14.6 HAP Contract Renewals for Section 8 Projects

A. Where a Section 8 HAP contract is involved, the Borrower and Lender are responsible for ensuring that the renewal terms under the Section 8 Renewal Policy have been or will be satisfied prior to loan application submission or Initial Endorsement. Consistent with the definition of “Affordable Housing” in this MAP Guide, if an existing Housing Assistance Payment (HAP) contract has a remaining term of 15

63 For projects with LIHTC, the State Housing Finance Agency will require the Borrower to certify to actual costs.

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years or greater from final endorsement, then no renewals are necessary for purposes of qualifying for FHA insurance (other programs, such as RAD may have additional requirements). See Chapter 7, Section 7.8.5. for underwriting requirements for projects with short and long-term HAP contracts. Criterion 3 remains value-based using market rents, unless the project is a first-time refinance of a 202 or a RAD transaction. For Project Based Voucher (PBV) contracts, a 15-year contract is both typical and acceptable.

B. In the case of a HAP Contract Renewal Request, the Rent Comparability Study (RCS) must be reviewed by the Lender as part of the underwriting process and when reviewing the MAP appraisal. If the Borrower commissions the RCS, the same firm can not do the appraisal. However, if the Lender commissions the RCS, the same firm may do the appraisal. The Lender is expected to analyze the loan using the rents from the RCS to develop income estimates (and/or the Section 8 budget prepared by the Borrower in the case of budget-based rents) and to address any inconsistencies in the Lender’s narrative. The HUD Underwriter will review the Section 8 HAP Contract Renewal Request, RCS and Lender’s underwriting narrative to verify that the rents requested by the Borrower in the Renewal Request are supported by the RCS and that the Lender’s underwriting accounts for the RCS and the Renewal Request. At the HUD Underwriter’s discretion, the HUD appraiser may be asked to review an RCS to determine its reasonableness. If the Performance Based Contract Administrator’s[64] (PBCA) appraiser has not undertaken a detailed review of the RCS, the HUD appraiser must also review the RCS to determine reasonableness using Guidelines in Chapter 9 of the “Section 8 Renewal Policy”.

C. Coordination among the assigned HUD Underwriter, the field office’s Asset Management and Portfolio Oversight (OAMPO) representative assigned to the project, and if necessary, HUD HQ’s OAMPO staff is essential to ensure that a) the Section 8 HAP Contract Renewal Request and rent increase, if applicable, are approved in a timely fashion, b) a prepayment approval is obtained if needed, and c) any other waivers are processed and approved in a timely fashion.

D. Section 8 HAP Renewal Requests and Rent Adjustment Requests must be delivered to the Performance Based Contract Administrator (PBCA) at least 60 days prior to the submission of the Firm Commitment application, and 120 days in advance is preferable. However, the RCS rents and the appraiser’s rents must be determined within 180 days of the issuance of the Firm Commitment, or those rents must be updated in accordance with Chapter 7, Section 7.6.1. Thus, the owner and Lender must carefully manage the timing .

E. Similarly, Lenders’ requests for prepayment of an FHA-insured loan should be submitted to headquarters well before submission of the Firm Application package to the HUD field office (see Mortgagee Letter 2018-07). The PBCA, under the direction of OAMPO, prepares and signs the new contract and attached cover letter for delivery to the owner.

F. Borrowers and their Lenders should refer to the Section 8 Renewal Policy for detailed guidance on Section 8 contract renewals.

G. If the Borrower is submitting a budget-based rent request, the Lender must coordinate with the Borrower to determine a preliminary debt service figure for the new loan that the Borrower will include in the proposed budget to submit to HUD and the PBCA. The final debt service figure is subject to change during the final underwriting process, so this may have to be amended on the HAP contract request later.

64 The PBCA is an agency hired to assist HUD/OAMPO in the administration of Section 8 contracts.

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The income, expenses and debt service amounts listed on the Borrower’s request must match the amounts in the Lender’s underwriting.