Berkadia | FHA/HUD Brochure

HOUSING AND URBAN DEVELOPMENT

FHA FINANCING

STRONG COMMUNITIES, STRONGER PARTNERSHIPS.

Build the foundation for a better tomorrow by partnering with Berkadia FHA/HUD. As a leader in the HUD sector, we have the vision and versatility to create customized debt financing and equity solutions to fit all project sizes, locations and borrower profiles.

Our dedicated HUD professionals, including some of the industry’s top FHA experts, are skilled at navigating the lending process on behalf of our clients, while our success is a result of our ability to deliver exceptional and innovative results. Berkadia works hard to help you build a legacy that lasts long after the deal is closed.

For more than a decade, Berkadia’s industry trailblazers have guided clients through the intimidating, yet rewarding, world of FHA financing. Nationwide, our experts serve as committed partners, equipped with the tools, knowledge and relationships to help achieve your goals.”

STEVE ERVIN SVP - Head of FHA Financing Berkadia

IT'S IN OUR DNA.

Our mission is inspired by our two shareholders who created Berkadia— Berkshire Hathaway and Jefferies Financial Group. Both firms are renowned for their capital strength, sophisticated investment strategies and exacting attention to their clients’ diverse needs.

We're honored to infuse our Berkadia values into everything we do. When you work with us, you’re more than a client, and more than a partner. You’re a member of our family.

Mortgage Banking

Your projects, of any size and location, benefit from best‑in‑class financing partners and unparalleled access to capital.

Servicing

Get customized solutions and seamless service with our established resources and proven expertise.

Investment Sales

When you equip the right professionals with industry leading insights and tools, the result is better investment outcomes.

Technology

Advanced decision‑making with actionable insights backed by our powerful data.

SUCCESS IS NOT PURELY MEASURED BY NUMBERS.

But, they help tell our story:

$1.2 billion

In HUD loans financed in 2023 across 49 transactions

2023 HUD Rankings

160+

Dedicated FHA/HUD professionals

In data published by the U.S. Department of Housing and Urban Development, Berkadia ranked as the:

#1 HUD Lender Nationwide

#1 HUD Multifamily Lender

#1 HUD New Construction Lender

#1 HUD Multifamily Affordable Lender

#2 HUD Multifamily Refinance Lender

HIGHLIGHT TRANSACTIONS

Philadelphia, PA

223(f)

Refinance

Brooklyn, NY

232/223(f)

Refinance

Pasco, WA

221(d)(4)

New Construction

Round Rock, TX

232/223(f)

Refinance

Miami, FL

232/223(f)

Refinance

San Diego, CA

223(f)

Refinance

Bozeman, MT

221(d)(4)

Substantial Rehabilitation

Victoria, TX

223(f)

Refinance

St. Louis, MO

223(f)

Refinance

Fuquay-Varina, NC

223(a)(7)

Long Beach, CA

223(f)

Medina, OH

223(f)

Medford, OR

232/223(f)

Fort Collins, CO

221(d)(4)

Refinance

Orlando, FL

223(f) Refinance

Roanoke, VA

223(f) Refinance

Norfolk, VA

221(d)(4)

New Construction

Silver Spring, MD

223(f) Heavy Refinance

CLOSING IS JUST THE END OF THE BEGINNING.

We’re in this for the long haul.

To us, every deal is the start of a new relationship or the continuation of one built on performance and trust. Our clients are family, and we’re relentlessly focused on your long-term success.

HOW HUD WORKS

Major HUD Multifamily Programs

MAP covers the following multifamily loan programs:

220 — new construction or substantial rehabilitation of mixed use projects in urban renewal areas

221(d)(4) — new construction or substantial rehabilitation of apartments

223(a)(7) — refinancing of FHA insured mortgages

223(f) — refinancing or purchase of existing apartments

231 — new construction or substantial rehabilitation of housing for the elderly

241(a) — Supplemental Loan program for rehabilitation or additions to projects that have an FHA insured first mortgage

Advantages of HUD Loans

Fixed rate, long term (35 40 year)

Full leverage (up to 85% LTV, 1.176 DSC)

