18.3.3 Maximum Mortgage

• A. The mortgage may not exceed the lowest of the following Criteria described in Form HUD-92264-A:

1. Criterion 1 . Amount that is lower than the lowest of the amounts derived in paragraphs 2, 3, and 4 of this Section 18.3.3.A below.

2. Criterion 2 . Modified to read the “Original principal amount of the existing insured mortgage” that is to be refinanced (or the sum of the original principal amount of all mortgages to be refinanced if two or more mortgages on one single property are being refinanced).

NOTE: Both loans must be on one property with the same Single Asset Mortgagor Entity with identical legal descriptions (e.g., insured first mortgage coupled with a Section 241(a) loan). By statute, Section 223(a)(7) refinancing cannot be used to consolidate multiple loans on different projects secured by collateral with different legal descriptions that will remain separate, even if the sites are adjacent. See also Chapter 3, Section 3.1.30, Scattered Sites, and Section 18.3.13, Refinancing Partial Payment of Claim (PPC) Properties, for additional restrictions.

3. Criterion 10 . Amount based on the cost to refinance the existing insured mortgage and other permitted debt, including any accrued but unpaid interest, permitted repairs, capital improvements, and loan closing charges. Specifically, the Criterion 10 Amount includes the unpaid principal balance of the existing insured mortgage (or mortgages if more than a single mortgage are being refinanced), plus a, b, and c below:

   • Loan closing charges, including the application fee, upfront Mortgage Insurance Premium (MIP), financing fee, total costs of prepayment penalties associated with the mortgage note, title and recording fees, and legal fees associated with the refinancing, and required deposits to the reserve for replacements.

• 1. The cost of defeasance of any existing bond issue and bond discounts exceeding 10% of the proposed mortgage amount may not be included.
• 2. The cost of any discounts may not be included in estimating the maximum mortgage amount.

• Outstanding debt incurred in connection with capital improvements made to the property that are deemed acceptable to the Production Division Director of the Regional Office or other designated authority.

MAP Guide, March 2021 Go to beginning of Chapter 18

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

Chapter 18 Page 18-2

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

Chapter 18 Section 223(a)(7) 18.3 Basic Program Requirements

Go to Table of Contents

Not eligible for inclusion in calculating the maximum mortgage amount available for refinancing under Section 223(a)(7) is indebtedness incurred in connection with funding operating deficits, deferred management fees, deferred development fees or other non-capital costs (other than Section 223(d) loans) nor are past-due payables. See Chapter 8, Section 8.5.1.2.G for a discussion of clearing or resolving past-due payables at the time of closing.

• HUD-approved Critical and Non-critical repairs costs (as approved by the Production Division Director of the Regional Office or other designated authority).

For a discussion of permitted repairs, please see Chapter 5, Section 5.1.3.A.1., Eligible Construction Activities by Program, Class of Work, and Chapter 5, Section 5.10.2, Processing for Refinance or Acquisition, Section 223(f) and 223(a)(7) and 241(a) for Repairs and Alterations.

• 1. Generally, Critical repairs must be completed prior to endorsement.
• 2. Non-critical repairs may be deferred but should be completed within twelve months of endorsement. Generally, a 110% escrow will be established, which may be funded with a letter of credit. For further discussion. HUD may determine that a larger escrow is appropriate for projects with more extensive repairs or may waive the escrow for very minor replacement cost items.

4. Criterion 5 . Amount based on debt service ratio. The amount that can be amortized by the applicable percentage described below of the project's estimated net operating income. The mortgage may exceed this amount by capitalizing the savings from any tax abatement that runs with the land. Physical occupancy assumptions used in calculating the project’s estimated net operating income should be based on historical occupancy levels.