14.19.4 Tax Exempt Bonds - FHA Insured Permanent Debt

A. Tax Credit projects are often financed with the "4%" Tax Credits allocated in conjunction with private activity bond volume cap, rather than the "9%" Tax Credits competitively allocated by State Agencies. Taxable Ginnie Mae securities’ yields and the resulting rates on FHA multifamily loans at times can be lower than long-term tax-exempt bonds and municipal bond-backed multifamily loan rates. Consequently, investment banks have developed an approach that combines taxable Ginnie Mae securities with short-term, tax-exempt bonds and 4% LIHTC. This structure establishes several different account

MAP Guide, March 2021 Go to beginning of Chapter 14

Bookmarked Version Go to Acronym and Abbreviation List, Glossary, Index

Chapter 14 Page 14-17

To return to this page after clicking a link, press ALT + Back Arrow

Chapter 14 LIHTC and Other Tax Credit Programs 14.20 FHA Tax Credit Pilot Program Expansion

Go to Table of Contents

funds, along with a series of cash flow events between the various accounts upon a draw request. The taxexempt bonds are secured by cash collateral initially provided by the FHA Lender's warehouse funds (or other funding source, but not FHA-insured loan proceeds), which in turn are reimbursed with proceeds from the sale of Ginnie Mae-guaranteed securities. The tax-exempt bonds are retired with the proceeds of the bond collateral account when the project is placed into service.

B. This structure allows the Borrower to avoid higher loan rates that exist when the loan funding source consists exclusively of tax-exempt bonds, and still take advantage of the 4% LIHTC equity. This bond financing structure is generally acceptable to HUD, but each transaction must be reviewed by Housing field staff and OGC field counsel for programmatic and legal sufficiency, including the review of specific transaction documents. Accordingly, Underwriters must involve their OGC counterparts early in the process to ensure these issues are addressed early and do not constrain the transaction's processing.

C. Note that FHA-insured loan proceeds may not be used to serve as collateral for the bonds, and they may not be paid to the bond trustee or sent to other accounts to facilitate issuance of the bonds. This is a statutory prohibition that may not be waived, as FHA-insured loan proceeds are only permitted to directly finance the relevant activity authorized under the applicable section of the National Housing Act. To ensure statutory compliance regarding the use of FHA-insured loan proceeds, HUD OGC requires Lenders to complete Section F of the Lender’s Certificate (form HUD-92434M) or the Request for Endorsement (form HUD-92455M) as applicable for financings structured in this manner.