No income or rent restrictions

Free to prepay 10 years after amortization

Fully non recourse, no carveouts

Fully assumable

Self amortizing

General HUD Program Requirements

Available to market rate, affordable and rental assisted multifamily properties

Commercial space and income limitations

Project size must be at least five residential units

Single purpose borrowing entity required

Non recourse

All borrowers must execute a HUD Regulatory Agreement

Fixed interest rate

Fully amortizing

Annual audited financials required

Monthly cash distributions are permitted

Borrowers, management agents, contractors and subcontractors must comply with HUD Fair Housing and Equal Opportunity requirements

Assumable with HUD approval (0.05% fee)

Negotiable prepayment terms

Standard terms are a 10 year prepayment schedule with first year locked out followed by a declining penalty for years 2 – 10

Subject to annual REAC (physical) inspections

• Score above 60 is passing

• Score above 80 waives inspection for two years

• Score above 90 waives inspection for three years

Section 223(f) - Refinance or Acquisition

• 85% loan to value (80% if cash out)

Market Rate Properties

Affordable Properties (LIHTC Minimums)

Rental-Assisted Properties (Section 8)

Interest Rate & Term

Prepayment

Additional Requirements

Heavy 223(f)

Application Timeline

Preliminary Loan Analysis

Concept Submission and Meeting 30 days Optional

Berkadia Firm Application Underwriting 45-60 days

• 1.176x DSCR with 7% vacancy

• Statutory mortgage limitation (per unit)

• 87% loan to value (80% if cash out)

• 1.15x DSCR with 5% vacancy

• Statutory mortgage limitation (per unit)

• 90% loan to value (80% if cash out)

• 1.11x DSCR with 3% vacancy

• Statutory mortgage limitation (per unit)

• 35 year rate (fully amortizing) subject to market conditions at time of rate lock

• Flexible 10 year prepayment structure

• Initial deposit to replacement reserve

• Annual deposit to replacement reserve

• Annual audited financial statements

• Surplus cash distributions monthly

• Non critical repairs up to $40,000 per unit

• Project architect required

• Lender Needs Assessor reviews planned scope of work

• Detailed plans of scope of work and cost estimate required

• Davis Bacon Act does not apply to Heavy 223(f)

• General Contractor could be required

• Initial loan sizing

• Based on information provided by sponsor

• Limited review of property information and sponsor

• No third party reports required

• Third party due diligence

• Collect required forms, certifications, and documents

• CPA review of property operating statement for prior fiscal year

• Obtain green certification, if applicable

• HUD property inspection

HUD Firm Application Review 45-60 days

Closing (Final Endorsement) 45-60 days

• National/regional loan committee review (depending on loan size)

• HUD firm commitment

• Interest rate lock

• Closing and loan documents review

• Completion of critical repairs

Section 221(d)(4) and 220 – New Construction or Substantial Rehabilitation

Market Rate Properties

Affordable Properties (LIHTC Minimums)

Rental-Assisted Properties (Section 8)

Interest Rate & Term

Prepayment

Additional Requirements

Application Timeline

Market Rate Properties (Two-Stage Processing)

Affordable Properties or Rental-Assisted Properties (Section 8) (Single-Stage Processing)

• Maximum 85% loan to cost

• 1.176x DSCR with 7% vacancy

• Statutory mortgage limitation (per unit)

• Maximum 87% loan to cost

• 1.15x DSCR with 5% vacancy

• Statutory mortgage limitation (per unit)

• Maximum 90% loan to cost

• 1.11x DSCR with 5% vacancy

• Statutory mortgage limitation (per unit)

• Fixed interest, same rate for construction and permanent phases

• Construction phase + 40 year permanent amortization

• Interest only during construction

• Fully amortizing

• Conversion to permanent phase at construction completion (no DSCR test for conversion)

• Flexible 10 year prepayment structure

• Davis Bacon Act prevailing wages apply

• New Construction Escrows: (1) Working Capital: 4% of loan amount (2) Operating Deficit Escrow: 3% of loan amount

• Substantial Rehab Escrows: (1) Working Capital: 2% of loan amount

Waivable for certain Rent Assisted or LIHTC properties.

