MANAGEMENT, SERVICING, AND DISPOSITION REQUIREMENTS FOR PROJECTS WITH SECTION 223(f) COINSURED LOANS TABLE OF CONTENTS Paragraph Chapter 1. 1-1 INTRODUCTION TO COINSURED LOAN SERVICING 1-1 Page No.
Organization of Handbook Section 1.
Overview of Relationships and Responsibilities 1-1 1-2 1-3 1-4 1-4 1-5 1-5
1-2 1-3 1-4 1-5 1-6 1-7 1-8
Relationship Between HUD, the Lender and the Project Owner Scope of HUD Requirements Changes in Lender's Personnel or Procedures Delegation of Servicing Activities Sale of Coinsured Mortgages Reinsurance of Coinsuring Lender's Risk HUD Sanctions Against Coinsuring Lenders for Non-Performance or Misconduct Section 2. Start-up Servicing
1-9 1-10 1-11 1-12 1-13 1-14 1-15
Overview of Section Establish Servicing Docket Establish Required Escrows Distribute Amortization Schedule and Payment Instructions Administer Any Special Escrow's Required at Closing Monitor Implementation of Required Management Improvements Establish "Tickler" Systems Section 3. Lender's Annual Reports to HUD
1-6 1-6 1-6 1-7 1-7 1-8 1-8
1-16 1-17
Financial Audit of Lender Inventory Reconciliation and Servicing Report Chapter 2. COLLECTIONS AND ESCROWS Section 1. Collections
1-8 1-9
2-1 2-2 2-3 2-4 2-5
Regular Monthly Payments Late Charges Delinquency Control Lender Premium Prepayment
2-1 2-1 2-1 2-2 2-2
5/84 i _____________________________________________________________________ Paragraph Section 2. HUD Escrow Requirements Page No.
2-6 2-7 2-8 2-9 2-10
Requirements for Monthly Escrows Use and Investment of Escrow Funds Payment of Bills from Escrow Accounts Periodic Analysis of Escrow Accounts Information Furnished to Owners Section 3. Hazard Insurance
2-3 2-3 2-3 2-4 2-4
2-11 2-12
Amount and Type of Insurance Required Processing Loss Settlement Drafts Section 4.
2-4 2-5
Mortgage Insurance Premiums (MIP) 2-5 2-6 2-6 2-7 2-7
2-13 2-14 2-15 2-16 2-17 Chapter 3.
Amounts Due HUD Late Charges Collecting From the Owner Duration of MIP Pro Rata Refund of MIP Upon Termination of Insurance
PROJECT ACCOUNTING, FINANCIAL AND REPORTING REQUIREMENTS Section 1. Owner's Accounting and Recordkeeping Responsibilities 3-1 3-1 3-1 3-1
3-1 3-2 3-3 3-4
General Uniform Chart of Accounts Owner's Financial Recordkeeping Requirements Tenant Security Deposits Section 2. Owner's Financial and Occupancy Reporting Responsibilities
3-5 3-6 3-7 3-8
Monthly Financial Reports Annual Financial Reports Annual Occupancy Reports Other Reports Section 3. Use of Project Funds
3-2 3-2 3-3 3-3
3-9 3-10 3-11 3-12 3-13 5/84
General Shop for Best Deal Excessive Costs Deposit and Investment of Project Funds Repayment of Owner Advances
3-4 3-4 3-4 3-4 3-5
ii _____________________________________________________________________ Paragraph Section 4. 3-14 Surplus Cash Surplus Cash, Owner Distributions and Residual Receipts 3-5 Page No.
