8.15.2 Loan Rates

A. The construction loan and the permanent loan rates may exceed the interest rate on the bond obligations. When this occurs, the spread will create a surplus of funds which must be held by the bond trustee. At initial closing, the bond counsel must supply HUD with a legal opinion that any investment income received by the mortgagee but not held for its own account must be under the control of the trustee or agent holding the product funds relating to the tax-exempt financing and will not flow through

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Chapter 8 Mortgage Credit 8.15 Bond Financed Projects and Tax-Exempt Agency Loans

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the books and records of the project. The tax-exempt financing documents will instruct the holder of the projects funds to invest the funds in a federally-insured interest bearing account, submit the project’s financial statement, or permit the Borrower to use the surplus of funds to cover costs associated with the tax-exempt financing transaction.

B. In all cases, the interest rate on the tax-exempt financing will not be known during the Commitment processing, therefore the underwritten rate will almost certainly change once the tax-exempt interest rate has been established (e.g. the sale of the bonds). Upon determination of the mortgage rate, an amendment letter to the Firm Commitment will be issued reflecting the actual interest rate. If, due to time constraints, HUD does not have sufficient time to reprocess a higher mortgage for the project, the Firm Commitment must contain the following condition:

C. “Any interest savings resulting purely from a differential between the HUD-processed interest rate and the actual, final interest rate may not be construed as excess funds that may be used to offset costs in other categories at the time of cost certification. Any such savings must be applied as a mortgage reduction.”

NOTE: An exception to the above is that savings resulting from the early completion of construction may be used to offset cost certifiable overruns in other cost categories. Compute interest savings by:

1. Recalculating the interest line item on form HUD-92264, using the actual interest rate for the scheduled construction period.

2. Subtracting the actual interest cost recognized at cost certification from the revised interest figure developed in (1) above.

3. HUD will allow a total financing and placement fee of 5.5% on tax-exempt financing applications. This limit applies to all multifamily Sections of the Act except Section 223(a)(7) and is reflected in the replacement cost mortgage amount confirmed at cost certification.