B. Production tracking:

1. As part of the annual QC review, MAP Lenders must track all MAP loans presented or processed by individual loan originators and Underwriters. The term loan originator includes mortgage broker, loan correspondent or loan consultant. No later than June 30th of each year, the MAP Lender must submit an electronic copy of its production tracking report to COB. Annual production tracking reports for each Underwriter must include the following information:

   • FHA number;

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• Project name (identification);

• Initial/ Final Endorsement Dates;

• Mortgage Insurance Program (MIP);

• Original principal balance;

  • Loan Servicer;

• Loan status;

Whether the loan has any of the following issues:

• 1. Waivers
• 2. Master Lease
• 3. Is located in an Underserved Area
• 4. Criterion 5 (debt service) controlled mortgages
• 5. Any government housing subsidies (i.e. LIHTC, Section 8, etc.)

• C. QC Plan reviews

1. The QC Plan review must evaluate the Lender’s overall QC Plan for adequacy. It should include an analysis of:

   • The Lender’s operation and its compliance with the QC Plan;

• Whether the Lender’s QC Plan incorporates a system that is adequate to ensure that FHA underwriting and servicing requirements are followed;

Whether the Lender is following the QC Plan it has adopted;

• Whether the Lender has completed the correct number of loan audit reviews; and

• Whether the Lender is adequately staffed to implement the QC Plan.

• D. QC loan file and commitment reviews:

1. The QC review must include reviews of individual loan files and commitments, as follows:

   • For MAP Lenders with a total of 20 or more MAP Firm Commitments in the applicable year of review, reviews must be completed for 5% of all closed loans. The maximum number of required loan reviews will be the lesser of 5% of all closed loans or three reviews.

• MAP Lenders with fewer than 20 Firm Commitments in the applicable year of review must perform one QC loan review.

• The required number of QC reviews will be performed on loans with the greatest Risk Assessment Score as defined below.

2. MAP Lenders are not required to perform a QC review for each Section of the National Housing Act used.

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3. MAP Lenders are not required to perform a QC review for each Underwriter, so long as the minimum prescribed number of loans is reviewed. QC reviews shall evaluate the quality of work performed by the MAP originators, Underwriters, and technical staff and/or third-party contractor(s).

4. All appraisals reviewed must receive a field review performed by either a qualified senior staff member not involved in origination or underwriting or by a review appraiser employed on a contract basis.

5. For QC reviews involving new construction/substantial rehabilitation projects, the review should provide an analysis of whether MAP construction loan servicing policies and requirements have been met.

6. The review appraiser or appraisal firm performing the QC appraisal review may not have provided appraisal services for any MAP loans underwritten by the Lender.

• E. QC loan ranking factors and review selection:

1. The QC reviewer will assign a risk assessment score to each loan originated in the previous reporting cycle and loan reviews will be targeted to loans with the highest scores that therefore represent the greatest degree of risk to the Department. Points are cumulative and will be assigned for the following risk indicators:

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Risk Indicators Scores Unsubsidized, market rate properties 5 Points Properties with a Master Lease 10 Points

• F. QC Reviews of assigned or problem loans

1. In addition to the above review requirements, as part of the QC review process, the originating MAP Lender must also undertake a comprehensive review and re-examination of any MAP loan it underwrote that is assigned either during construction or within four years after Final Endorsement. This must be done in all cases, including those in which the MAP Lender no longer has the loan in its portfolio. If the originating Lender does not initiate the review, COB may direct that the review be performed. In addition to all other requirements of a QC review outlined herein, reviews of assigned loans shall include the following:

   • A timeline spanning application engagement to assignment of the loan, and should identify the dates of pertinent actions and events, such as the date of engagement, application submission, firm commitment, initial endorsement and should identify the date of the events that are determined to have contributed to the assignment (for ex, loss of the Management Agent, contractor walk-off, etc.).

• Identification of all parties or entities involved in preparing and processing the application, including:

  • 1. Principals of the Borrower, sponsoring entity(ies), and development team members;

    • a) The property Management Agent;

    • b) The Lender’s originator(s) or loan correspondent(s);

    • c) The Lender’s Underwriter(s); and

    • d) Third party contractors that worked on the application.

