8.5.1.8 Real Estate Owned Schedule and Mortgage Debt Schedule

A. Real Estate Owned (REO) Schedule and Mortgage Debt Schedule must disclose the latest entire calendar year of operations. The purpose of requiring the REO and Mortgage Debt Schedules is to determine an Active Principal’s exposure to any risk associated with their real estate portfolio (e.g. multifamily rental, assisted living, commercial, office, undeveloped land, and new construction versus stabilized properties, etc.). Generally, the REO Schedule lends credibility to asset values reported on the principal’s financial statements by requiring detailed information on each real estate asset and serves as a cross-check to the financial statements. The mortgage debt schedule should include loans that are maturing within the next 5 years or have floating-rate resets within the next 5 years. Other debt that has a material impact on the Principals’ creditworthiness should be included as well (e.g. if they are in default or are likely to have problems with a loan over the next few years) to determine if any of the properties should be classified as a troubled asset. A troubled asset is one that has, or is likely to, defaulted on its mortgage obligations, or has significant financial management or operational problems. The credit evaluation shall include:

1. An analysis of the various properties’ net operating income, outstanding indebtedness, cash flow and valuation estimates must detail and support the Lender’s assessment of the likelihood of the Borrower’s successfully refinancing projects that have maturing balloon debt, assuming current capital markets conditions and current availability of alternative long-term financing sources. The analysis should pay particular attention to Principals with a history or anticipated incidence of adverse credit actions including (but not limited to) bankruptcies, foreclosures or a pattern of renegotiating debt.

2. A financing plan that should include both conventional financing and other FHA insured loans, including healthcare loans, for any shortfall or anticipated lack of available credit.

3. An analysis of large nonprofit or for-profit entities/ owners with large portfolios and audited summary financial statements. Generally, the Lender can provide summary data, including a description of exposure to maturing debt obligations, a detailed listing and analysis of troubled projects, including those with recent or anticipated defaults or other material adverse actions.

4. If a tax credit syndicator is identified, a brief overview and analyses of the entity. Typically, a tax credit syndicator is an investor intermediary with only a limited ongoing obligation to LIHTC rental properties. Accordingly, an REO schedule is not required for tax credit syndicators or investors. However, the syndicator’s liquidity, track record, asset management and monitoring capability and

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ability to perform on its commitment to provide equity to the Borrower after Initial Endorsement are material issues for the HUD Senior Underwriter’s analysis of the tax credit investor/LP.

5. The REO and mortgage debt schedule in tabular format containing the information described below and any other information sufficient to present their analysis and conclusions. Typically, the format is a spreadsheet accompanied by a summary description and analysis of each project. When the REO schedule materially differs from the financial statements and are not minor variations arising from timing of statements or changes in principal balances, then the Lender should investigate, reconcile and explain the differences. Refer to Appendix 8, Section A.8.1 for the itemized physical property list and the schedule of mortgage debt.