HUD issues mortgagee letter regarding Section 223(f) underwriting mitigants for multifamily housing projects

Federal Issues Covid-19 HUD Mortgages FHA Underwriting

On April 10, HUD released Mortgagee Letter 2020-11 to Multifamily Regional Directors, Production Directors, Operations Officers, and FHA MAP Lenders regarding Section 223(f) underwriting mitigants for multifamily housing projects due to the economic impact of Covid-19. Specifically, HUD takes the position that the Covid-19 emergency constitutes a “material change” that requires underwriting mitigants to reduce this additional risk. As such, the letter provides instructions to HUD staff about mitigants that may be included in the Firm Commitment for Section 223(f) loans that are in process, as well as for projects where a Firm Commitment has been issued. Among other things, HUD imposes certain debt service reserve requirements for both market rate transactions and affordable transactions. HUD also requires that, at endorsement, cash out proceeds in excess of 250% of the non-critical repair escrow be used to fund the debt service reserve account. The letter is effective immediately and lasts until HUD determines that additional mitigants for Section 223(f) transactions are no longer required.