3-15 3-16
Distributions to Owners Residual Receipts Section 5. Lender Review of Project Financial Reports
3-6 3-7
3-17 3-18 3-19 3-20 3-21 3-22 3-23
Importance of Timely Submission Lender Review of Annual Financial Reports Lender Review of Monthly Accounting Reports Initiation of Corrective Actions Use of Enforcement Tools Reporting to HUD Financial Records Retention Requirements Chapter 4. Section 1. MANAGEMENT AGENTS AND MANAGEMENT FEES Selection and Approval of Management Agents
3-8 3-9 3-9 3-10 3-10 3-10 3-10
4-1 4-2 4-3 4-4 4-5
General Types of Management Entities Owner Submission Requirements Lender Review Management Agreements Section 2. HUD Requirements Relating to Management Fees
4-1 4-1 4-2 4-2 4-3
4-6 4-7 4-8 4-9 4-10
Introduction Distributing Costs Between the Management Fee and the Project Account How the Management Fee is Established Owner Responsibility to Shop and Compare Changes in Management Fees Section 3. Lender Review of Reasonableness of Management Fees
4-4 4-5 4-6 4-7 4-7
4-11 4-12 4-13 4-14
Reasonableness of the Fee Timing of Lender Review of Management Fee Guidance for Lender Reasonableness Assessment Review Distribution of Management Certificates Chapter 5. Section 1. RESERVE FOR REPLACEMENTS
4-7 4-8 4-9 4-9
Establishment and Investment of the Reserve 5-1 5-1 iii
5-1 5-2
General How the Reserve is Held
5/84 _____________________________________________________________________ Paragraph 5-3 Servicing Fees Section 2. Withdrawals Page No. 5-2
5-4 5-5 5-6 5-7 5-8
Use of Reserve Funds Owner Requests for Withdrawal Lender's Processing of Owner's Requests for Withdrawals Monitoring the Owner's Use of Reserve Funds Disposition of the Account Section 3. Assessing Adequacy of the Reserve
5-2 5-3 5-3 5-3 5-3
5-9 5-10 5-11
General Planning for Future Replacements Suspension or Reduction of Deposits Chapter 6. Section 1. ON-SITE REVIEWS
5-4 5-4 5-5
Types and Frequencies of Reviews 6-1 6-1 6-1 6-3
6-1 6-2 6-3 6-4
Introduction Physical Inspections Management Reviews Relationships Between Types of Reviews Preparing for and Conducting the On-Site Review
Section 2. 6-5 6-6
Owner/Agent Notification Conducting the Review Section 3. Preparing and Processing Review Reports
6-4 6-4
6-7 6-8 6-9 6-10 6-11 6-12
Contents of Report Ratings Initial Distribution of Report Lender Follow-up Efforts Keeping HUD Informed Records Retention Requirement Chapter 7. Section 1. RENTS AND CHARGES Introduction
6-4 6-5 6-5 6-5 6-6 6-6
7-1 7-2 5/84
Chapter Overview Applicability of Chapter
7-1 7-1
iv _____________________________________________________________________ Paragraph Section 2. 7-3 7-4 7-5 7-6 7-7 Limitations on Rents and Charges 7-1 7-2 7-2 7-2 7-3 Page No.
Commercial Facilities Charges for Services and Facilities Apartment Rents Market Rents Rent Computation Worksheet
7-8
Rent Schedule Section 3. Owner Submission Requirements
7-3
7-9 7-10
Cost Method Market Method Section 4. Lender's Review of Owner Requests
7-4 7-4
7-11 7-12 7-13
Thirty Day Processing Lender's Review of the Owner's Submission Lender's Notice to the Project Owner and HUD Section 5. Preemption of Local Rent Control
7-5 7-5 7-7
7-14 7-15 7-16 7-17 7-18 7-19 7-20 7-21
Introduction Actions Owner Must Take Before Submitting a Formal Request for Preemption Initial Lender Review for Completeness Owner's Formal Preemption Request Lender Processing of Preemption Request HUD Processing of Preemption Request Owner Implementation of HUD's Decision on Preemption Preemption of Rent Control Board's Lease Requirements Chapter 8. TRANSFER OF PHYSICAL ASSETS
7-7 7-7 7-9 7-9 7-10 7-11 7-11 7-11
8-1 8-2 8-3 8-4 8-5 8-6
Introduction Definition of TPA Owner Responsibilities Lender Responsibilities TPA Application Fees Unauthorized TPA's Chapter 9. Section 1. DEFAULTS
8-1 8-1 8-1 8-2 8-6 8-6
Definitions and Reporting Requirements 9-1 9-1 9-1
9-1 9-2 9-3
Introduction Definition of Default Lender's and HUD's Rights in the Event of Default
5/84 v _____________________________________________________________________ Paragraph 9-4 9-5 9-6 Notifying HUD Date of Default Reinstatement Section 2. 9-7 Analysis of Reinstatement Prospects 9-3 Page No. 9-1 9-2 9-2
Conditions for Mortgage Relief
9-8 9-9 9-10
Analysis of Project Conditions Types of Financial Relief Determining Whether to Acquire or Offer Mortgage Relief Section 3: Reinstatement Plans
9-3 9-4 9-5
9-11 9-12
Formalizing the Reinstatement Plan Monitoring a Reinstatement Plan Chapter 10. ACQUISITION, MANAGEMENT AND DISPOSITION
9-5 9-6
10-1
Introduction Section 1. Acquisition
10-1
10-2 10-3 10-4
Available Methods of Acquisition Notifying HUD Accounting for Acquisition Costs Section 2. Interim Management
10-1 10-1 10-3
10-5 10-6 10-7 10-8 10-9 10-10
General Securing Competent Management Accounting and Recordkeeping Use of Funds Reporting on Project Operations Developing a Management Strategy Section 3. Disposition
10-3 10-3 10-4 10-4 10-4 10-4
10-11 10-12 10-13 10-14 10-15 10-16 10-17 5/84
Required Appraisals Methods of Disposition Special Requirements for Projects Sold with Coinsured Financing or with a Subsidy Contract Special Requirements if the Buyer has an Identity of Interest with the Lender Sale by Competitive Bid Records Retention Requirements Accounting for Disposition Costs
10-5 10-6 10-6 10-7 10-8 10-10 10-11
vi _____________________________________________________________________ Paragraph Chapter 11. 11-1 Page No. INSURANCE BENEFITS AND TERMINATION OF INSURANCE 11-1 Computation of Insurance Benefits 11-1 11-1 11-2
Introduction Section 1.
