8.15.1 Review of Financing Documents

A. A tax-exempt bond is a security issued by a governmental agency in which the interest income produced is free from federal income tax and sometimes free from state and/or local income tax. In addition, many public agencies may make tax-exempt loans under the same principals without the issuance of bonds. Financing documents associated with mortgage bonds or tax-exempt bonds and loans are prepared and reviewed by the issuer, their counsel and, with respect to bonds, the bond Underwriter, and their counsel. The tax-exempt loan and/or bonds are secured by one or more assets, which may be cash, a letter of credit, GNMA mortgage-backed security issued by the Lender (Ginnie Mae Security), and/or a mortgage. In FHA insured transactions, these tax-exempt loans and bonds are typically backed by cash collateral held by the trustee, or by the Ginnie Mae Security, but may also be backed indirectly by an interest in the insured loan.

1. The Sponsor must submit, with the application for Commitment processing, a separate statement itemizing the estimated costs of issuance, fees and discounts and financing fees for the tax-exempt loan or bond to be paid out of pocket by the Sponsor/Borrower with an explanation of the necessity and reasonableness of each cost. The Lender’s Underwriter must check the statement for reasonableness, using the data from previously processed tax-exempted financed projects and adjust costs where appropriate. This information is used to develop the Total Estimated Cash Requirement form HUD-92264-A, Supplement to Project Analysis.