• An analysis of the probable cause of the assignment, including identifying all relevant contributory factors. To the extent possible, the reviewer should interview the project’s owner, the originating Lender’s Underwriter and the HUD processing center familiar with the application and include an analysis of each party’s opinion of the probable cause of default, reconciled with the reviewer’s opinion of the cause. The review and re-examination must include a reunderwriting of the loan given the currently known facts and circumstances that contributed to the assignment and discuss the lessons learned from the assignment.

• G. Specific Requirements for QC Reviews of Loan Underwriting

1. Each individual loan review must be a written, self-contained analysis whose purpose is to determine the accuracy and completeness of the underwriting conclusions, third-party deliverables and loan documentation. Each portion of the review should contain sufficient information to ascertain the level of analysis performed and the conclusions developed. The appraisal review is to be prepared to USPAP review standards. The underwriting review must provide sufficient documentation to ascertain that the reviewer has evaluated the Underwriter’s identification of the project strengths, weaknesses, risks and mitigants in all technical areas and overall. For the underwriting portion of the

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review, at a minimum, the following requirements must be met for loans underwritten using the MAP procedures:

• All processing and underwriting must comply with the applicable provisions of the NHA, Title 24 of the Code of Federal Regulations, the MAP Guide and MAP FAQs.

• All Identity of Interest certifications were properly filed. Review the loan closing statement to determine if any inappropriate inducements or prohibited IOI disbursements were paid. Confirm that the MAP lender’s loan consultants, correspondents or mortgage brokers have certified to the lender that no Identity of Interest or Conflict of Interest exists with the Borrower/Sponsor.

• Determine whether each loan file contains all HUD required loan processing, underwriting and legal documents including supporting reports, and that all required documents were provided to HUD with the application.

• Determine if there was a violation of the Department's prohibition of referral fees paid to a party who is not a loan consultant, loan correspondent or mortgage broker.

• Determine if anything of value was paid directly or indirectly to any person or entity who has received any other compensation from the mortgagor, seller, builder or any other person for services related to the transaction or related to the purchase or sale of the mortgaged property. Exceptions can be made where services were actually rendered, the name of the broker is furnished and there is no Identity of Interest between the mortgagee and the broker or the mortgagor and the broker. The broker’s fee must be included on the Mortgagee Certificate.

  • Determine if staff allowed third parties to represent the MAP Lender in meeting(s) with the HUD area office to discuss specific MAP project issues.

• Determine if excess and unallowable fees are being charged to mortgagors. Examples include charging discount points not disclosed on the Mortgagee’s Certificate, form HUD-2434, or at Firm Commitment, or charging higher fees than are permitted by HUD/FHA.

• If new construction or substantial rehabilitation, did the pre-application submission include an acceptable narrative summary of the market study and the extent of market competition, and describe any features of the proposal which may present issues, such as zoning, ground leases and environmental conditions?

  • Did the Lender’s pre-application submission list the proposed MAP Lender reviewers? Were any proposed reviewers rejected by the Regional Office, and, if so, why?

• In the application for the Firm Commitment, did the Lender provide a narrative analysis which discussed the characteristics of the project for which mortgage insurance was sought, presenting the reasons that the Lender recommended the loan for mortgage insurance?

• Did the Lender’s narrative analysis for the Firm Commitment application discuss the risk factors?

• Did the narrative analysis for the Firm Commitment application properly evaluate the multifamily housing experience and financial capacity of the principals of the Borrower?

• If the application is for a refinancing or purchase loan, did the narrative provide a satisfactory description of the property?

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• Did the Lender’s narrative provide a satisfactory analysis of the market, the rents, expenses and, for new construction projects, the estimated rent-up costs and operating deficit?

Did the Lender determine the adequacy of the reserve for replacement?

• Did the Underwriter recommend any changes to the appraisal or technical reports’ findings, conclusions and/or recommendations? If so, what were they, what was the justification and was it documented fully and supported by data?

• At the Lender’s request, were any waivers requested from the HUD field office for any MAP requirements? If so, was the request approved or rejected, what requirements were waived and what were the justifications for the waivers?

