RESPONSE TO PUBLIC COMMENTS: PIH NOTICE 2012-18 ... - HUD

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Response to Public Comments: PIH Notice 2012-18In the context of comparing the final lender terms with the terms presented with theFinancing Plan, the final notice adds a new definition for the phrase “substantially thesame.”The final notice modifies the language on developer fees to be consistent with the generalstandards for fees in various HUD programs and LIHTC practices.The final notice modifies the Financing Plan feasibility benchmarks to consider anyinitial deposits made to the replacement reserve account in determining the annualdeposit levels.The final notice indicates that all covered projects must maintain adequate coverage forlosses due to casualty and liability claims.The final notice removes the requirement for “non-luxury” housing, so as not to handicapa development‟s competitiveness for various forms of financing and leasing in themarketplace more generally.The final notice removes the limitation on financing loans to the amount required forfeasibility.K. Financing Sources1. Commenters stated that, for RAD projects intending to secure FHA financing, HUD mayneed to modify various FHA processing requirements, particularly with regard to thetreatment of above-market rents, real estate tax abatement, expenses that are different fromhistorical, seller take-backs, developer fees, etc.HUD response: Special instructions related to processing of FHA loans for RAD projects,including areas of streamlining, will be forthcoming subsequent to the issuance of the finalnotice.2. Commenters have asked that HUD conduct outreach to the broader lending community andalso publish the names of lenders interested and willing to work with PHAs that areconverting assistance under RAD.HUD Response: The notice indicates that state and local housing finance agencies, LIHTCinvestors, GSE lenders/investors, and FHA lenders (approved FHA lenders are posted on theHUD website) are potential sources of financing for RAD and has offered briefings on RADfinancing opportunities to all of these sources and more. HUD will continue to encouragevarious financing sources to consider RAD financing opportunities. However, similar toother affordable housing transactions, it will be the responsibility of each applicant to enlistthe interest and secure required commitments from potential financing sources.Although HUD has undertaken outreach to lenders, as it has to other stakeholder groups andparties with an interest in RAD, it would not be appropriate for HUD to publish a list ofinterested and willing lenders. It would be difficult, if not impossible, to compile a completelist of interested and willing lenders, which would result in a disadvantage to interestedlenders who are not listed. Further, issuing such a list could create a perception of HUDendorsement of the listed lenders regardless of any disclaimers to the contrary.26
Response to Public Comments: PIH Notice 2012-183. A commenter stated that HUD should permit transfer of energy performance contract debtfrom a property converting assistance under RAD to other properties in its portfolio ifallowed by the third party and there is still a savings to debt service ratio across theportfolio.HUD response: HUD will not permit EPC debt that is assigned to one public housing projectto be reassigned to another public housing project as it would be inconsistent with projectlevelfinancial reporting standards.4. Commenters asked what steps short of transfer of assistance will be available to HUD toprevent defaults on loan debt.HUD response: Although HUD does not consider that a default on loan debt will be a likelyoccurrence given prudent underwriting and ongoing oversight by lenders and HUD‟s reviewand approval or rejection of a property‟s Financing Plan, in the event that extraordinarycircumstances threaten the financial viability of a property, HUD will undertake correctiveenforcement and remediation actions consistent with its other multifamily programs prior totransferring assistance as authorized under RAD.5. A commenter stated that requiring a first priority lien for the RAD use agreement will likelymean that private lenders will require transition reserves to satisfy the use agreement in theabsence of an assistance contract, lowering the amount of financing available for capitalimprovements.HUD response: The scenario described is not consistent with HUD‟s experience in othersimilar transactions where a senior, surviving use agreement is required. It should also benoted that under RAD assistance contracts will be available for 15 to 20 year terms and mustbe renewed, and use agreements will be of the same duration as the contract terms.6. A commenter stated that HUD should leave approval of the escrow agent to the lenders ifthere is no FHA financing involved.HUD response: The notice has been revised, eliminating the need for HUD approval of theescrow agent in the case of non-FHA financing.7. Commenters suggest raising the limit on public housing funds that could be used for predevelopmentexpenses. Also, commenters asked whether the subsidy layering reviewthresholds described in the notice would apply if a PHA contributes operating reserves orother public housing funds as a predevelopment loan that would be paid back at the close ofconstruction or permanent financing.HUD response: The final notice raises the amount of public housing program funds that canbe used to pay for pre-development costs prior to approval of the Financing Plan to $100,000and also permits these expenses pre-CHAP issuance. This amount is not a cap on total predevelopmentor soft costs. Rather it is just a limit on the funds that can be expended from the27
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RESPONSE TO PUBLIC COMMENTS: PIH NOTICE 2012-18 ... - HUD

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