Guide to Units, Chapters, Section Headings & Subheadings Multifamily Asset Management and Project Servicing Re-write HUD Handbook 4350.1 Unit Numbers and Titles 1.0 Introduction (4 Chapters) 2.0 Getting Started (6 Chapters) 3.0 Project Monitoring (7 Chapters) 4.0 Servicing Troubled Projects (4 Chapters) 5.0 HUD-Held Mortgages (2 Chapters) 6.0 Property Disposition (5 Chapters) 7.0 Reserves and Escrows (7 Chapters) 8.0 Subordinate Debt (1 Chapter) 9.0 Transfers of Physical Assets (1 Chapter) 10.0 Enforcement (3 Chapters) 11.0 Emergency and Disaster Assistance (2 Chapters) 12.0 Preservation (14 Chapters) Definitions Acronyms Index Note: Each unit chapter will: 1. Begin with a Table of Contents that identifies its section headings and, if applicable, subheadings (i.e., major topics). 2. Start with page number one. 3. Include related appendixes, forms, and exhibits (each as a separate scanned document that can be downloaded by a user). Guide to Units & Chapters 4350.1 Re-write 1 February 7, 2014
1.0 Introduction 1.1 Introduction 1.1.1 Mission 1.1.2 Monitoring 1.1.3 Responsibility of Housing 1.1.4 Inter-relationships 1.1.5 Cooperation 1.1.6 Mortgage Insurance Programs 1.1.7 HUD/Mortgagor/Managing Agent Relationship 1.1.8 HUD/Mortgagee Relationship 1.1.9 Mortgagee/Mortgagor Relationship 1.2 Changing Concepts and Asset Management 1.2.1 Perspective 1.2.2 Description 1.2.3 HUD Asset Management Functions 1.2.4 Loan Servicing/Asset Management Skills 1.3 Applications of Asset Management Concepts 1.3.1 Loan Servicing vs. Asset Management 1.3.2 Asset Management Initiatives 1.3.3 Objectivity 1.3.4 Project Tenants 1.3.5 Recommendations for Effective Communication 1.3.6 Other Communication Principles for Loan Specialists/Asset Managers 1.4 Organization of This Handbook and Other References 1.4.1 Primary Handbook 1.4.2 General Guidance 1.4.3 Other Handbooks Guide to Units & Chapters 4350.1 Re-write 2 February 7, 2014
2.0 Getting Started 2.1 Basic Document Files 2.1.1 Introduction 2.1.2 Names of Documents and Description 2.1.3 Dockets and List 2.2 Initial Servicing 2.2.1 Files and Record Retention and Disposition 2.2.2 Financial Requirement for Mortgagors 2.2.3 Post Construction Activities 2.2.4 Furniture, Equipment and Additional Services 2.3 Role of GNMA 2.3.1 Overview 2.3.2 Multifamily Loan Programs Eligible for Securitization 2.3.3 Publications and Databases 2.3.4 Topics for Securitized Loans A. Common Pool Types B. Pass-Through Payments C. Investor Call Protection (lockouts and prepayments D. Pool Termination E. Transfer of Issuer Responsibility F. Letter of Credit G. Servicing Fees and Guaranty Fees H. Technical Defaults I. Investor Interests J. Notification Process K. Bond financing Issues 2.3.5 GNMA Special Topics for Non-Performing Loans A. Pass-Through Payments B. Repurchase of Delinquent Loans C. Investor Call Protection D. Technical Defaults E. Investor Interests F. Notification Process G. Bond Financing Issues 2.4 Mortgagor Structures 2.4.1 2.5 Previous Participation 2.5.1 Guide to Units & Chapters 4350.1 Re-write 3 February 7, 2014
2.6 Record Keeping Systems 2.6.1 Purpose 2.6.2 Applicability 2.6.3 Authority Guide to Units & Chapters 4350.1 Re-write 4 February 7, 2014