• Did the Lender obtain the necessary certifications from the individual reviewers?

• Did the Lender certify that the proposed loan represented an acceptable risk to the Department (Section 220, or 221d3, 221d4 or 231) or is economically sound (Section 223(f)), based upon the Lender’s analysis, and that the loan complied with all FHA statutory, regulatory and administrative requirements?

• Did the Lender prepare a Master HUD 92264 signed by the Lender’s Underwriter?

• Did the Lender submit an application for a Firm Commitment within 120 days of the date of the invitation letter? If not, did it request an extension and provide justification for the request?

• Were credit reports obtained on all businesses, individuals and on all required principals who are parties to the transaction?

• 1. Determine whether the loan file contains a comprehensive analysis of the borrowing entity to identify the business and individual credit report(s) that are required on the appropriate principals of the borrowing entity, Sponsor, mortgagor and General Contractor, if applicable.
• 2. Determine if more than one credit report was ordered on the same principal/company and, if so, whether the most current credit reports were submitted with the loan application.
• 3. Determine whether any outstanding judgments shown on the credit report(s) were accompanied by an explanation and supporting documentation. If delinquent Federal debt existed, the Lender must have included a letter from the Federal agency in accordance with Chapter 8, Section 8.3.3 of the MAP Guide.

• Determine whether verifications of deposit and trade references were sent, received and considered in the project underwriting.

• Determine whether all conflicting information or discrepancies were reconciled and properly documented in writing.

• Determine that the loan file contains a financial statement(s) on the principals, Sponsor, and on the mortgagor. If the project involved new construction or substantial rehabilitation, determine if a financial statement was obtained from the General Contractor.

• Determine that the financial statements were analyzed following generally accepted business practices to determine financial capability.

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• Verify that the MAP Underwriter determined that the Sponsor and/or General Contractor had a sufficient level of experience for the type and/or size of project that was approved.

• Determine if all material negative information about the project and individuals or entities involved in the transaction was disclosed to HUD in the Underwriter’s written summary.

• Determine if the MAP Underwriter performed QC over the work of the MAP Lender’s other staff and/or third-party contractors which participated in underwriting the project, and determine if:

• 1. The preparers of the forms/reports/reviews are qualified as required by the MAP Guide, and have insurance, if required by the Guide.
• 2. The forms/reports/reviews were prepared in the manner required by the MAP Guide and that the forms/reports/reviews are complete and accurate.
• 3. The proposed loan represents an acceptable risk based on the Underwriter’s review and analysis.
• 4. The required reports and documentation flowed in a timely manner from one discipline to another.

• Determine whether the Underwriter analyzed the project’s proposed management plan, including a review of the Management Agent’s past experience, capacity and track record, to assure that the development would be managed in a prudent, efficient and cost-effective manner.

• Determine if the Underwriter verified that the professional used in the environmental review was qualified for the assigned responsibilities.

• Determine if the Underwriter provided HUD with a narrative report and supporting documentation that addressed all HEROS (HUD Environmental Review Online System) requirements, including the Phase I Environmental Site Assessment (ESA) and the Phase II ESA, if required.

Determine if the loan met the criteria for a reduced MIP for Green Building loans.

• Determine the scope of any deficiencies that were identified by the HUD review staff. Did the initially submitted Firm Commitment and/or closing package substantially meet HUD’s requirements or were significant revisions required? Did any deficiencies they identified significantly impact the overall processing?

• H. Specific Requirements for QC Reviews of Appraisals:

1. For the appraisal review portion of the QC review, the following must be performed:

   • Determine if the appraiser was properly certified in the appropriate jurisdiction where the property is located. (Temporary certifications may be acceptable so long as the appraiser meets all competency requirements).

Provide the review appraiser’s opinion as to the completeness of the material under review.

• For Section 220, 221(d), 231 or 241 appraisal processing, determine the following:

• 1. Does the appraiser meet the qualification and competence requirements outlined in the MAP Guide?