11-2 11-3 11-4
Overview of Formula for Computing Insurance Benefits Items Included in Computing Insurance Benefits Items Deducted in Computing Insurance Benefits
Section 2. 11-5 11-6 11-7 11-8 11-9 11-10 11-11 11-12 11-13 11-14 11-15
Procedures for Filing Insurance Claims 11-3 11-3 11-4 11-4 11-4 11-5 11-5 11-6 11-6 11-6 11-7 11-7
General Claim Certification and Identity of Interest Disclosure Statement Application for Coinsurance Benefits and Fiscal Data in Support of Claim Allocation of Mortgage Receipts and Disbursements (Schedule A) Mortgagee's Report of Project Collections (Schedule B) Mortgagee's Report of Project Disbursements (Schedule C) Other Disbursements by Mortgagee (Schedule D) Mortgagee's Report of Special Escrow (Schedule E) Mortgagee's Report of Net Sales Proceeds (Schedule F) Certification for Sale by Competitive Bid Documentation of Receivership Section 3. How HUD Pays Insurance Benefits
11-16 11-17
Claim Settlement Statement Method of Payment Section 4. Remedies for Default by a Lender-Issuer Under the GNMA Mortgage-Backed Securities Program
11-8 11-8
11-18 11-19 11-20
Indemnification of GNMA HUD Actions GNMA Right to Assignment Section 5. Termination of Mortgage Insurance
11-8 11-8 11-9
11-21 11-22 11-23
Termination of Coinsurance Contract Request for Termination Notice and Date of Termination by HUD
11-9 11-10 11-10 5/84
vii _____________________________________________________________________ TABLE OF EXHIBITS Exhibits 1-1 1-2 1-3 Title Examples of Lender Actions Which Require Advance HUD Approval Suggested Contents of Servicing Files Suggested Ticklers for Loan Servicing and Management Oversight Page 1-10 1-11 1-12
3-1 3-2 4-1
Possible Corrective Actions HUD Administrative Enforcement Actions Types of Information the Lender Might Request Regarding Project Conditions or a Management Agent's Operations Overview of the Preemption Process Controlling Issuances on Transfers of Physical Assets Transactions Requiring Lender/HUD Approval and Types of Reviews Required Information the Lender Must Include in the Prospectus Items the Lender Must Include in the Bid Kit Documents the Lender Must Submit When Filing a Claim for Insurance Benefits
3-11 3-12
4-10 7-12 8-8 8-9 10-12 10-13 11-11
7-1 8-1 8-2 10-1 10-2 11-1 5/84
viii _____________________________________________________________________ APPENDICES Appendix No. 1 2 3 4 Title Previous Participation Certification (OMB #2502-0118) Mortgagee's Certificate (OMB #2502-0272) Regulatory Agreement for Multifamily Housing Projects Coinsured by HUD (OMB #2502-0272) Management Certification for Coinsured Projects a. b. For Owner-Managed Projects (OMB #2502-0272) For Projects with Identity-of-Interest or Independent Management Agents (OMB #2502-02/2) HUD-92080 Form No. HUD-2530
5 6 7 8
Mortgage Record Change (OMB #2502-0186) RESERVED RESERVED Property Insurance Schedule (OMB #2502-0272)
HUD-92329
9 10 11 12 13 14
Monthly Report for Establishing Net Income (OMB #2502-0108) Schedule of Disbursements (OMB #2502-0108) Schedule of Accounts Payable (OMB #2502-0108) Statement of Profit and Loss (OMB #2502-0052) Computation of Surplus Cash, Distributions and Residual Receipts (OMB #2502-0314) Civil Rights Tenant Characteristics/Occupancy Report-Insured Unsubsidized Housing Programs (OMB #2502-0007) Suggested Content for Management Agent Profile (Coinsured Projects) (OMB #2502-0256) Items Eligible for Reimbursement from the Replacement Reserve Reserve Fund for Replacements Authorizations (OMB #2502-0314) ix
HUD-93479 HUD-93480 HUD-93481 HUD-92410 HUD-93486
HUD-949
15 16 17
HUD-9250 5/84
_____________________________________________________________________ Appendix No. 18 19 20 21a RESERVED Sample Agreement to Increase Deposits to the Replacement Reserve (OMB #2502-0314) Report of Physical Condition and Estimate of Repair Costs (OMB #2502-0314) Management Review Report for Unsubsidized Multi-family Housing Programs (OMB #2502-0259) Management Review Worksheet (OMB#2502-0259) Rent Schedule (OMB #2502-0012) Rent Computation Worksheet for Unsubsidized Programs (OMB #2502-0314) Sample Owner Explanation of Expense Estimates Guidance on Assessing the Reasonableness of the Projects Proposed Budget HUD-92458 HUD-92547A HUD-9822 Title Form No.