3.0 Project Monitoring 3.1 Financial Statements/FASS 3.1.1 Purpose 3.1.2 Applicability 3.1.3 Definitions and Acronyms 3.1.4 FASS 3.1.5 Annual Financial Statements and irems 3.1.6 Monthly Accounting Reports 3.1.7 Additional Handbooks and References 3.2 Commercial and Ground Leases 3.2.1 Purpose 3.2.2 Applicability 3.2.3 Definitions 3.2.4 Ground Leases A. Term of Lease B. Valuation of Mortgage C. Acceptable Lease Payments D. Option to Purchase Lease 3.2.5 Commercial Leases 3.2.6 Sources of Authority 3.3 Infestations 3.4 Insurance and Loss Drafts 3.4.1 Purpose 3.4.2 Applicability 3.4.3 Required Insurance 3.4.4 Insurance That May Be Required 3.4.5 Forms of Recommended Insurance 3.4.6 Insurance Providers 3.4.7 Reviewing Insurance Coverage 3.4.8 Failure to Insure 3.4.9 Loss Settlement Drafts 3.5 Management and Occupancy Reviews 3.5.1 Introduction 3.5.2 Applicability 3.5.3 Reviewing Officials 3.5.4 Primary Responsibilities 3.5.5 Scope of the Management Review 3.5.6 Frequency of Management Reviews 3.5.7 Management Review Form Guide to Units & Chapters 4350.1 Re-write 5 February 7, 2014
3.5.8 Management Review Categories and Ratings 3.5.9 Notification of Results and Management Review 3.5.10 Appeal Procedures for Owners 3.5.11 Actions in the Event of Noncompliance, Nonresponse, or Nonperformance 3.5.12 Statutory, Regulatory, and Administrative References Appendix 3.5.1: Form HUD-9834 Management Review for Multifamily Projects Appendix 3.5.2: MOR Frequently Asked Questions Appendix 3.5.3: Sample Letter to Owner/Agent (Prior to On-site Review) Appendix 3.5.4: Sample Letter to Owner/Agent (Post Review) Appendix 3.5.5: Sample Closeout Letter to Owner/Agent Appendix 3.5.6: Sample Decision Appeal Decision Letter 3.6 Physical Inspections/PASS/Reverse Auctions 3.6.1 Purpose 3.6.2 Background 3.6.3 Applicability 3.6.4 Timing of Inspections 3.6.5 Mortgagee Inspections 3.6.6 Reverse Auction Inspections 3.6.7 Quality Assurance Inspections 3.6.8 Limited Quality Assurance Inspections 3.6.9 Appeals - Technical Review 3.6.10 Database Adjustments 3.6.11 Managing Exigent Health and Safety Conditions 3.6.12 Physical Inspection Requests/Postponements/Cancelations 3.6.13 Inspector Cancellations of a Previously Scheduled Real Estate Assessment Center (REAC) Physical Inspection 3.6.14 HUD Cancellation/Postponement of a Physical Inspection 3.6.15 Guidelines for Declaring Dwelling Units or Buildings Off-Line Before a Real Estate Assessment Center (REAC) Physical Inspection 3.6.16 Protocol for Physical Inspections and Active Partners Performance System 3.6.17 (APPS) Flags when a Property Receives a Score Below 60. 3.6.18 Tracking Scheduled Inspections and Results Appendix 3.6.1: 3.7 Preventing Defaults and Assignments 3.7.1 Purpose 3.7.2 Applicability 3.7.3 Defaults 3.7.4 Multifamily Delinquency and Reporting System 3.7.5 Processing Fiscal Delinquencies 3.7.6 Processing Technical or Covenant Defaults 3.7.7 Elections to Assign 3.7.8 Owner Responsibilities 3.7.9 Hub/Program Center Responsibilities Appendix 3.7.1: Guide to Units & Chapters 4350.1 Re-write 6 February 7, 2014
Appendix 3.7.2: 3.8 Updating irems 3.8.1 Guide to Units & Chapters 4350.1 Re-write 7 February 7, 2014