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• 2. Is the appraisal a narrative self-contained report that is inclusive of and supportive of all required HUD form Documentation (forms HUD-92264, HUD-92264-A, HUD-92264-T, HUD92273 and HUD-92274)?
• 3. Does the appraisal have an effective date within 120 days before the date of the Firm Commitment?
• 4. Does the appraisal include the appraiser’s USPAP required certification?
• 5. Did the primary appraiser designated by the Lender perform the property inspection and sign the appraisal report and supporting form documentation?
• 6. Did the appraisal include photographs of the subject, the comparable sales and comparable rentals?
• 7. Does the appraisal adequately describe and analyze the geographic area, neighborhood, rental competition, sales comparables, the site and the subject improvements?
• 8. Does the appraisal establish the project’s “Replacement Cost” in accordance with Chapter 7, Section 7.4 of the MAP Guide, and form HUD-92264?
• 9. For Substantial Rehabilitation projects, does the appraisal include a supplemental form HUD92264 that identifies the “As Is” and “As Complete” Values of the improvements, supported by the income and direct sales comparison approaches, as defined in HUD Handbook 4465.1 and the MAP Guide?
• 10. For New Construction project, does the appraisal identify the “Warranted Price of Land” as defined in HUD Handbook 4465.1 and the MAP Guide?
• 11. Does the appraisal identify the “Estimate of Market Rent by Comparison,” as of the appraisal date, arrayed in the included form HUD-92273 and as defined in the Form’s instructions?
• 12. Does the appraisal identify the project’s estimated potential gross income and stabilized occupancy ratio in the included form HUD-92264 ?
• 13. If commercial facilities are located within the project, does the appraisal include a separate analysis of the effect the commercial space will have on the project, as outlined in the MAP Guide, and does the commercial space meet the income and floor area limitations outlined in the MAP Guide?
• 14. If any comparables have rent concessions, did the appraisal account for them in the market rental analysis as required by the MAP Guide?
• 15. Does the appraisal identify the project’s estimated operating expenses, based upon at least three expenses comparables arrayed in the included form HUD-92274 and as required by the Form’s instructions?
• 16. Does the appraisal properly update the expense comparables, meet disclosure requirements for the comparables, and have the subject property’s expenses been trended to the date of the appraisal per form HUD-92274 instructions?
• 17. Does the appraisal identify the estimated operating deficit and replacement reserve requirements, as defined in the MAP Guide?

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• I. Specific Requirements for QC Reviews of Section 223(f) appraisals include determination of the following:

1. Does the appraiser meet the qualification and competence requirements outlined in the MAP Guide?

2. Is the appraisal a narrative self-contained report that is inclusive of and supportive of all required HUD form Documentation (forms HUD-92264, HUD-92264-A, HUD-92264-T, HUD-92273 and HUD92274)?

3. Does the appraisal have an effective date within 120 days before the date of the submission of the application?

4. Does the appraisal include the appraiser’s USPAP certification?

5. Did the primary appraiser designated by the Lender and approved by HUD perform the property inspection and sign the appraisal report and supporting form documentation?

6. Did the appraisal include photographs of the subject, the comparable sales and comparable rentals?

7. Does the appraisal adequately describe and analyze the geographic area, neighborhood, rental competition, sales comparables, the site and the subject improvements?

8. Does the appraisal establish the project’s fair market value supported by reconciliation of the cost, income and sales comparison approaches in accordance with the MAP Guide and Form HUD-92264?

Does the appraisal establish a total estimated replacement cost (if warranted due to the age of the property) and apply all applicable forms of depreciation for use in the final reconciliation process?

9. Does the appraisal identify the “Estimate of Market Rent by Comparison,” as of the appraisal date, arrayed in the included form HUD-92273 and as defined in the form’s instructions?

10. Does the appraisal include the current rent roll, a statement of current occupancy and does it identify the project’s estimated potential gross income and stabilized occupancy ratio in the included form HUD-92264?

11. If commercial facilities are located within the project, does the appraisal include a separate analysis of the effect the commercial space will have on the project and does the commercial space meet the income and floor area limitations outlined in the MAP Guide?

12. If any comparables have rent concessions, did the appraisal account for them in the market rental analysis as required by the MAP Guide?

