10.3 Lender Review of Management Documents

A . As part of the Firm Commitment application package, the Lender must provide documentation to demonstrate the acceptability of the proposed Management Agent, with the Management Entity Profile of particular importance. The Lender must review the qualifications of the proposed agent to assess its

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ability to manage the project effectively and in compliance with HUD requirements, and must consider each of the following factors:

1. Past and Current Management

   • The Lender must review the proposed agent’s past experience and current performance with respect to the following indicators:

• 1. Experience with projects similar in size and configuration to the subject;
• 2. Billing practices;
• 3. Controlling operating expenses;
• 4. Vacancy rates;
• 5. Resident turnover;
• 6. Rent collection and accounts receivable;
• 7. Physical security;
• 8. Physical condition and maintenance;
• 9. Financial reporting;
• 10. Resident relations;
• 11. Resident income certification, record keeping and reporting if an affordable or subsidized project;
• 12. Appropriate applicant outreach and affirmative marketing in accordance with a HUDapproved AFHMP; and
• 13. Tenant selection in accordance with Fair Housing principles.
  • If problems are identified with any of these indicators, the Lender must assess whether the agent has adequately improved its procedures to prevent the recurrence of such problems or whether management initiatives by the agent and owner are sufficient to correct the problems and their causes.

2. Ability to Manage Troubled Projects

   • If the property has physical, financial or social problems that require special expertise or skills to manage effectively, the Lender must determine whether the agent has the necessary skills and expertise and whether the agent’s proposed remedies for these problems are appropriate. Agents proposed for these projects should have prior experience successfully addressing similar issues.

3. Management Qualifications

   • The proposed Management Agent should have at least one senior staff person who drafts the agent’s policies and supervises project operations with the following qualifications:

• 1. A professional designation in housing management from a national organization that provides such accreditation; and

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• 2. A minimum of 3 years of experience in directing and overseeing the management of at least three multifamily projects serving a similar resident clientele and comparable to the proposed property in scale, complexity, tenant profile and regulatory compliance.
  • The Lender may accept a proposed agent without the experience requirements listed in this section if the agent is satisfactorily managing other insured or subsidized projects and has consistently done so for a reasonable period of time determined by FHA.

4. Past Performance with Identity-of-Interest Contractors

   • If the Management Agent purchases goods or services from identity-of-interest companies and has previously managed insured projects, the Lender must assess the agent’s past use of such companies and whether this use resulted in costs to the project that exceed the prices paid in arms–length transactions. The review should especially consider:

     • 1. Goods and services purchased through any “pass-through” arrangements described in item 11(b) of the Management Entity Profile.
     • 2. Evidence that the agent has compared prices and that the use of any identity-of-interest companies or pass-through arrangements has been more advantageous to the project than purchasing through arms-length transactions would have been.
     • 3. Evidence that the Management Agent followed HUD contracting and hiring guidelines.

5. The Lender can utilize the following additional sources to determine the capability and expertise of the proposed Management Agent:

   • Management Entity Profile. The Lender can use the information listed on the form to solicit opinions from HUD offices that have worked with this agent.

• Performance Evaluations for the proposed agent and projects which the agent has managed or is currently managing if those projects are under Flexible Subsidy contracts or Workout Agreements.

• Monthly and Annual Financial Statements of the Project including the Independent Public Auditor (IPA) Internal Controls Questionnaire.

• Additional documentation that the Lender may review includes:

  • 1. HUD/mortgagee on-site review reports;
  • 2. Correspondence;
  • 3. Resident complaint files;
  • 4. Previous management reviews;
  • 5. Previous REAC inspections/scores, and
  • 6. Reviews from federal, state or local government agencies of the Management Agent’s past experience with properties using affordable housing or subsidy programs, if applicable.

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