4.0 Servicing Troubled Projects 4.1 Mortgage Modifications 4.1.1 Purpose 4.1.2 Applicability 4.1.3 Interest Rate Reduction 4.1.4 Procedures 4.1.5 Interest Rate Reduction Approval Process 4.1.6 GNMA Processing Guidelines 4.1.7 Modification to Avoid an Assignment 4.2 Partial Payment of Claims 4.2.1 4.3 Risk Management/Watch List/MROC 4.3.1 4.4 Risk Management/Watch List/MROC 4.4.1 Guide to Units & Chapters 4350.1 Re-write 8 February 7, 2014
5.0 HUD-Held Mortgages 5.1 HUD-Held Servicing 5.1.1 Assignment of Mortgage (Including M2M notes that can be assigned to NP owners) 5.1.2 Foreclosures 5.1.3 Mortgage Sales 5.1.4 Workouts (Including Mark-to-Market and Demo Notes and other Partial Payment of Claim Notes) 5.1.5 Surplus Cash Analysis 5.2 Mortgage Sales 5.2.1 Guide to Units & Chapters 4350.1 Re-write 9 February 7, 2014
6.0 Property Disposition 6.1 Pre-foreclosure/Troubled Project Consultation 6.2 Relocation 6.2.1 HAP Abatement 6.2.2 Vouchers 6.2.3 PD responsibilities 6.2.4 FO/Hub responsibilities 6.3 Property Management 6.3.1 MIP 6.3.2 HUD-Owned (Deed-in-Lieu) 6.4 Sales 6.4.1 Foreclosure A. Types of default B. Bankruptcy C. One time right to cure D. The foreclosure recommendation E. The Use Agreement 6.4.2 Unit of Local Government (HUD-Owned) Sales A. Reverter deeds B. Equity participation C. The Special Warranty Deed 6.4.3 Terms and Conditions of Sale 6.4.4 How the PD Center Advertises Sales and Listserv 6.5 Post Sale Monitoring 6.5.1 FO Responsibilities 6.5.2 PD Responsibilities A. Repairs B. Up-Front Grant 6.5.3 Post Sale Requests A. Conveyance B. Sale/Refi C. LIHTC Pass-through Leases D. The Equity Review Guide to Units & Chapters 4350.1 Re-write 10 February 7, 2014
7.0 Reserves and Escrows 7.1 General Operating Reserves 7.2 Reserve for Replacements 7.2.1 Definition and Purpose 7.2.2 Applicability 7.2.3 Uses of Reserve for Replacement Account 7.2.4 Initial Reserve for Replacement Escrow Balance 7.2.5 Reserve for Replacement Analysis 7.2.6 Documenting Reserve for Replacement Transactions 7.2.7 Five Types of Reserve for Replacement Transactions 7.2.8 Frequency, Timing and Follow-up of a Reserve for Replacement Reimbursement Request 7.2.9 Processing Reserve for Replacement Reimbursement 7.2.10 Liquidity Requirements 7.2.11 Investing Reserve for Replacement Funds 7.2.12 Disposition of the Reserve for Replacement Account at Prepayment 7.3 Residual Receipts 7.3.1 Purpose 7.3.2 Applicability 7.3.3 Required Deposits to Residual Receipts 7.3.4 Programmatic Requirements Impacting Required Deposits to Residual Receipts 7.3.5 HUD s Authority to Direct the Use of Residual Receipts 7.3.6 Use of Residual Receipts to Offset Section 8 HAP Payments 7.3.7 Other Permissible Uses of Residual Receipts 7.3.8 Implementing 20-Year Contract Requirements 7.3.9 Investing Residual Receipts Account Balances 7.3.10 Disposition of Residual Receipts at Contract Termination or Assignment 7.4 Section 202 Debt Service Reserves 7.4.1 7.5 Special Escrows: Pre- and Post-Final Endorsement 7.5.1 7.6 LIHTC Reserves 7.6.1 7.7 New Projects with Special Escrows 7.7.1 Guide to Units & Chapters 4350.1 Re-write 11 February 7, 2014
8.0 Subordinate Debt 8.1 Subordinate Debt 8.1.1 Introduction 8.1.2 Types and Uses of Subordinate Finance 8.1.3 Basic Terms and Conditions 8.1.4 Required HUD Approvals 8.1.5 Subordinate Financing by Federal Home Loan Banks for Section 202 and Section 811 Projects 8.1.6 Approval of debt service for subordinate financing 8.1.7 Subordination of Section 202 Direct Loans Guide to Units & Chapters 4350.1 Re-write 12 February 7, 2014
