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					                                   FHA Section 223(f)

                               FHA Insured Financing for the
                                Acquisition or Refinance of
                            Existing Multifamily Rental Housing



                                     Executive Summary

Through the Section 223(f) Mortgage Insurance Program, Great Lakes provides long-term,
fixed rate, non-recourse financing for the acquisition or refinance of existing multifamily rental
housing nationwide.

Loan Features:
• Loan up to 85% of value or acquisition cost
• Fully amortizing loan up to 35 year term
• Fully assumable
• Low, fixed interest rates with negotiable prepayment options
• Non-recourse
• No rent control restrictions or affordability requirement
• No limitations on owner's return

Purpose:
The intent of the FHA Section 223(f) program is to facilitate the acquisition and refinancing
of existing multifamily rental housing to help preserve the national housing stock.

Eligible Projects:
Existing multifamily projects more than three years old. Three years is calculated from the
date of issuance of the final certificate of occupancy to the date the Firm Commitment
application is submitted to HUD.

Minor repairs and replacements are allowed and are payable from mortgage proceeds.
Repairs cannot exceed 15% of the project’s replacement cost after repairs or $6,500 times
the local high cost factor on a per unit basis. Additionally, no more than one major building
system may be replaced. Appliances and life-safety systems and equipment are exempt from
these limits.

Commercial Space:
Commercial space is limited to 20% of the net rentable area of the project and 20% of the
total effective gross project income.
FHA Section 223(f)
Page 2

Maximum Mortgage:

   Acquisitions: The mortgage amount is limited to the lowest of:

      1.   85% of appraised value
      2.   85% of eligible transaction costs
      3.   85% of net income capitalized by loan constant (1.17 debt serv ice coverage)
      4.   Statutory per unit loan limits established by HUD

   Refinancing: The mortgage amount is limited to the lowest of:

      1. 85% of appraised value
      2. The greater of:
            a) 100% of certifiable transaction costs
            b) 80% of appraised value
      3. 85% of net income capitalized by loan constant (1.17 debt service coverage)
      4. Statutory per unit loan limits established by HUD

   Eligible transaction costs which can be included in the mortgage calculation are:

          Purchase price or existing debt. Existing debt have been of record fo r at least
           two years.
          Great Lakes origination fees - not to exceed 3.5%
          Bond financing fees – not to exceed 2.0%. Total loan fees including bond fees and
           the origination fees above cannot exceed 5.5%
          First year HUD mortgage insurance premium of 1.0%
          HUD application fee of 0.3% of the requested loan
          HUD inspection fee on projects requiring repairs. The inspection fee is $30 per
           unit where the cost of repairs is $3,000 or less per dwelling unit. The fee is 1% of
           the cost of repairs when repair costs are higher than $3,000 per unit.
          Minor repairs and replacements
          Architect fees
          Initial deposit to replacement reserve
          Title and recording fees
          Lender’s Legal fees
          Third Party Reports (appraisal, physical needs assessment and environmental
           report)

Subordinate Financing:
Secondary financing is permitted by HUD. The aggregate amount of the FHA insured first
mortgage and the second mortgage cannot exceed 92.5% of the appraised value of the
project. Debt service on the second mortgage is limited to 50% of surplus cash flow.

Annual Audits:
HUD requires annual income and expense audits for the mortgaged project (or optional semi-
annual audit).

Dividends:
All distributions from surplus cash can be made after the HUD required annual audit (or
optional semi-annual audit).



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FHA Section 223(f)
Page 3



Required Escrows:

   FHA Mortgage Insurance Premium (MIP):
   The annual MIP is 0.5% of the outstanding principle balance and is escrowed monthly
   with the principle and interest payments.

   Real Estate Taxes and Property Insurance:
   These escrows are established at closing and are held in a non-interest bearing account
   by Great Lakes. Thereafter, deposits to the real estate tax and property insurance
   escrow accounts are required on a monthly basis.

   Replacement Reserves:
   An initial deposit to the replacement reserve account is established at closing, if
   necessary, and is held in an interest bearing account by Great Lakes for the benefit of
   the project. This deposit, as well as required annual deposits, are determined based on a
   Property Condition and Needs Assessment which is completed by a third party as part of
   the underwriting of the project. The initial deposit can be funded by mortgage proceeds.
   Deposits to the replacement reserve account are also required on a monthly basis. The
   borrower can request funds from this cash reserve account throughout the life of the
   permanent loan for replacements / improvements to the project.

Projects Involving Repairs:
Repairs under Section 223(f) are classified as either ‘Critical’ or Non-critical.

   Critical Repairs:
   Critical repairs must be completed, inspected and approved by HUD before the closing.
   Critical repairs are defined as items that will meet any of the following:

             • endanger the safety and well-being of tenants, visitors and passersby
             • adversely affect ingress or egress
             • prevent the project from reaching sustaining occupancy


   Non-Critical Repairs:
   Non-critical repairs do not fall into any of the categories above and can be deferred until
   after closing. If the non-critical repairs are proposed to be completed using mortgage
   proceeds, a Repair Escrow must be established. Repairs must begin immediately after
   closing and be completed within 12 months.


