202.03

Valuation

202.03A

Appraised Value

Requirements

You must ensure:

  • the Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. engagement letter requires compliance with Instructions for Appraisers (Form 4827);
  • the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. provides an opinion of the market value on an "as is" basis;
  • the Appraiser'sAppraiser'sPerson engaged to estimate a Property’s market value per USPAP. opinion of the market value covers:
    • each separate ProjectProjectMultifamily 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.  per Part II, Chapter 1: Attributes and Characteristics, Section 103.01: Single Borrower Ownership; and
    • the aggregate market value of all ProjectsProjectsMultifamily 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.  ; and
  • regardless of any allocation in the PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition. , the Appraiser’sAppraiser’sPerson engaged to estimate a Property’s market value per USPAP. opinion of the market value excludes any value from any
    • Personal PropertyPersonal PropertyFurniture, fixtures, equipment, and other tangible personal property located on or used in connection with the Property. (only including fixtures if customarily valued as real estate in the market), and/or
    • Intangible PropertyIntangible PropertyBusiness value, goodwill, and any other intangible value attributed to the Property being operated as a multifamily housing development. (only including business value for Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. ).

You may also request the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. provide an opinion of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). market value on an "as completed" basis, but you must only use an "as completed" value if all of the following apply:

  • less than 12 months have passed between the
    • Borrower'sBorrower'sPerson who is the obligor per the Note. AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , and
    • Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. ;
  • for any capital improvements completed after the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. to be considered in an "as completed" value, they must be:
    • Immediate Repairs listed in the PCAPCAAssessment of the Property's physical condition and historical operation. ; or
    • improvements identified by the BorrowerBorrowerPerson who is the obligor per the Note. , if you agree the improvements will add PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value;
  • all capital improvements are included in either the
    • Completion/Repair ScheduleCompletion/Repair ScheduleThe Required Repair Schedule to the Multifamily Loan Agreement (Form 6001 series) and the applicable parts of the Multifamily Loan Agreement, or other Fannie Mae-approved agreement, evidencing: the Borrower’s agreement to fund the Completion/Repair Escrow, and perform Completion…, or
    • Rehabilitation Reserve AgreementRehabilitation Reserve AgreementBorrower’s agreement to undertake identified Rehabilitation Work, the terms for funding the Rehabilitation Work, and the disbursement of funds from the Rehabilitation Reserve Account (e.g., Form 6222 or Form 4523). ;
  • sufficient funds to complete all capital improvements are deposited into either the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. or the Rehabilitation Reserve AccountRehabilitation Reserve AccountCustodial Account established by the Lender and funded by deposits from the Borrower per the Rehabilitation Reserve Agreement to fund the Rehabilitation Work. :
    • for capital improvements identified as Immediate Repairs, the funds must cover any higher funding percentage you require; and
    • for capital improvements identified by the BorrowerBorrowerPerson who is the obligor per the Note. , the funds must cover the estimated cost (including a cost overrun allowance); and
  • all capital improvements must be completed within:
202.03B

Property's Ownership History

Requirements

You must:

  • analyze the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). financing and sale history for the last 3 years;
  • for any AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , review:
    • the PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition. and deed; or
    • for the transfer of a Controlling InterestControlling InterestFor any entity, ownership or control of 50% or more of the ownership interests in the entity or the power or right to control or modify, directly or indirectly, the management and operations of the entity. in the BorrowerBorrowerPerson who is the obligor per the Note. , the document conveying the ownership interest;
  • address the following in your Transaction Approval Memo:
    • if an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower.  occurred within the last 24 months, document the
      • circumstances of the sale, and
      • support for any increased Appraised ValueAppraised 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. by analyzing any
        • Net Cash FlowNet Cash FlowAt 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. increases,
        • capitalization rate compression, and
        • value-add market drivers; and
    • if any stated sales price per the PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition.  differs from the transfer price per the public records or third-party reports, investigate and document the discrepancy;
  • if an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. occurred, confirm the seller was the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). owner in the real estate records when the PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition.  was signed;
  • evaluate the PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition.  to:
    • clearly identify the
      • seller, and
      • purchaser; and
    • confirm the:
      • PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition. is complete with no redactions, and deliver a copy to the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. ;
      • parties identified in the PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition. match the parties in the deed (or for the transfer of a Controlling InterestControlling InterestFor any entity, ownership or control of 50% or more of the ownership interests in the entity or the power or right to control or modify, directly or indirectly, the management and operations of the entity. in the BorrowerBorrowerPerson who is the obligor per the Note. , the document conveying the ownership interest); and
      • sale was an arm's-length transaction where no affiliation or identity of interest exists between the seller and purchaser;
  • review the deed and other AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. documents to confirm the individuals signing on behalf of the seller and BorrowerBorrowerPerson who is the obligor per the Note. are authorized to do so;
  • review the final title company settlement statement on or before the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. (including any adjustments to escrows and deposits made before closing) to confirm accuracy of the:
    • purchase price per the PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition. ;
    • closing costs; and
    • any cash in/out to the seller and purchaser; and
  • in the Mortgage Loan Delivery PackageMortgage Loan Delivery PackageLoan Documents and underwriting material required in connection with the Delivery of a Mortgage Loan. , submit a copy of the:
    • PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition. ; 
    • final deed (or for the transfer of a Controlling InterestControlling InterestFor any entity, ownership or control of 50% or more of the ownership interests in the entity or the power or right to control or modify, directly or indirectly, the management and operations of the entity. in the BorrowerBorrowerPerson who is the obligor per the Note. , the document conveying the ownership interest); and
    • final title company settlement statement.
202.03C

Underwriting Value

Requirements

Your Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. must not exceed the Appraised ValueAppraised 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. , as reduced by necessary adjustments, accounting for:

  • your analysis of the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). sales history; and/or
  • PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). deficiencies that cannot be cured within 6 months after the Appraisal DateAppraisal DateEffective date of value in the Appraisal. .