HUD-9838
21b 22 23 24a 24b
25 26 27 28 29 30 31a 31b
Estimates of Market Rent by Comparison (OMB #2502-0272)
HUD-92273
Notice to Residents of Intent to Request HUD's Preemption of Local Rent Controls (OMB #2502-0314) May 4, 1983 Letter to all Multifamily Mortgagors re: Transfers of Physical Assets Multifamily Default Status Report (OMB #2502-0041) Claim Certification and Identity-of-Interest Disclosure Statement (OMB #2535-0074) Application for Coinsurance Benefits and Fiscal Data in Support of Claim (OMB #2535-0074) HUD-27008 HUD-92426
Allocation of Mortgage Receipts and Disbursements Schedule A (OMB #2535-0057) HUD-2744A Mortgagee's Report of Project Collections (Coinsured Projects) - Schedule B (OMB #2535-0074)
HUD-27009B
5/84 x _____________________________________________________________________ Appendix No. 31c 31d 31e 31f 32 33 Title Mortgagee's Report of Project Disbursements Schedule C (OMB #2535-0057) Other Disbursements by Mortgagee (Coinsured Projects)-Schedule D (OMB #2535-0074) Mortgagee's Report of Special Escrow Schedule E (OMB #2535-0057) Mortgagee's Report of Net Sales Proceeds Schedule F (OMB #2535-0074) Certification for Sale by Competitive Bid (OMB #2535-0074) Request for Termination of Multifamily Mortgage Insurance (Prepayment or Voluntary Termination) (OMB #2535-0060) HUD-9807 Form No. HUD-2744C HUD-27009D HUD-2744E HUD-27009F
5/84 xi _____________________________________________________________________ FOREWORD
This Handbook sets forth HUD's policies and procedure for the operation, management and disposition of coinsured projects and the servicing of coinsured loans. The Handbook provides guidance for coinsuring lenders, HUD Field staff, project owners and management agents. The statutory authority for the 223(f) coinsurance program is contained in Section 244 of the National Housing Act. The regulations governing this program are set forth in 24 CFR Part 255. Users of this Handbook will need to refer to the following HUD Handbooks. IG 2003.3A IG 4000.3 REV Audit and Investigation Activities Audit Guide for Audits of HUD Approved Non-Supervised Mortgagees for Use by Independent Public Accountants Mortgagee Approval Handbook Mortgagee Review Boardtary Termination) Previous Participation Handbook Compliance Handbook for Housing HUD-9807 5/84
4060.1 4060.2 4065.1 4080.1 4370.1 REV-1 43/0.2 4370.4 IG 4372.1
Reviewing Annual and Monthly Financial Reports Financial Operations and Accounting Procedures___ for Insured Multifamily Projects Basic Accounting Desk Guided procedure for the Audit Guide for Mortgagors Having HUD Insured or Secretary Held Multifamily Mortgages for Use by Independent Public Accountants Coinsurance for Private Lenders - Section 223(f) GNMA Mortgage Back Securities Guide. The
4566.1 REV-1 GNMA 5500.1 REV-5
The Office of Management and Budget (OMB) has cleared all the5. information collection, recordkeeping and reporting requirements in this Handbook. Except as otherwise indicated, the OMB clearance number is 2502-0314. 5/84 _____________________________________________________________________