9.0 Transfers of Physical Assets 9.1 Transfers of Physical Assets 9.1.1 Introduction 9.1.2 Applicability 9.1.3 Transfer Fees 9.1.4 Delegations of Authority and Exceptions 9.1.5 Initial and Final Approval Actions 9.1.6 Procedures for Processing a Full Review of TPAs 9.1.7 Procedures for Processing a Review with a Subsidy Transfer 9.1.8 Procedures for Processing a Limited Review of TPAs 9.1.9 Procedure for Processing a TPA with the Assignment of a Subsidy Contract Only 9.1.10 Legislative, Regulatory, and Administrative References 9.1.11 Special Consideration 9.1.12 Monitoring and Reporting 9.1.13 Non-Compliance with Transfer Guide to Units & Chapters 4350.1 Re-write 13 February 7, 2014
10.0 Enforcement 10.1 Audits (I.G., GAO) 10.1.1 Purpose 10.1.2 Applicability 10.1.3 Audit Conduct and Response 10.1.4 Resolution 10.2 Departmental Enforcement Center 10.2.1 Purpose 10.2.2 Background 10.2.3 Applicability 10.2.4 The Referral Process 10.2.5 DEC Analyses, Recommendations and Actions 10.2.6 Mortgagor Requirements 10.2.7 Enforcement Tools Appendix 10.2.1: Appendix 10.2.2: 10.3 Monitoring Civil Rights Statutes, Regulations and Program Requirements 10.3.1 Introduction 10.3.2 Applicability 10.3.3 Nondiscrimination Requirements 10.3.4 On-Site Limited Monitoring Review 10.3.5 Front-End Review 10.3.6 Frequency of Reviews 10.3.7 Scheduling the Review 10.3.8 Monitoring Tools 10.3.9 Monitoring Compliance 10.3.10 Coordination of Enforcement Efforts by FHEO and MFH 10.3.11 Program Sanctions 10.3.12 Economic Opportunities for Low- and Very-Low Income Persons Appendix 10.3.1: Appendix 10.3.2: Appendix 10.3.3: Guide to Units & Chapters 4350.1 Re-write 14 February 7, 2014
11.0 Emergency and Disaster Assistance 11.1 Multifamily Emergency/Disaster Guidance 11.1.1 Introduction 11.1.2 Purpose 11.1.3 Applicability 11.1.4 Continuity of Operation Plan 11.1.5 Pre-Disaster and Emergency Goals and Planning 11.1.6 The Emergency Response Team 11.1.7 The Emergency Response Coordinator 11.1.8 Preparing for an Emergency 11.1.9 Declaration Reports/Event Warnings 11.1.10 Disaster Information Script 11.1.11 Integrated Real Estate Management Systems (irems) 11.1.12 Tenant Responsibilities 11.1.13 Owner Responsibilities 11.1.14 The Presidentially-Declared Disaster 11.1.15 Field Office Procedures 11.1.16 Preliminary Assessment and Reporting 11.1.17 Reporting Tools 11.1.18 Final Recovery 11.1.19 Technical Assistance to Owners and Management 11.1.20 Final Disaster Assessment 11.1.21 Recovery Plans for Damaged Properties 11.1.22 Components of a Recovery Plan 11.1.23 Monitoring and Evaluating Recovery Plans 11.1.24 Emergency Response Team Closeout 11.1.25 Program and Disaster Relief Options During a PDD 11.1.26 FEMA Eligibility 11.1.27 Waivers of Handbooks, Notices, etc. 11.1.28 Priority for Temporary and Permanent Housing 11.1.29 Multiple Occupants in a Unit 11.1.30 Leases and Rents for Non-Permanent Residents 11.1.31 Use of Community Space 11.1.32 Other Regulatory/Policy Relief 11.1.33 Section 8 Servicing (Note: Section 8 Pass-Through Leases are discussed here and in Chapter 1) 11.1.34 FHA-Insured Projects in the Development Phase 11.1.35 Approval of Insurance Loss Drafts 11.1.36 Mark-to-Market Properties 11.1.37 Use of Project Reserve Funds and Owner Contributions 11.1.38 Contacting HUD 11.1.39 Headquarters, Field Office, Owner/Agent and Resident Responsibilities Guide to Units & Chapters 4350.1 Re-write 15 February 7, 2014
