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03.04.20

The Three Year Wait is Over: HUD issues Notice Revising Section 223(f) Three-Year Rule

BY , , James Allen

On March 2, 2020, HUD issued Notice H 20-03 revising its policy barring the acceptance of applications for refinancing existing properties under Section 223(f) of the National Housing Act until three years following completion.

By way of background, Section 223(f) provides FHA mortgage insurance for loans up to a 35 year term that are non-recourse and often with favorable interest rates. With the exception of temporary periods when the policy was waived, the Section 223(f) program had previously required that applicants establish three years of operations after construction or substantial rehabilitation. 

As of March 2, 2020, applications for refinancing of newly built or substantially rehabilitated properties will no be accepted provided that any project submitted within three years of issuance of the final Certificate of Occupancy evidence a minimum DSCR on the newly requested insured loan of 1.17 for market rate projects and 1.11 for projects meeting the definition of Broadly Affordable for a period of not less than one full month. 

The application for the property must also meet the underwriting conditions in the MAP Guide as well as new requirements for certain income and expense statements, rent rolls, leasing history information and other data to disclose projections used to underwrite the previous first mortgage. In addition, the property must evidence a minimum applicable DSCR for a period of three consecutive months prior to loan endorsement. 

This revision is designed to promote opportunities for borrowers to refinance stabilized properties and "facilitate the supply of affordable and workforce housing." The policy applies to all applications for mortgage insurance under Section 223(f), but excludes health care properties under Section 232. 

For more information, find the Notice here.

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Meghan C. Altidor

Partner

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Susanna Mitchell

Partner

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James Allen

Department Attorney

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