If less than 12 months have passed between the Borrower'sBorrower'sPerson who is the obligor per the Note. AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. and the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. , your Underwriting ValueUnderwriting ValueValue of the Property determined by the Lender to size the Mortgage Loan per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. must not exceed the lower of the

  • Appraised ValueAppraised 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. , or
  • sum of the:
    • Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. price per the title company settlement statement;
    • cost of capital improvements or repairs that increase the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value, if:
      • completed and fully paid; or
      • sufficient funds for completion are deposited in the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. or the Rehabilitation Reserve AccountRehabilitation Reserve AccountCustodial Account established by the Lender and funded by deposits from the Borrower per the Rehabilitation Reserve Agreement to fund the Rehabilitation Work. for a Moderate RehabilitationModerate RehabilitationProperty that will undergo at least $8,000 per unit of Rehabilitation Work. Mortgage LoanMortgage 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. per Part III, Chapter 3: Moderate Rehabilitation Mortgage Loans:
    • actual AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. costs, not exceeding 3% of the AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. price (but excluding all costs or fees paid to a BorrowerBorrowerPerson who is the obligor per the Note. AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key…), including:
      • Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. ;
      • arm's length AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. fee (generally 1% - 2%) paid to an unrelated PersonPersonLegal person, including an individual, estate, trust, corporation, partnership, limited liability company, financial institution, joint venture, association, or other organization or entity (whether governmental or private). if documented in the settlement statement;
      • third-party report fees;
      • BorrowerBorrowerPerson who is the obligor per the Note. -paid legal fees incurred on your behalf;
      • title search and title insurance fees;
      • survey fees;
      • real estate and stamp taxes;
      • deed-recording fees; and
      • credit report charges.

Actual AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. costs must exclude any prepaid operating expenses or deposits applied toward future operating expenses or PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). improvements, including:

  • prepaid or escrowed
    • real estate taxes, or
    • insurance premiums;
  • prepaid
    • utilities,
    • Mortgage LoanMortgage 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. interest (including any interest rate buydown expense),
    • rents, or
    • security deposits;
  • funded
    • Replacement ReserveReplacement ReserveCustodial Account the Borrower funds during the Mortgage Loan term for Replacements. (including any initial deposit),
    • Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. cost,
    • operating or Restabilization Reserve, or
    • BorrowerBorrowerPerson who is the obligor per the Note. -controlled PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operating or capital accounts; and
  • fees included in the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. , including any
    • Origination FeeOrigination FeeFee you charge the Borrower for underwriting and originating the Mortgage Loan. , or
    • broker fee.
202.03D

Allocated Value to Real Estate and Improvements

Requirements

For any non-Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. , you must review the PSAPSAFinal fully executed purchase or sales contract or agreement (including all amendments, assignments, extensions, joinders/acknowledgements, and related documents) for an Acquisition. and the final title company settlement statement to determine if any portion of the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. price is specifically allocated to Personal PropertyPersonal PropertyFurniture, fixtures, equipment, and other tangible personal property located on or used in connection with the Property. and/or Intangible PropertyIntangible PropertyBusiness value, goodwill, and any other intangible value attributed to the Property being operated as a multifamily housing development. .

If the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. price allocates any portion to Personal PropertyPersonal PropertyFurniture, fixtures, equipment, and other tangible personal property located on or used in connection with the Property. and/or Intangible PropertyIntangible PropertyBusiness value, goodwill, and any other intangible value attributed to the Property being operated as a multifamily housing development. , the allocation is permitted if the Mortgage LoanMortgage 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. amount in the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , DeliveredDeliveredSubmission 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. data, and final title company settlement statement, does not exceed 90.00% of the:

  • Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. price; minus
  • portion allocated to any other Intangible PropertyIntangible PropertyBusiness value, goodwill, and any other intangible value attributed to the Property being operated as a multifamily housing development. and/or Personal PropertyPersonal PropertyFurniture, fixtures, equipment, and other tangible personal property located on or used in connection with the Property. (excluding fixtures, if customarily valued as real estate in the market).

You must refer to Part III, Chapter 5: Seniors Housing Properties, Section 502.02: Ineligible Properties for a Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. .

Guidance

The following table is a sample calculation. 

Sample Calculation
Property's Acquisition price $30,000,000
Appraised Value $30,000,000
Underwritten Value $30,000,000
Maximum 75% LTV $22,500,000
Property's Acquisition price allocation: $30,000,000
  • minus any allocation to Personal Property and/or Intangible Property
 - $5,000,000
  • equals Property's Acquisition price allocated to real estate and Improvements
 $25,000,000
Mortgage Loan amount must not exceed 90.00% of the Property’s Acquisition price allocated to real estate and Improvements $22,500,000
($25,000,000 X 90.00%)