13. Does the appraisal present at least three years of historic expenses and have the forecasted expenses been based upon the historic operation of the property supported by at least three expense comparables arrayed in the included form HUD-92274 and as required by the form’s instructions?

14. Does the appraisal properly update the expense comparables, meet disclosure requirements for the comparables, and have the subject property’s expenses been trended to the date of the appraisal per form HUD-92274 instructions?

15. If applicable, does the appraisal identify the estimated operating deficit and replacement reserve requirements, as defined in the MAP Guide?

• J. Specific Requirements for QC Reviews of Market Studies:

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1. For the Market Study review, the review appraiser should provide their opinion as to the completeness of the material under review and determination of the overall compliance with market study processing requirements and determine the following:

   • Does the market analyst meet the qualification and competence requirements outlined in the MAP Guide?

Is the market study a narrative self-contained report?

• Does the market study have an effective date within 120 days before the date of submission of the pre-application or, for a refinancing, within 120 days of submission of the application for a Firm Commitment?

• Does the market study adequately describe and analyze the geographic boundaries and general characteristics of the market area, specific market conditions, characteristics of projects under construction and in the planning stages, and contain a supply and demand estimate and analysis and estimated absorption time (if applicable)?

• Is the market study prepared in accordance with the information supplied by the MAP Lender as described in the appropriate MAP Guide Appendix?

  • Is the market study prepared in accordance with the format prescribed in the appropriate MAP Guide Appendix?

• Does the market study include the market analyst’s certification?

• Provide the review appraiser’s opinion as to the adequacy and relevance of the market data and the propriety of any adjustments made to the data.

  • Provide the review appraiser’s opinion as to the appropriateness of the analysis methods and techniques used by the market analyst.

Provide the review appraiser’s opinion as to the market analyses, opinions and conclusions.

• K. Specific Requirements for QC Reviews of the Architectural Review:

1. For the architectural portion of the QC review of Sections 220, 221(d), 231 or 241, Lender’s Architectural Analyst review report, determine the following:

   • Does the Architectural Analyst meet the qualification and competence requirements outlined in the MAP Guide?

• Has the Architectural Analyst determined that the mortgagor’s Architect (or other persons or organizations providing architectural services) is qualified to provide the design services to the project and to administer the construction contract?

• Review the Owner-Architect Agreement (AIA Document B108); indicate if separate Agreements are required for design and construction services.

• 1. Are all necessary services included without deletion?
• 2. Is the compensation other than a fixed fee?

• In review of Architectural Standards, does the Lender’s Architectural Analyst review report address:

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• 1. HUD minimum property standards?
• 2. Applicable building codes?
• 3. Accessibility laws: Fair Housing Act; UFAS (if Section 504 is applicable); 2010 ADA Standards (if Title II or III of the ADA are applicable)?
• 4. Energy efficiency?

Does the report address the mortgagor’s A&E exhibits?

• 1. Are drawings and specs complete and correct?
• 2. Are utility services available?

• In reviewing the experience and qualifications of the General Contractor:

• 1. Did the Lender’s Architectural Analyst prepare a written review of the General Contractor?
• 2. Does the review indicate acceptance?

Did the Lender’s Architectural Analyst perform an IOI review as required by the MAP Guide?

• 1. Is there a description of any and all IOIs that exist between the owner’s Architect or engineer, the owner and the General Contractor?
• 2. Is there a description of any and all IOIs that exist between the General Contractor, subcontractor(s) and material supplier(s)?
• 3. If no IOIs exist, is this stated?

Does the site visit report address:

• 1. Physical features (existing construction, topography, drainage, etc.)?
• 2. Unusual site conditions, demolition, offsite construction?
• 3. Environmental conditions/hazards?

• In establishing an architectural liaison with the mortgagor’s Architect:

• 1. Is there a processing record of architectural/engineering actions?
• 2. Is there an acceptable journal of architectural actions?
• 3. Is there an organized file of HUD applications, forms and documents?
• 4. Is there a record of meetings and contacts with the mortgagor’s Architect?
• 5. Is there clear documentation?

