03-28H.DOC - U.S Department of Housing and Urban...

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U.S. Department of Housing and Urban Development Special Attention of All Multifamily Hub Directors Notice H 03-28 All Multifamily Program Center Directors All Project Managers Issued: December 1, 2003 All Regional Directors All Field Office Directors Expires: December 31, 2004 Contract Administrators __________________________________________ Cross References Notices: H 97-49, H 99-19 __________________________________________________________________________________________ Subject Guidance on Asset Management Issues Concerning Bond Financed Section 8 Projects A. CONTRACT RENEWALS AND PREPAYMENT OF MORTGAGES IN PROJECTS SUBJECT TO BOND REFUNDING AGREEMENTS 1. BOND CALL PROTECTION AND MORTGAGE PREPAYMENT LOCKOUTS. Tax-exempt housing bonds are usually sold to investors with redemption (prepayment) restrictions which assure that no change in the interest rate will occur during the first 10 years of the term to maturity. The mortgage loans funded with the bond proceeds typically contain prepayment lockout provisions mirroring the redemption provisions in the bonds. In the Section 8 bond refunding program, depending on the closing date, the 10-year prepayment lockout provisions in the bonds and in the underlying mortgages may run concurrently with, or expire before the Housing Assistance Payments Contract (“HAPC”). The latter case requires special attention due to a unique feature of the Section 8 bond refundings: namely, HUD’s agreement with the Issuer to share the savings of Section 8 subsidy resulting from reduced debt burden generated by the refunding (“HAP Savings”). Pursuant to Section 1012 of the Stewart B. McKinney Homeless Assistance Amendments Act of 1988 (P.L. 100-628), as amended by section 163 of the Housing and Community Development Act of 1992, (P.L. 102-550) (“McKinney Act”), 50 percent of the HAP Savings is made available to the State or local housing finance agency or authority initiating the refunding (“Issuer”) to be used only for providing decent, safe, and sanitary housing affordable to very low-income families and persons. The remaining 50 percent of HAP savings typically takes the form of a cash rebate from the bond trustee to the U.S. Treasury, rather than a recapture of contract authority and reduction of rents. These rebates, ________________________________________________________________________________________ Distribution: W-3-1, Previous editions are obsolete form HUD-21-B (3/80)
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known as “trustee sweeps,” continue only for the contract term, including 5-year renewals, specified upon execution of the original HAPC. HUD’s agreement to share 50 percent of the savings with the Issuer and the Issuer’s agreement to properly spend its share of the trustee sweep rebates on very-low income housing, are memorialized in a Refunding Agreement executed by HUD and the Issuer. In the event of a request to prepay a mortgage while the HAPC is still in effect, HUD will require that the Treasury savings continue. A prepayment prior to trustee sweep expiration will not be approved by HUD unless two conditions are met. First, the mortgagor must agree to compensate the Treasury for 50 percent of the remaining savings installments. This may be done by one of three means:
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  • Summer '17
  • allen dasu
  • Finance, HUD

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