posted on the Web at https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/progdesc/progsec542b, within approximately 30 days of the date HUD deems the
application to be complete, either by denying the request or by
inviting the applicant to submit a Final Application. HUD will act on
Final Applications within approximately 60 days from the date of
receipt of the Final Application. This will include notifying
applicants determined to be eligible as QPEs, and delivering a RSA. It
is important to note that Mission Based Lenders must be approved as FHA
Non-supervised Mortgagees in advance of their approval as a QPE. An FHA
Lender
[[Page 42108]]
Approval Application, Form 92001-A, can be downloaded from HUD's Web
site at: https://portal.hud.gov/hudportal/documents/huddoc?id=92001-a.pdf.
VI. Evaluation of the Initiative
One of the principal purposes of the Initiative is to determine
whether, by providing Federal credit enhancement for refinancing and
rehabilitation of small multifamily housing, the Initiative is
successful in increasing the flow of credit to small multifamily
properties. HUD will, therefore, undertake an evaluation of the
Initiative to determine the success of the Initiative and will expect
participation by selected lenders.
VII. Findings and Certifications
A. Paperwork Reduction Act
The information collection requirements contained in this document
have been approved by the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned
OMB control number 2502-0500 and 2502-0541. In accordance with the
Paperwork Reduction Act, HUD may not conduct or sponsor, and a person
is not required to respond to, a collection of information unless the
collection displays a currently valid OMB control number.
B. Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment has been made for this notice in accordance with HUD
regulations at 24 CFR part 50, which implement Section 102(2)(C) of the
National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The
FONSI is available for public inspection between 8 a.m. and 5 p.m.
weekdays in the Regulations Division, Office of General Counsel,
Department of Housing and Urban Development, 4517th Street SW., Room
10276, Washington, DC 20410-0500. Due to security measures at this HUD
Headquarters Building, an advance appointment to review the FONSI must
be scheduled by calling the Regulations Division at 202-708-3055 (not a
toll free number).
Dated: June 30, 2015.
Edward L. Golding,
Principal Deputy Assistant Secretary for Housing.
[FR Doc. 2015-17464 Filed 7-15-15; 8:45 am]
BILLING CODE 4210-67-P