• Did the liaison with HUD labor relations staff verify the applicable Davis-Bacon wage rates?

• Was there a liaison established with the Lender’s cost analyst?

• In reviewing the Firm Commitment architectural/engineering exhibits:

• 1. Is there a clear and complete exhibit review list?
• 2. Is there a statement indicating that the Firm Commitment architectural exhibits are acceptable without condition, and that all deficiencies have been acceptably corrected?

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• 3. Does the report address:

  • a) Completeness of contract documents?

  • b) Conformance to local building codes and HUD standards?

  • c) Accessibility for persons with disabilities?

  • d) Site design?

  • e) Building design?

In reviewing the preparation of the architectural portions of form HUD-92264:

• 1. Is there a form HUD-92264 with all architectural portions complete?

  • a) Section A – Architectural portions

  • b) Section B - Architectural portions

  • c) Section C - Unit breakdown with net areas

  • d) Section D - Architectural portions

• 2. Has the Architectural Analyst signed the form?

• In reviewing the report to the Lender’s Underwriter:

  • 1. Has the Architectural Analyst submitted a report on the project to the Underwriter?
  • 2. Does the report contain an analysis of the project?
  • 3. Does the report recommend: acceptance or negotiated changes with the mortgagor or rejection?

• Did the Lender’s Architectural Analyst submit a Standard Certification (MAP Guide Chapter 11, Section 11.2.3)?

Is there a Design Architect’s Certification (MAP Guide Appendix 5, Section A.5.8)?

For substantial rehabilitation projects:

• 1. Has the Lender’s Architectural Analyst submitted a report of the Joint Inspection?
• 2. Does the report indicate that a complete and thorough inspection was conducted on all features of the project site and on a sufficient number of living units?
• 3. Has the Lender’s Architectural Analyst prepared a report on the mortgagor’s Architect’s Detail Work Write-up?
• 4. Does the report address:

  • a) All general or specific work requirements?

  • b) Clarity or vagueness of work requirements?

• c) Historic requirements?

• 5. Has the Lender’s Architectural Analyst indicated whether there are engineering reports?
• 6. Has the mortgagor been notified of any requirements?

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• 7. Has the exact nature of the engineering report been covered?
• 8. Were there any special tests, such as seismic resistance in applicable seismic zones?

• L. Specific Requirements for QC Reviews of the Lender’s Architectural Analyst review report:

1. Liaison with Lender’s cost analyst. Is there documentation of contacts regarding:

   • Nature and cost of repairs?

Replacement reserve items?

2. Lender review of property’s Capital Needs Assessment (CNA). Does the Physical Inspection Report (PIR) address:

Adequacy of number of dwelling units inspected?

• Condition of project?

• Repair work write-up?

• Critical and Non-critical repairs?

• Expected component replacement and major maintenance needs for the near term, long term and remaining useful life?

  • Compliance with accessibility laws and standards, including the Fair Housing Act (for projects designed and constructed for first occupancy after March 13, 1991 built after 3/13/1991); UFAS (for projects with federal financial assistance); 2010 ADA Standards (for projects that are a program or activity of a state or local government or a place of public accommodation)?

3. Statement of Resources and Needs. Does the statement address:

   • Review and possible adjustment to the PIR?

   • Identification of Critical and Non-critical repairs?

4. Critical repairs. Is there evidence that all Critical repairs have been adequately completed and inspected?

5. Mortgagor’s exhibits. Note evidence of the following:

   • Has Lender’s Architectural Analyst prepared a review report of mortgagor’s exhibits?

   • Does the report indicate whether exhibits are complete and correct?

6. Preparation of architectural portions of form HUD-92264. Note whether the following were addressed:

Is there a form HUD-92264 with all architectural portions complete, including:

• 1. Section A – Architectural portions;
• 2. Section B - Architectural portions;
• 3. Section C - Unit breakdown with net areas; and
• 4. Section D - Architectural portions.

• Has the Architectural Analyst signed the form?

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7. Report to the Lender’s Underwriter. Note whether the following were addressed:

   • Has the Architectural Analyst submitted a report on the project to the Lender’s Underwriter?