11.1.40 Future Disaster Management Policy Guidance Appendix 11.1.1: Appendix 11.1.2: Appendix 11.1.3: Appendix 11.1.4: 11.2 Section 8 Pass-Through Leases 11.2.1 Summary/Purpose 11.2.2 Background/History/Legal Authority 11.2.3 Applicability 11.2.4 Programmatic Requirements 11.2.5 Owner s Proposal/Requirements 11.2.6 Resident s Requirements 11.2.7 Hub/Program Center Processing Appendix 11.2.1: Appendix 11.2.2: Guide to Units & Chapters 4350.1 Re-write 16 February 7, 2014
12.0 Preservation 12.1 Combining Section 8 Contracts and Section 8 HAP Assignments 12.1.1 Purpose 12.1.2 Background/Applicability 12.1.3 Threshold Requirements 12.1.4 Programmatic Requirements 12.1.5 Owners Roles Responsibilities, Requirements 12.1.6 Short-Term Renewals 12.1.7 Early Termination 12.1.8 Assignment of Section 8 HAP Contracts 12.1.9 Threshold Requirements 12.1.10 Owners Requirements 12.1.11 PM Requirements 12.1.12 Purchaser s Proposal and Requirements 12.1.13 Hub/Program Center Processing Appendix 12.1.1: Appendix 12.1.2: 12.2 Decoupling 12.2.1 Purpose 12.2.2 Applicability 12.2.3 General 12.2.4 Eligible Lenders 12.2.5 Eligible Borrowers 12.2.6 Eligible Properties 12.2.7 Tenant Participation 12.2.8 Change in Ownership 12.2.9 Properties Being Restructured by the OAHP 12.2.10 Application Procedures and Proposal 12.2.11 Other Outstanding HUD Debt at Time of Refinancing 12.2.12 Establishing Basic Rents 12.2.13 Allowable Distributions 12.2.14 Additional Rent Issues 12.2.15 As-Is Appraisal/Rent Comparability Studies 12.2.16 Transfer of Section 236 Interest Reduction Payments 12.2.17 IRP Payments 12.2.18 Section 8 Enhanced Vouchers 12.2.19 Existing RAP and Rent Supplement Contracts 12.2.20 Use Agreements 12.2.21 HAP Contract Renewal 12.2.22 Efficiency Units 12.2.23 Relocation/Displacement 12.2.24 Subsidy Layering Guide to Units & Chapters 4350.1 Re-write 17 February 7, 2014
12.2.25 HUD Processing 12.2.26 OAHP Approval Authority 12.2.27 Approval for IRP Decoupling 12.2.28 Closings 12.2.29 Multifamily Hub Post Closing Documentation 12.2.30 Post Decoupling Monitoring 12.2.31 Refinancing of Formerly Decoupled Properties 12.3 Emergency Low-Income Housing Preservation Act (ELIHPA) and Low-Income Housing Preservation and Resident Homeownership Act of 1991 (LIHPRHA) 12.3.1 12.4 Flexible Subsidy 12.4.1 Introduction 12.4.2 Legal and Policy Background 12.4.3 Threshold Requirements and Owner s Submission 12.4.4 Programmatic Requirements 12.4.5 Required Elements of the Owner s Proposal 12.4.6 Processing the Application: Underwriting Analysis 12.4.7 Processing the Application: Completion and Transmittal of the Approval Package 12.4.8 The Pre-Closing Process 12.4.9 Finishing the Case: Closing and Thereafter Appendix 12.4.1: 12.5 Mark-to-Market (M2M) (As a Preservation tool) 12.5.1 Purpose 12.5.2 Applicability 12.5.3 Definitions and Acronyms 12.5.4 Post-Closing Project Manager Responsibilities 12.5.5 Multifamily Project Manager Responsibilities Regarding the Surplus Cash Process 12.5.6 Responsibilities of Owner