Following industry feedback, the U.S. Department of Housing and Urban Development issued guidance to its Hub and Field Offices on June 26, 2013, to modify Housing Notice H 2013-17, which deals with the developer fees and loan proceeds in the prepayment and refinancing of Section 202 direct loans.
The purpose of the Section 202 Direct Loan Program is to provide direct, federal loans to assist private, nonprofit corporations and consumer cooperatives in the development of new or substantially rehabilitated housing and related facilities to serve the elderly, physically handicapped, developmentally disabled or chronically mentally ill. Any borrower using Section 223(f) to refinance such loans after the issuance of the notice will be subject to the language issued in the June 26, 2013, guidance.
Under the guidance, nonprofit borrowers/owners may have a developer fee as part of the operating expenses and may also take cash-out if the property has at or below market rents. If the property has above market rents, the nonprofit borrower/owner may only take a developer fee but no cash-out. Refinancing applications submitted under the Low Income Housing Tax Credit Pilot or the Rental Assistance Demonstration (RAD) Program may have a developer fee. For all other 202 refinancing through Section 223(f), only loan proceeds above the refinancing amount and below the 80 percent loan-to-value threshold may be used for a developer fee, with other proceeds being placed back into property improvements or reserves.
The guidance also offers clarification on the use of loan refinance proceeds at additional HUD-assisted properties located in different geographic markets.
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