17.5.4 Mortgage Credit Processing

• A. Follow the current procedures in Chapter 8 for Section 223(f) modified as follows:

1. Determination of the Acceptability of the Cooperative Corporation.

   • Board of Directors (BOD) Performance History . In processing an application, the lender will take into account the BOD’s ability and willingness to manage the Cooperative within the requirements of Section 223(f). The lender will also consider all applicable requirements contained in Chapter 10, Management Analysis.

• Ability to Close . It must be determined that the Cooperative organization has the ability to close the transaction in a satisfactory manner and that the sum of the monthly charges to members will be adequate to meet debt service and other ownership expense.

• Creditworthiness . It must also be determined that participants have not been debarred or subject to a Limited Denial of Participation and are otherwise capable of meeting their ownership and management obligations. For the Single Asset Borrower Entity, its Officers and BOD Members, and the Management Agent, the review should include the HUD-2530 / Active Partners Performance System (APPS) Clearance (or successor form).

• Other Business Concerns . List of other business concerns are required for the Officers of the BOD.

• Adequacy of Monthly/Annual Charges . The underwriter must ensure that the sum of monthly charges, as listed on the Cooperative Membership Exhibit, converted to an annual basis, is sufficient to meet the HUD estimate of debt service, Cooperative operating expenses, taxes, special assessments and ground rents, if any, plus a general operating reserve of 3% of these items. In making these determinations of allowances for accessory income (if any), the allowance shall not exceed the Cooperative's estimate or the appraiser’s estimate of accessory income, whichever is

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Chapter 17 Section 207: Refinancing Cooperative Housing Projects

17.5 Technical Processing

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the lesser. However, rental payables under duly executed acceptable leases for commercial space on the premises shall be used in lieu of estimates. These payables should be totaled to be sure all members have assurance that the total membership has their required minimum equity requirements. The HUD estimate of annual charges will include the following:

• 1. Debt service payments.
• 2. Cooperative Operating Expenses, Reserve for Replacements, Taxes, Special Assessments and Ground Rent, if any.
• 3. (Memorandum attached to HUD-92264). General Operating Reserve of 3% of Sum of Above.

• Review of the Cooperative’s Procedure for Approving New Members . The procedures employed by the Cooperative in approving new members (cooperators) should be reviewed to ascertain if there is compliance with any income requirements and credit scores as contained in the Cooperative’s bylaws or other related agreements. The subscription agreement and other individual underwriting documentation for anyone becoming a member in the three-month period immediately prior to the date the application for Firm Commitment was submitted must also be reviewed by the HUD processing office.

• Carrying Charges . The Regional Center or Satellite Office must review the procedures employed by the Cooperative in reviewing its budget, determining the adequacy of the carrying charge and to its history of carrying charge increases. The Cooperative’s Bylaws or other appropriate organizational documents must contain a provision that requires an annual increase in the carrying charge based on inflation, in order to address increases in operating expenses. The total amount of the unpaid balance (30 days or more) for carrying charges and special assessments as shown in the rent roll must not exceed 5% of the gross annual income.

2. Determination of Total Debt Service, Cooperative Operating Expense and GOR . Total Debt Service will be calculated by multiplying the amount of the mortgage by the sum of initial curtail rate, interest rate and Mortgage Insurance Premium (MIP). Cooperative Operating Expense includes those operating expenses, reserve for replacements, taxes, special assessments and ground rents, if any, which are the responsibility of the Cooperative membership as a whole rather than of the individual members and will include the cost of occupancy of the units assigned to employee use. The GOR is calculated in accordance with the instructions in Section 17.3.3 and is accumulated as a special reserve in order to meet possible contingencies.

3. Outstanding Debt . Past due accounts payable and outstanding project liabilities must be cleared and released, or otherwise fully satisfied, prior to or at loan closing. Examples of such items include deferred management fees, overdue utility bills or real estate taxes, or trade payables. These items are not to be included in the eligible debt basis.

4. Completion of the HUD-92264-A and Determining the Maximum Insurable Mortgage . Pages 1- 2 of the HUD-92264-A shall be completed according to existing instructions, modified as noted in Section 17.3.1.