Proposed FCRHA Refinancing and/or Subordination Policy


The following policy is proposed to apply to the refinancing and/or subordination of loans made by the FCRHA:

  • No cross-collateralization or cross-default among the FCRHA financed properties will be considered. This requirement will ensure that in case of default on a property, the superior lender can foreclose only on the property in question, and will not be able to foreclose on any other property within the portfolio, which may have a higher appraised value, in order to get reimbursed on the superior mortgage. This applies to the refinancing of loans which are not cross collateralized or cross defaulted.

  • No cash out refinancing from the FCRHA financed properties will be permitted. This requirement will ensure that the affordable properties are not over leveraged and continue to serve the population these properties were intended to serve. Moreover, this requirement will make sure that the FCRHA’s equity share is not put at risk.

  • A minimum Debt Coverage Ratio of 1.0 shall be required. This requirement will ensure that property has sufficient revenue to meet the operating expenses and pay the debt on the must-pay loans.

  • Loan-to-Value shall not exceed 100 percent of the appraised value of the property, based on the appraisal ordered by the first mortgage lender or HCD. This requirement will ensure that the property is not burdened with any more debt than it can support and the FCRHA’s interest is not at a risk.

  • Fixed interest rate, fully amortizing mortgages with no balloon payment(s) will be the preferred refinancing vehicle. This requirement will ensure that the debt service expense is predictable and the borrower is able to budget this expense while planning their future budgets.

  • Funding of “FCRHA Reserve Account” to backstop balloon payments, if any, shall be required. In the event the original first trust loan has a balloon payment this requirement will ensure that the borrower has funds available to be used at the time of refinancing of the balloon payment. Since banks have adopted strict credit requirements, such a reserve will assist the borrower as a leverage at the time of refinancing. Consideration of changing from an amortizing loan to a balloon payment as part of refinancing will only be given if a sufficient reserve account is available.

  • Any other factors as deemed necessary after review and evaluation by the Department of Housing and Community Development’s Loan Underwriting Committee and approved by the FCRHA.

  • Changes in terms beyond a change in the interest rate must be approved by the FCRHA.

  • Exceptions to the policy must be approved by the FCRHA.

 


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