Regarding the Surplus Cash Process 12.5.7 Responsibilities of the Multifamily Project Manager regarding Insufficient Reserve for Replacement funding 12.5.8 Assumption, Subordination or Assignment of M2M Loans 12.5.9 Projects Refinancing 1 st Mortgage Debt and Keeping Surplus Notes Outstanding 12.5.10 DEC Responsibilities 12.6 Nonprofit Proceeds Notice 12.5.1 Purpose 12.5.2 Background 12.5.3 Applicability 12.5.4 Requirements for Release of Proceeds 12.5.5 Multifamily Hub/Program Center Processing of Nonprofit Sales Transactions Guide to Units & Chapters 4350.1 Re-write 18 February 7, 2014
12.7 Partial Release of Security 12.7.1 Purpose 12.7.2 Covered Programs 12.7.3 Special Circumstances 12.7.4 Tenant Involvement 12.7.5 Initial Submission of Materials to HUD 12.7.6 Delegations 12.7.7 Owner Submission Requirements 12.7.8 HUD Processing 12.7.9 Notification to Tenants of HUD s Decision 12.7.10 Easements Appendix 12.7.1: 12.8 Prepayments, Lockouts, Penalties, Releases and Satisfactions 12.8.1 12.9 Prepayment of Section 202 Loans 12.9.1 Authority and Background 12.9.2 Applicability 12.9.3 Approval of Prepayment of Debt Which Require HUD Consent 12.9.4 Prepayments Which Do Not Require HUD Approval 12.9.5 Refinancing resulting in Reduction of Debt Service 12.9.6 Refinancing to Address the Physical Needs of the Project 12.9.7 Structure of the Transaction and Additional Considerations 12.9.8 Tenant Involvement In Prepayment and Refinancing 12.9.9 Process to Request Prepayment Approval 12.9.10 HUD Processing 12.9.11 Additional Information 12.10 Tax Credits and Subsidy Layering 12.10.1 Purpose 12.10.2 Applicability 12.10.3 LIHTC s and Transfers of Ownership 12.10.4 Previous Participation (HUD-2530) Requirements 12.10.5 Subsidy Layering Reviews 12.10.6 Contract Renewals 12.10.7 Rehabilitation and the Uniform Relocation Act (URA) 12.10.8 Tax Credit Transactions and M2M 12.10.9 Deferred Developers Fees 12.10.10 Prorated Surplus Cash Calculations 12.10.11 Prepayment Submission Requirements 12.10.12 Rent for Non-Section 8 Units 12.10.13 Combining LIHTC and Project Based Section 8 Guide to Units & Chapters 4350.1 Re-write 19 February 7, 2014
12.11 Section 8(bb) 12.11.1 Purpose 12.11.2 Background 12.11.3 Program Applicability 12.11.4 Definitions 12.11.5 Programmatic Requirements Project A 12.11.6 Programmatic Requirements Project B 12.11.7 Proposal from Owner of Project A 12.11.8 Proposal from Owner of Project B 12.11.9 HUB/Program Center Responsibilities Appendix 12.11.1: Appendix 12.11.2: 12.12 Section 212 12.12.1 12.13 Use Agreements 12.13.1 Purpose/Background 12.13.2 Stand-Along Use Agreements 12.12.3 Use Agreement Types A. Foreclosure Sale B. Interest Reduction Payment Decoupling C. Section 202 Prepayment/Refinance D. Mark-to-Market Transactions E. Demonstration Program F. 202/811 Capital Advance/Direct Loan G. Preservation Use Agreements H. Prepayment of HUD-Insured/HUD-Held Mortgages That Require HUD Approval to Prepay: I. Authority: Section 250(a) of the National Housing Act and Notice H06-11. J. Flexible Subsidy Program K. Emergency Capital Repair Program Grants 12.13.4 HUD Processing A. Executing a Use Agreement B. Servicing a Use Agreement 12.14 New Preservation Programs 12.14.1 Guide to Units & Chapters 4350.1 Re-write 20 February 7, 2014