1903.07

Permanent Loan Final Underwriting

1903.07A

Generally

Requirements

Before converting, you must complete the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 final underwriting.

Topic You must...
DSCR and LTV Ensure the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). complies with the committed DSCR DSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. and LTV LTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Pay Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.  .
Eligibility

Ensure:

 

  • The Borrower BorrowerPerson who is the obligor per the Note. :
    • does not change;
    • remains eligible; and
    • still owns the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
  • The Key Principals Key PrincipalsPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. :
    • do not change; and
    • have not reduced their direct or indirect ownership interest and control over the Borrower BorrowerPerson who is the obligor per the Note. or the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
  • There is no material adverse change in the condition, financial or otherwise, of 
    • the Borrower BorrowerPerson who is the obligor per the Note. , 
    • any Guarantor GuarantorKey Principal or other Person executing a Payment Guaranty, Non-Recourse Guaranty, or any other Mortgage Loan guaranty. ,
    • any Key Principal Key PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , or 
    • the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
Construction Loan Status

Ensure the Borrower BorrowerPerson who is the obligor per the Note.

 

  • is current on the construction loan payments and not in default, and
  • has not been delinquent during the previous 12 months.
Certification of Rent Roll On the permanent Mortgage Loan Origination Date Mortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , certify with the Borrower BorrowerPerson who is the obligor per the Note. there has been no material adverse change in the Certification of Project ProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 103.01: Single Borrower Ownership.  Rent Roll.
Equity Contributions

As of the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 Delivery DeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. , obtain a Borrower BorrowerPerson who is the obligor per the Note. certificate, or other Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! -accepted evidence, that all funds reflected on the Borrower's Borrower'sPerson who is the obligor per the Note. sources and uses of funds statement were: 

 

  • received, including all equity contributions; and
  • properly invested in the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). .
LIHTC Reservation or Allocation If the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is eligible for LIHTCs LIHTCsFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. , verify the Borrower's Borrower'sPerson who is the obligor per the Note. IRS Form 8609 issued by the state housing finance agency reflects the required LIHTC LIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. amount.

Guidance

Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! may defer the requirement to obtain IRS Form 8609 before conversion based on factors such as whether:

  • the Property's Property'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). financials exceed the pro-forma underwriting per the Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ;
  • all other conversion criteria were met;
  • the Borrower BorrowerPerson who is the obligor per the Note. certified the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). complies with the LIHTC LIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. requirements;
  • you and the tax accountant approved the cost certification;
  • the Borrower BorrowerPerson who is the obligor per the Note. submitted the cost certification to the state, with no anticipated significant adjustments;
  • the LIHTC LIHTCFederal program offering tax credits to owners of eligible properties that contain low-income occupants and rent restrictions. investor contributed at least 90% of their equity, with the remaining 10% withheld for any minor adjustments to the 
    • Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). tax depreciable basis, 
    • adjusters, or 
    • developer fee;
  • the sources and uses of funds are in balance, and all required funds were received to complete and lease-up the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
  • you have documentation confirming the IRS Form 8609 application and the state’s acknowledgement of receipt;
  • you expect to receive the IRS Form 8609 timely post-conversion;
  • you will monitor receipt of IRS Form 8609 as a post-closing matter and deliver a copy to Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! ; and
  • the Borrower BorrowerPerson who is the obligor per the Note. has experience complying with IRS Form 8609 in the specific state. 
1903.07B

Stabilized NCF

Requirements

You must:

  • Confirm the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). will qualify for the full Commitment CommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. by
    • evaluating its performance, and
    • assessing whether it meets the projected 
      • income, 
      • expenses, and 
      • NCF NCFAt underwriting or for any specified period, the amount calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. .
  • Use the Forward Loan Conversion Analysis ( Form 4212 ) to
    • annualize the certified project rent rolls,
    • compare pro forma and actual operating expenses, and
    • calculate the Property's Property'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). stabilized NCF NCFAt underwriting or for any specified period, the amount calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. per 
  • Submit the Forward Conversion Analysis Summary ( Form 4618 ) that verifies your Chief Underwriter’s involvement and agreement with the analysis.

The permanent Mortgage Loan Delivery Package Mortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. documentation must include:

  • the percentage of the Property's Property'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). occupied units categorized by
    • bedroom configuration,
    • square footage, and
    • rent type (low income or market rate) delineating any Section 8 or other subsidized rental program tenants;
  • the Property's Property'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). actual Effective Gross Income Effective Gross IncomeFor any specified period, the Property's total Net Rental Income, plus commercial income, plus other income, all calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. for each of the previous 3 months, including only rental income and permitted other income from the units less any 
    • rent concessions, 
    • reductions, 
    • inducements, or 
    • forbearance; and
  • rental income by rent type (low income or market rate).

You must use the following table to calculate stabilized NCF NCFAt underwriting or for any specified period, the amount calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. .