• Cost certification required for market rate properties

• Limits on commercial income and space apply; 20% minimum vacancy

• 30 days | Concept submission and meeting with HUD

• 45 – 60 days | Pre application underwriting by Berkadia (application market study, phase I)

• 45 – 60 days | HUD pre application review

• 45 – 60 days | Firm application underwriting by Berkadia (100% plans/specs)

• 45 – 60 days | HUD firm application review

• 45 – 60 days | Rate lock and closing

• 45 – 60 days | Firm application underwriting by Berkadia

• 45 – 60 days | HUD firm application review

• 45 – 60 days | Rate lock and closing

Section 223(a)(7) – Simplified Refinance of Existing FHA-Insured Properties

Market Rate and Affordable Properties

Rent Assisted Properties (Section 8)

Interest Rate & Term

Prepayment

Additional Requirements

Application Timeline

Preliminary Loan Analysis

Berkadia Firm Application Underwriting 30-45 days

HUD Firm Application Review 30 days

Closing (Final Endorsement) 45-60 days

• 100% of cost, up to original principal of existing loan

• 1.11x DSCR

• 100% of cost, up to original principal of existing loan

• 1.05x DSCR

• Fixed rate (fully amortizing) subject to market conditions at time of rate lock

• Remaining term of the existing HUD loan, plus up to 12 years (subject to HUD approval)

• Flexible 10 year prepayment structure

• Surplus cash distributions monthly

• Capital Needs Assessment may be needed depending on age of original FHA insured mortgage

• Initial loan sizing

• Based on information provided by sponsor

• Third party due diligence (CNA, if required)

• Collect required forms, certifications, and documents

• HUD firm commitment

• Interest rate lock

• Closing and loan documents review

• Completion of critical repairs, if required

Application Costs, Fees, and Deposits

Third-Party Report Deposit:

Upon engagement with Berkadia, a deposit is collected for due diligence reports, including appraisals, market studies, Phase I ESAs, property capital needs assessments, and energy benchmarking.

HUD Application Fee:

0.30% of the insured loan amount is due when a firm commitment application is submitted to HUD, but fees are reduced for certain loan types. In the case of a construction loan with two stage processing, 50% of this amount is due with the pre application submission and the remaining 50% is due with the firm commitment application.

HUD Inspection Fee:

The inspection fee amount varies based on program and repair amounts.

Mortgage Insurance Premium (MIP)

Rate Lock Deposit:

0.50% of the insured loan amount is collected after receipt of the firm commitment and prior to rate lock, but is then credited to the sponsor at closing.

Mortgage Insurance Premiums (MIPs):

Depending on project classification (e.g., market rate, affordable housing, green/energy efficient) 0.25 1.00% of the insured loan amount is collected at closing.)

Replacement Reserve:

Typically, only for acquisition/refinance program (223(f), an initial deposit to the replacement reserve is required for the ongoing maintenance of the project.

Borrowers are required to pay a Mortgage Insurance Premium (MIP) to HUD. MIP payments consist of an upfront payment made at closing and an ongoing annual payment that is arranged through the servicing mortgage. MIP rates are subject to the type/classification of a property and lower MIP rates are given to properties that qualify as Affordable or Green/Efficient. The ongoing annual MIP is based on the outstanding principal balance of the insured loan and due to amortization, gradually decreases over the life of the loan.

Frequently Asked Questions

My property was completed less than three years ago, is it eligible for a refinance with a HUD-insured mortgage?

Yes, it is eligible for a refinance with a HUD insured mortgage, per the 2020 MAP Guide, as of March 18, 2021.

What are my options for supplemental loan proceeds during the term of the loan?

FHA/HUD insured programs do not offer supplemental loan programs like those offered by GSEs. However, there are a few options available to borrowers with HUD insured loans: (1) a borrower with an existing HUD insured loan may access HUD’s abbreviated refinance program, Section 223(a)(7). The main purpose of this program is to lower the interest rate on the existing loan and/or completed desired repairs to the property; (2) a borrower may pursue a note modification in an advantageous interest rate environment and lower the interest rate on the HUD insured first mortgage if all other terms are kept the same; (3) a borrower may obtain a supplemental loan (pursuant to Section 241a) to fund major capital improvements or additions to an existing property.

What types of secondary financing (i.e., mezzanine debt) are allowed under the program?

Secondary financing is permitted under HUD’s programs but it is highly restrictive. Any subordinate debt must comply with certain requirements, most notably, the term of the note must at least be equal to the term of the HUD loan (35 or 40 years) and repayment is restricted to surplus cash (cash flow) only. HUD will allow a preferred equity arrangement if there are no prescribed cash flow payments and any changes to key principals cannot occur without HUD approval.

What are the net worth and liquidity requirements of the key principals?