   Repair Escrow Agreement:
   The borrower will establish an escrow at closing equal to at least 150% of the estimated
   cost of the non-critical repairs to be held by Great Lakes. The escrow shall be funded as
   follows:

              1.   100% of the repair costs (including materials, labor, permits, profits, etc.,
                   trended to the start of repairs) will be withheld from mortgage proceeds. A
                   letter-of-credit may not be substituted for this 100% cash escrow.

              2.   An additional cash amount of not less than 50% of the repair costs will also
                   be placed in escrow at closing. Although unusual, HUD and the lender have

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FHA Section 223(f)
Page 4

                 the discretion to lower the amount of this requirement, based on the type
                 of repairs required, upon request. This is determined on a case by case
                 basis. Great Lakes may accept a letter of credit in lieu of cash at its
                 discretion.

Great Lakes will release funds from the Repair Escrow as work is completed and approved.
Funds will be released first from the cash portion of the escrow if a letter of credit was
accepted. Please note that HUD requires a 2.5% latent defect escrow be maintained by
Great Lakes for 15 months after completion of the repairs.

Prevailing Wage Requirements:
Prevailing wages pursuant to the Davis Bacon Act is not required on Section 223(f) projects.

Transaction Costs:
Paid at Contract Execution:
HUD Application Fee:        0.3% of the new loan amount paid to HUD with Firm
                            Commitment Application.

Third Party Report Costs:   Determined on a case by case basis, typically an Appraisal,
                            Property Condition and Needs Assessment, and Environmental
                            are required. In some instanc es, a Market Study may also be
                            required.

Great Lakes Underwriting Fee:
                            Determined on a case by case basis, fee is non-refundable and
                            will be credited against the total Great Lakes Financing Fee at
                            closing.

Paid at Commitment:

Rate Lock Fee:              Good faith deposit of .50% of loan amount at time of rate lock

Paid at Closing and/or from Loan Proceeds:

Mortgage Insurance
Premium (MIP):              1% of the mortgage amount at closing and .50% annually.

Great Lakes Financing Fee: Negotiable.

Great Lakes Legal Fee:      Determined on a case by case basis, depends on the complexity
                            of the transaction.

Other:                      Owner legal, title/recording, ALTA survey and Ginnie Mae costs.

Repairs:                    HUD-approved repairs can be funded by mortgage proceeds,
                            debt service savings, replacement reserves or residual receipts
                            (subject to guidelines above.) If repairs are funded by
                            mortgage proceeds a 50% Repair escrow (cash or letter of
                            credit) is required. It is possible that this amount can be
                            reduced depending on the type of repairs and will be approved
                            by HUD on a case-by-case basis.


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FHA Section 223(f)
Page 5




HUD Processing Procedure:
There are two steps in the process of obtaining Section 223(f) financing under the MAP
Program.

   1.   Firm Commitment.
   2.   Commitment, Rate Lock and Closing.

   Firm Commitment
   Great Lakes will work with the sponsor and development team and coordinate the
   preparation of the FHA Firm Commitment Application. The Firm Commitment Application
   consists of a final underwriting of t he project, a final review of the sponsor’s financial
   capacity, a physical needs assessment of the project, a schedule of proposed repairs,
   schematic drawings and outline specifications (if applicable.) The Firm Commitment
   Application Fee, payable to HUD at submission, is 0.3% of the requested loan amount.
   Great Lakes targets 90 days after engagement for the Firm Commitment submission,
   assuming receipt of required exhibits

   HUD has a maximum of 60 days to process the Firm Commitment Application and issue a
   Firm Commitment to insure the mortgage.

   Commitment, Rate Lock and Closing.
   Upon HUD's issuance of a Firm Commitment to insure the mortgage, Great Lakes will issue
   its Financing Commitment. Once terms and conditions are agreed to, Great Lakes will lock
   the rate and set a target closing date. Closing documents will be prepared and then the
   actual closing will be scheduled.

Funding Sources:
Great Lakes will fund the loan using Ginnie-Mae mortgage backed securities (MBS) or arrange
funding through a whole loan investor. Tax-exempt bonds may also be utilized with the
Ginnie Mae MBS serving as credit enhancement.

Closing Attorney:
We strongly recommend using qualified legal counsel that specializes in closing FHA insured
financing.




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FHA Section 223(f)
Page 6



Requirements to Provide a Loan Analysis:

Great Lakes will provide a detailed Section 223(f) financing proposal following receipt of the
following information:

         1. Narrative description of project
         2. Current rent roll (with summary of any rent concessions)
         3. Project unit mix including unit sizes, number of bedrooms, number of bathrooms
             and current asking rents.
         4. List of any ancillary income detailing the source and anticipated monthly
             revenue.
         5. Occupancy history for the most recent year-end and each of the last six
             months.
         6. List of project amenities and what is included in rent versus what is paid for by
             the tenants.
         7. Operating statements for each of the past 3 years and year to date (if
             available)
         8. Summary of sources and uses for financing
         9. List of any proposed repairs and cost estimate
         10. Resume on borrower and management agent




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