STABILIZED NCF
Item Function Description
1  

For each of the most recent trailing 3 months before conversion:

 

  • determine the Gross Potential Rent Gross Potential RentOn an annual basis or any specified period, the total actual and potential rent for a Property per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. from an executed Certification of Project ProjectMultifamily buildings on multiple Properties, owned by the same Borrower, and that comply with Part II, Chapter 1: Attributes and Characteristics, Section 103.01: Single Borrower Ownership.  Rent Roll; and
  • confirm that at least 90% of the units were physically occupied by a Qualified Tenant Qualified TenantParty occupying a dwelling unit in a Property in full compliance with a lease. with an acceptable Lease LeaseWritten agreement between an owner and the tenant of a Property stipulating the conditions for possession and use of real estate for a specified period of time and rent. .
  EQUALS GROSS POTENTIAL RENT
2 MINUS
  • Economic vacancy using the higher of
    • original Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, or
    • actual annualized trailing 3-month operating statements.1
  • Include: 
    • concessions if they
      • are prevalent in the market, or
      • were used to achieve initial stabilization and will remain; and
    • a re-leasing cost allowance if the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has short term leases.
3 PLUS For an MAH Property MAH PropertyProperty that: complies with Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 702: MAH Property Eligibility; and is underwritten per Part III, Chapter 7: Multifamily Affordable Housing Properties. , include annualized other income per  Part III, Chapter 7: Multifamily Affordable Housing Properties, Section 703.01: Underwritten NCF .
4 PLUS Commercial income per  Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF) .
  EQUALS EFFECTIVE GROSS INCOME
5 MINUS

Line-by-line operating expenses using the higher of:

 

  • actual annualized trailing 3-month operating statements; or
  • original Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, adjusted by substituting the following actual expenses, if known:
    • real estate taxes;
    • property liability and other insurance; and
    • management fees.
6 MINUS Replacement Reserve Replacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. expense per  Part II, Chapter 2: Valuation and Income, Section 203.01: Underwritten Net Cash Flow (Underwritten NCF) .
  EQUALS STABILIZED NCF
1 Assess if there was any decline in NRI per  Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis .
1903.07C

Final Permanent Mortgage Loan Amount

Requirements

You must ensure the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 amount is less than or equal to the Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. .

Operating Procedures

Steps Actions
1 You must determine the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 amount using the Forward Loan Conversion Analysis ( Form 4212 ).
2 If the Property's Property'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). actual stabilized NCF NCFAt underwriting or for any specified period, the amount calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. before permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 Delivery DeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. is less than the original Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting, reduce the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 amount to comply with the Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. DSCR DSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Pay Preferred Equity payments. and LTV LTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Pay Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.  .
3 If the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 amount in Step 2 is less than the Forward Commitment Confirmation Mortgage Loan amount, verify the Borrower BorrowerPerson who is the obligor per the Note. has secured a source of funds, whether debt or equity, to cover the difference.
4

Ensure any additional debt the Borrower BorrowerPerson who is the obligor per the Note. incurs to cover the difference in Step 3, is only secured by a Lien LienLien, mortgage, bond interest, pledge, security interest, charge, or encumbrance of any kind. on the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). if

 
5

If the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 amount in Step 2 results in a loan curtailment,

 

  • the Borrower BorrowerPerson who is the obligor per the Note. must close the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 at the reduced amount, and
  • you must Deliver DeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 at the reduced amount.
6

If the Property PropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). qualifies for additional financing beyond the Forward Commitment Confirmation Mortgage Loan amount, submit via DUS Gateway DUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. :

 

  • a request for additional financing;
  • your conversion documentation; and
  • a comparative analysis showing the stabilized NCF NCFAt underwriting or for any specified period, the amount calculated per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. is greater than the original Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. underwriting.
A new pre-conversion Appraisal AppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. is not required if the pre-construction Appraised Value Appraised ValueAppraiser’s opinion of the Property's market value documented in the Appraisal, on an “as is” basis, unless use of an “as completed” basis is specifically permitted per the Guide. and permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 amount comply with the Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. maximum LTV LTVRatio of the actual aggregate UPB of the Mortgage Loan, plus any Pre-Existing Mortgage Loans, plus any Hard Pay Preferred Equity, plus any Mezzanine Financing, to the value of the Property, expressed as a percentage.  .
7

Any increase in the permanent Mortgage Loan Mortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. Test Notes-SV Test Again Sub-bullet test1 Sub-bullet test2 amount approved by Fannie Mae Fannie MaeThis Glossary term Is Created Using Automation in Lower Environments and is used for testing purposes only!! will:

 

  • be limited to the Maximum Loan Amount Increase percentage per the Forward Commitment Forward CommitmentCommitment to purchase a permanent Mortgage Loan for a to-be constructed or rehabilitated Property. ;
  • be made on the currently available terms and conditions; and
  • not be approved simply because construction costs, cost overruns, or change orders were higher than expected.
1903.07D

Third-Party Reports

Requirements

You must obtain third-party reports per Part III, Chapter 19: Forward Commitments, Section 1903.03C: Third-Party Reports .