For insured loans more than $120 million, HUD does not have any specific financial requirements for a sponsor’s key principals, and the recommendation is based on the judgement of the lender and its underwriting team. For loans greater than $75 million, a sponsor’s key principals must have, in aggregate, a net worth equal to at least 20% of the loan amount and liquidity equal to at least 7.5% of the loan amount. This requirement may only be waived on Affordable Housing transactions.

My group has never had a HUD loan before. Is specific HUD experience required to be approved as a Sponsor for a HUD-insured application?

HUD experience is not a requirement to be approved as a property owner, contractor or manager requesting a HUD insured loan. HUD does, however, require the property team to have experience in developing, owning or managing similar properties to the subject.

Due to the length of the application and closing process for the Section 221(d)(4) program, what type of construction activities are permitted prior to closing?

Generally, HUD does not permit an early start to the construction process and no work may take place on a development site once the application process has begun. After receipt of a firm commitment, approval for an early start may be granted by HUD under certain conditions. Some work, such as clearing, grading, minor demolition, environmental remediation or other minor preliminary work, may be permissible.

What are the major differences between underwriting a HUD loan compared to an agency loan?

Generally speaking, the HUD underwriting process involves a higher degree of paperwork to complete the application. There are numerous HUD forms and certifications that are required for the borrower/ sponsor, key principals, management agents, general contractors, etc. The overall scope of due diligence is similar to a GSE loan application. HUD’s guidelines and underwriting practices are more focused on risks associated with, environmental and fair housing/ accessibility issues.

The maximum leverage allowed on the Section 221(d)(4) construction program sounds great, what am I missing?

The Section 221(d)(4) program is considered a cost based program with a maximum loan to cost ratio of 85 90%. HUD underwriting guidelines only allow for a finite list of costs and exclude some costs that conventional developers may be used to including in their development budgets. The most common costs include: developers fee, contingency, lease up reserve, marketing expenses, demolition and off site improvements, but some of these items are considered in the HUD required reserves, which can be posted in either cash or a letter of credit. While the program outlines a maximum loan to cost ratio of 85%, it also allows for BSPRA, which can result in cash out when there is land equity.

What are the main requirements of ownership and management during the life of the loan?

An owner must provide annual audited financial statements to HUD for review within 90 days of the property’s fiscal year end. This audit should contain a calculation of surplus cash (cash flow), which is the basis of cash distribution to ownership. Distributions can only be made upon audit review and approval twice per fiscal year. An owner must also comply with annual REAC (physical) property inspections. REAC scores are on a scale of 0 100, with below 60 considered to be failing. High scoring properties can obtain waivers of future inspections for a period of one or two years depending on the score.

A replacement reserve account is required to be maintained during the life of the loan. The replacement reserve account is structured according to a replacement schedule of the property’s capital items and withdrawals are typically made consistent with this model. HUD loan documents also require a PCNA Report every ten (10) years to measure the adequacy of the property’s replacement reserve account. If a property has qualified as Green/Efficient and received a reduced MIP, HUD will require annual energy testing and compliance with a minimum Energy Star rating of 75.

What is BSPRA?

BSPRA stands for Builders/Sponsors Profit Risk Allowance. It is an option under the Section 221(d)(4) program which requires: (1) an established identity of interest between the borrower and general contractor; and (2) the general contractor’s profit to be satisfied outside of loan proceeds. In exchange for this structure, the recognized costs in a development (not including land) are artificially increased by 10%. The 85% loan to cost calculation is then made on the higher cost figure. This results in a higher insured loan amount (roughly 93% of recognized cost) provided minimum debt service coverage and statutory mortgage limits support the underwriting. BSPRA is not available on Section 241(a) and requires a cost plus construction contract.

What are the limitations on commercial space within a mixed-use development?

Commercial space limitations vary, depending on the mortgage insurance program. Under Section 221(d) (4), the maximum allowable commercial space is 25% of total rentable project area and the maximum underwritten commercial income is 15% of project income. Also, as part of the Section 221(d)(4) program, commercial occupancy is limited to 80%, regardless of the market occupancy. In the determination of total development cost, HUD will recognize the cost of completing white box commercial space only. Any tenant specific improvements are a cash requirement of the sponsor. Under Section 223(f), commercial space is limited to 25% of total net rentable space, and the maximum underwritten commercial income is 20% of project income. Section 223(f) permits a maximum 90% occupancy factor on commercial income.