• Does the report contain an analysis of the project?

• Does the report recommend acceptance, negotiated changes with the mortgagor or rejection?

8. Has the Lender’s Architectural Analyst submitted a Standard Certification (Chapter 11, Section 11.2.4)

• M. Specific Requirements for QC Reviews of the Cost Review.

1. For the Cost Review of Sections 220, 221(d), 231 or 241 loans, Lender’s Cost Analyst review report: Did the Lender hire a qualified construction cost estimator with experience in multifamily cost estimating?

2. A detailed independent cost estimate must provide the following:

Documentation of the method of estimation and data source.

To be summarized on form HUD-92326:

• 1. Detailed structure(s) and land improvement cost estimates, and costs of any unusual site development
• 2. Contractor’s general requirements
• 3. Contractor’s general overhead
• 4. Contractor’s profit (for non-BSPRA cases)
• 5. Architect’s design and supervision fees
• 6. Bond premium and mortgagor’s and contractor’s Other Fees
• 7. Onsite demolition costs
• 8. Offsite improvements costs
• 9. Project’s Cost Not Attributable (CNA) to dwelling use
• 10. For sub rehab projects, complete Rehab CNA Worksheet (MAP Guide Appendix 5, Section A.5.10).

3. Preparation of cost portions of form HUD-92264:

Is there a form HUD-92264 with all cost portions completed?

• 1. Section G – Cost portions
• 2. Section M

Has the cost analyst signed the form?

4. Review of form HUD-2328, Contractor’s and/or Mortgagor’s Cost Breakdown:

   • Is form HUD-2328 complete and signed by all parties?

• Has Lender’s cost reviewer prepared a comparison of HUD-2328 and the independent cost estimate on form HUD-92326?

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• 1. Line item comparison on form FHA-2331-B?
• 2. Written documentation of resolution of significant differences in Lender’s form HUD-92326 and contractor’s form HUD-2328 cost estimates?
• 3. Has Lender’s cost reviewer prepared a written recommendation of approval or disapproval of contractor’s form HUD-2328?

5. Review of the Property Insurance Schedule, form HUD-92329:

   • Has form HUD-92329 been prepared and signed?

• Is there a backup worksheet indicating how the Insurable Value(s) of the project structure(s) were determined?

N. Specific Requirements for QC Reviews of the Identity of Interest (IOI) Review should determine the following:

1. Has the Lender’s cost reviewer been supplied with IOI information by Lender’s architectural reviewer?

2. For an identified General Contractor:

Does the cost estimate indicate “BSPRA” under Builder’s Profit?

• Has the 50-75% rule been applied to determine whether the contractor qualifies for general overhead and profit or BSPRA, or should it be replaced by the dominant subcontractor?

3. For identified subcontractors and/or material suppliers:

   • Is there documentation that the IOI subcontract(s) were submitted to HUD for prior approval of overhead and profit?

• If any subcontract(s) were not submitted, has overhead and profit been deleted from the accepted contract amount?

Have letter(s) of approval/disapproval been prepared for the mortgagor and General Contractor?

O. Specific Requirements for QC Reviews of the Report to the Underwriter should determine the following:

1. Has the cost analyst submitted a report on the project to the Lender’s Underwriter?

2. Did the report contain an analysis of the project costs?

3. Did the report recommend acceptance, negotiated changes with the mortgagor or rejection?

4. Did the Lender’s cost analyst submit a Standard Certification (Chapter 11, Section 11.2.3)?

• P. Specific Requirements for QC Reviews of Substantial Rehabilitation projects should include the following:

1. Joint Inspection Report and Architect’s detailed work write-up, which should determine the following:

   • Does the Lender’s cost analyst have a copy of the Joint Inspection report?

• Does the Lender’s cost analyst have a copy of the mortgagor’s Architect’s Detailed Work Writeup?

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• Do the Joint Inspection Report and Architect’s Detailed Work Write-up include Reserve for Replacement (R4R) items?

• Is there an itemized breakdown of R4R items?

Does the breakdown indicate the age and remaining useful life of the R4R items?

