8.8.1 General Responsibilities of Lender’s Underwriter

A. Underwriting multifamily projects is a process for evaluating the character, capacity and creditworthiness of the Sponsor, Borrower and its principals, the General Contractor, and in the instance of an identity of interest, the property management company, in order to reach specific conclusions resulting in the approval (with conditions, as appropriate) or denial of a mortgage insurance application.

B. The Lender must assess the Borrower’s ability to manage all of the responsibilities of the ongoing operations of multifamily properties, including the development, construction, completion, and lease-up for new construction proposals and property maintenance, tenant relations, financial and performance reporting and effective management for existing properties.

C. The Lender’s Underwriter must:

1. Identify the Borrower and its principal entities or individuals and present a complete, consistent and coherent picture of the financial capacity and creditworthiness of the Borrower and the various Active Principals.

2. Analyze the creditworthiness of the Sponsor(s), the Borrower entity, if formed, and its principals and/ or individuals and the contractor. If a borrowing entity is not yet formed at the time the firm application is submitted, the MAP Underwriter must still perform the financial and credit analysis on the Active Principals and/or individuals. The Underwriter must demonstrate that the principals and/or individuals have the character, capability, creditworthiness and commitment to provide expert leadership, working capital and cash needed to close the proposed transaction(s), complete the development process, as applicable, and to support the operations of the property. This determination is made in light of the obligations that may already be required of the principal, or are expected to arise due to ownership of other business interests and real estate projects.

3. For existing mortgagor entities and properties, evaluate the financial performance of the mortgagor and the property based on its financial statements and other operating reports, (e.g., rent rolls) and credit history to determine eligibility, mortgage amount and conformance to program requirements.

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Chapter 8 Mortgage Credit 8.8 Application Exhibits and Responsibilities

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4. Conduct a mortgage credit review to include:

   • The balance sheets for principals as discussed in Appendix 8, Section A.8.2, “How to Analyze Financial Statements” and in addition to the Schedule of Real Estate Owned and other relevant schedules.

In each case the Lender will conduct sufficient diligence to determine what should be an appropriate period of past financial review. Character is best demonstrated during periods of economic distress and so a review of at least one complete business cycle (means the entity’s fiscal year) is necessary. Any material credit problems in the last 2 to 5 years should be carefully reviewed and may result in an application rejection. Events that occurred before that period if, for example more than 8 or 10 years have passed, would not have as material an impact on creditworthiness but may still be relevant. The Lender should consider all relevant factors in the analysis and credit approval decision.

• Determine whether the Sponsor(s) has (or will have, given proposed transactions) existing insured mortgage balances exceeding $500,000,000. If a Sponsor has obtained prior approval to exceed this amount, submit a copy of the Prior Approval Decision together with any other documents identified as required by the Prior Approval Decision. (See Appendix 8, Section A.8.3 for prior credit approval instruction.).

5. Determine if there is incomplete or inconsistent information, or discrepancies between the information included on the financial statements and in the credit reports. Any inconsistencies must be reconciled.

6. In addition to the formal documents and credit investigation described above, the Lender’s Underwriter must conduct and describe the results of an internet search of each principal and determine if there is any information that raises concerns about creditworthiness and address any negative information.

7. Provide the Office of Foreign Assets Control (OFAC)/Terrorism checks and verifications on principals which are required by the U.S. Patriot Act. These checks must be completed and documented no later than the time of Initial Endorsement, whether or not the Lender is a regulated financial institution. The OFAC verification is not part of MF Regional/Satellite Office review except to the extent that the Lender has identified problems during the OFAC check. OFAC requirements are administered by the Department of the Treasury and Lenders should refer to the Treasury’s website

http://www.ustreas.gov/offices/enforcement/ofac, for any questions.