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
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.