BERKADIA FHA/HUD

Contact Us

Atlanta

Eben Williams

Senior Director

404.654.2606

eben.williams@berkadia.com

Boston

Gemma Geldmacher

Managing Director

617.531.8911

gemma.geldmacher@berkadia.com

Chicago

Paul Matusiak

Senior Managing Director

312.845.1888

paul.matusiak@berkadia.com

Cleveland

Troy Buckley Director

440.503.6641

troy.buckley@berkadia.com

Dallas

Ben Burkett

Associate Director

972.801.3061

ben.burkett@berkadia.com

Kathleen Cohen Director

404.654.2583

kathleen.cohen@berkadia.com

Blake Durham

Associate Director

404.654.2344

blake.durham@berkadia.com

Greg Belanger

Associate Director

617.531.8912

greg.belanger@berkadia.com

Cleveland

Dave Strachan

Managing Director

440.668.7174

dave.strachan@berkadia.com

Dallas

Tim Nunan

Senior Managing Director

972.801.3066

tim.nunan@berkadia.com

Stephanie Herbst

Associate Director

617.648.4185

stephanie.herbst@berkadia.com

Tom Bruce Director

216.225.4996

tom.bruce@berkadia.com

Grant Cooper

Associate Director

214.360.3872

grant.cooper@berkadia.com

Chad Bedwell

Managing Director

214.360.3874

chad.bedwell@berkadia.com

DC Metro

Steve Ervin

SVP – Head of FHA Financing

301.202.3575

steve.ervin@berkadia.com

DC Metro

Nick Nicholson

Managing Director

301.202.3554

nick.nicholson@berkadia.com

DC Metro

Hassan Dixon Director

301.202.3574

hassan.dixon@berkadia.com

Detroit

Colin Callaghan

Senior Managing Director

248.208.3470

colin.callaghan@berkadia.com

Jupiter

Angela Folkers Director

561.998.8027

angela.folkers@berkadia.com

Richard Price

Managing Director

301.202.3578

richard.price@berkadia.com

Orlando New York Denver

Dan Koch

Associate Director

646.432.7452

daniel.koch@berkadia.com

Monica Newman

Managing Director

303.689.8334

monica.newman@berkadia.com

Laura Smith

Managing Director

301.202.3465

laura.smith@berkadia.com

Lisa Burkeen

VP Originations

248.208.3461

lisa.burkeen@berkadia.com

Los Angeles

Nick Provost Director

310.209.3227

nick.provost@berkadia.com

Nicole Hood Director

321.319.1425

nicole.hood@berkadia.com

Jennifer Quigley

Managing Director

303.689.8326

jennifer.quigley@berkadia.com

Jupiter

Carolyn Whatley

Managing Director

561.758.3171

carolyn.whatley@berkadia.com

Milwaukee

Bill O'Connor

Associate Director

414.662.2461

bill.oconnor@berkadia.com

Philadelphia

Joe DeGiorgi

Managing Director

215.328.1302

joe.degiorgi@berkadia.com

BERKADIA FHA/HUD

Philadelphia Contact Us

Scott Kaesshaefer

Associate Director

215.328.1482

scott.kaesshaefer@berkadia.com

Portland

Rob Affleck

Senior Director

360.356.0215

rob.affleck@berkadia.com

Portland Richmond

Brad Biddle

Associate Director

503.223.0849

brad.biddle@berkadia.com

Richmond

Craig Alloway

Senior Director

804.780.9237

craig.alloway@berkadia.com

Seattle

Louis Weisman

Managing Director

206.521.7219

louis.weisman@berkadia.com

St. Louis

Pat Garlich

Director

314.984.5536

pat.garlich@berkadia.com

David Blake

Senior Managing Director

804.343.2358

david.blake@berkadia.com

Jeff Hall Director

503.223.0879

jeff.hall@berkadia.com

Amy Gay

Senior Director

804.343.2357

amy.gay@berkadia.com

Quinn Nakano

Associate Director

206.521.7221

quinn.nakano@berkadia.com

Cortney Mauldin

Director

314.322.3463

cortney.mauldin@berkadia.com

Steve Murden

Managing Director

540.342.6520

steve.murden@berkadia.com

San Francisco

Aaron Dmintrenko

Associate Director

415.835.9211

aaron.dmitrenko@berkadia.com

St. Louis

Kevin Kozminske

Senior Managing Director

314.984.5514

kevin.kozminske@berkadia.com

Berkadia Office

Berkadia FHA/HUD Production Office