3.1.28 Replacement Reserve

A. A Reserve for Replacement (RfR) Escrow account is required for all insured mortgages. The escrow may be funded by an initial deposit at endorsement and by monthly deposits to the Replacement Reserve as determined in the financial schedule developed by the Lender in the CNA e-Tool and approved by HUD. The purpose of the Escrow is to set-aside funds to pay for timely replacement of capitalized physical assets. See Appendix 5, Section A.5.7 for the minimum annual replacement reserve requirements for all program types and for guidance on completing a CNA. HUD Handbook 4350.4, Chapter 2 Servicing Manual, details the Lender’s responsibility for managing funds held for the project and describes liquidity, draws, and investment requirements.