2. Detailed Cost Estimate, which should ascertain if the Lender’s cost analyst’s detailed cost estimate clearly reflect all the scope of work items in the Detailed Work Write-up.:

3. Reserve for Replacement estimate:, which should determine the following:

   • Has the Lender’s cost analyst provided an R4R cost estimate?

• Is the R4R cost estimate itemized and incorporate the remaining useful life for the R4R items?

• Is there a replacement schedule for the R4R items?

• Q. Specific Requirements for QC Reviews of Section 223(f) loans should answer or include the following:

1. Are the qualifications of the Cost Analyst and Needs Assessor acceptable?

2. Is there documentation of contacts regarding the CNA?

3. Summary of cost estimate for hypothetical “as new” building:

   • Documentation of method of estimation and data source.

   • Summary “bottom-line” cost estimate:

     • 1. Structure(s) and land improvement cost estimates, for hypothetical “as new” building;
     • 2. Contractor’s General Requirements
     • 3. Contractor’s General Overhead
     • 4. Contractor’s Profit
     • 5. Architect’s Design and Supervision fees; and
     • 6. Bond premium and Mortgagor’s and Contractor’s Other Fees.

4. Preparation of cost portions of form HUD-92264:

   • Is there a form HUD-92264 with all cost portions complete?

   • 1. Section G – Cost portions (hypothetical “as new” costs).
   • 2. Section M must be blank.
   • 3. Are Critical and Non-critical repair costs summarized in Section O?
   • 4. Has the cost analyst signed the form?

5. Review of CNA.

Did the Lender’s cost analyst prepare a written report reviewing:

• 1. Cost portions of Project Inspection Report (PIR), including the costs of Critical and Noncritical repairs?

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• 2. For all deferred non-Critical repairs, estimate the required escrow amount.

Expected cost of expected component replacement and major maintenance needs for:

• 1. Near term; and
• 2. Long term.

Statement of Resources and Needs recommending:

• 1. Initial Deposit to the Reserve for Replacement, if any;
• 2. Annual (or monthly) deposit to the Reserve for Replacement (RfR) account; and
• 3. Near term replacement schedule indicating annual deposits, itemized expenditures and remaining funds at the end of each year.

6. Documented advice to Lender concerning the PCNA, which should include:

   • The Lender’s cost analyst must provide opinions and recommendations for acceptance or change to the PCNA regarding cost items:

     • 1. Critical and Non-critical repairs; and
     • 2. Funding schedules in near Term and long-Term items in the Reserve for Replacement account.

7. Property Insurance Schedule, form HUD-9232:

   • Has the Lender’s cost analyst prepared and signed form HUD-92329?

   • Is there a backup worksheet indicating how the Insurable Value(s) of the project structure(s) were determined?

8. Report to Lender’s Underwriter.

Did the cost analyst submit a report on the project to the Underwriter?

Does the report contain an analysis of the CNA?

Does the report recommend acceptance, negotiated changes with the mortgagor or rejection?

9. Has the Lender’s cost analyst submitted a Standard Certification (Chapter 11, Section 11.2.4)?

• R. Specific Requirements for QC Reviews of Construction Loan Administration

1. The QC review of the Lender’s construction loan administration must, at a minimum, meet the following requirements:

   • Analyze loans for general compliance with the construction loan administration requirements found in the MAP Guide and MAP FAQs.

• Analyze escrow administration to assure that the escrows are properly funded and that the funds are only used for their intended purposes.

• Analyze procedures for collection and recordation of payment receipts, escrow bills, disbursements from escrow and claim submissions.

• Analyze procedures that were used for handling any letters of credit.

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Analyze procedures that were used for handling the investment of construction loan escrows.

• Analyze the procedures for processing construction loan advances, change orders and notification of surety, cost certifications and post endorsement escrows.

• Analyze any delinquent loans and loans in foreclosure to determine compliance with HUD-FHA fiscal requirements and procedures, such as timely assignments and extension requests, property preservation requirements and inspections.

• Review any claim submissions on projects that have not reached final endorsement to assure that all efforts have been exhausted to “work-out” the loan and that all claims are properly documented, supported and filed in accordance with HUD-FHA requirements.