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Mortgage Insurance_Two Year Operating Loss Loans, Section 223(d)
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.
Persons are encouraged to communicate with the nearest local Multifamily Hub or Program Center.
These offices are listed under HUD resources on the Multifamily industry website at: http://www.hud.gov/offices/hsg/mfh/mfbroch/hubs_pcs.cfm.
Program Accomplishments
In Fiscal Year 2007 HUD insured mortgages for one operating loss loan with 210 units/beds, totaling $7.0 million. It is estimated that approximately the same number of projects will be insured in Fiscal Year 2008.
Uses and Use Restrictions
Eligibility is limited to currently insured HUD projects.
Section 223(d) insures a loan to cover the excess of expenses over project gross income incurred during the first two years following the date of completion of the project or for any other two-year period within 10 years of project completion, for such amounts and upon such terms and conditions as HUD may prescribe.
A project can receive both loans but not for the same two year period.
The loan is insured by HUD under the same section as the original mortgage in an amount not exceeding the excess of operating expenses over project income.
The loan term is limited to the unexpired term of the original mortgage.
This program requires appropriated credit subsidy, which is limited.
Eligibility Requirements
Applicant Eligibility
Owners of a multifamily project or facility subject to a mortgage insured by HUD are eligible to apply.
Beneficiary Eligibility
Individuals/families and property owner.
Credentials/Documentation
A formal application for insurance accompanied by a financial statement prepared by an independent certified public accountant or independent public accountant. This program is excluded from coverage under OMB Circular No. A-87.
Aplication and Award Process
Preapplication Coordination
The HUD Multifamily Hub and Program Center will hold a preliminary conference with the sponsor to provide general application guidance.
This program is excluded from coverage under OMB Circular No.
A-102.
This program is excluded from coverage under E.O.
12372.
Application Procedures
The sponsor submits a formal application through a HUD-approved mortgagee to the local HUD Multifamily Hub or Program Center. This program is excluded from coverage under OMB Circular No. A-110.
Award Procedures
Information submitted by the applicant will be reviewed and analyzed using data available through office records, field review and general current working knowledge of the project and background. A determination is then made as to the maximum insurable loan amount.
Deadlines
Application shall be made within three years after the end of the two-year operating loss period for the 2-year loan. A loan covering losses occurring within 10 years of project completion must be made within 10 years of the end of the 2-year loss period covered by the loan.
Authorization
National Housing Act, as amended, Public Law 90- 448, as amended, Public Law 91-152, 12 U.S.C. 1715x.
Range of Approval/Disapproval Time
Processing time will be dependent upon the degree of preparation by the sponsor and HUD Multifamily Hub or Program Center workload.
Appeals
If an application for operating loss loan is refused, HUD will state the reason for the refusal.
Renewals
Not applicable.
Assistance Considerations
Formula and Matching Requirements
The amount of the 2-year loan shall be limited to the lesser of (1) The amount of the operating loss loan requested; (2) the amount of the operating loss established by HUD review or, (3) the maximum loss supported by debt service limitation. The 10-year loan shall be further limited to 80 percent of unreimbursed funds invested in the project.
Length and Time Phasing of Assistance
The loan may not exceed the remaining term of the insured mortgage.
Post Assistance Requirements
Reports
Defaults in meeting the mortgage terms must be reported.
Audits
HUD reserves the right to audit the accounts of the mortgagee or mortgagor to determine compliance and conformance with HUD regulations and standards.
Records
Mortgagees are required to service and maintain records in accordance with acceptable practices of prudent lending institutions and the HUD regulations.
Financial Information
Account Identification
86-4077-0-3-371.
Obigations
(Loans insured) FY 07 $7,044,000; FY 08 est $11,250,000; and FY 09 est $15,000,000.
Range and Average of Financial Assistance
Loan sizes range from $750,000 to $7,000,000 with an average of $2.0 million. Project sizes range from 117 to 210 units with an average of 151 units.
Regulations, Guidelines, and Literature
24 CFR 207.4(f) et seq; HUD Handbook 4470.1 REV-2 CHG-1 (Chapter 17), "Operating Loss Loans", no charge, available on HUDCLIPS at http://www.hudclips.org.
Information Contacts
Regional or Local Office
All projects are processed in HUD Multifamily Hubs or Program Centers. Persons are encouraged to communicate with the nearest local Multifamily Hub or Program Center. These offices are listed under HUD resources on the Multifamily industry website at: http://www.hud.gov/offices/hsg/mfh/mfbroch/hubs_pcs.cfm.
Headquarters Office
Office of Multifamily Development, Department of Housing and Urban Development, 451 7th Street, S.W., Washington, DC 20410. Telephone: (202) 708-1142. Use the same number for FTS.
Criteria for Selecting Proposals
Not applicable.
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