In 2011 we originated an $2,419,400 FHA-insured Section 223(f) loan that refinanced Luther Meadows’ Section 202 Direct Loan, funded capital reserves and repairs, earned Diakon a development fee and generated annual debt service savings.
Interest rates had declined since the original refinancing, providing Diakon with the opportunity to generate additional debt service savings. We advised them of this positive development in the market and suggested a refinancing structured under HUD’s Mortgage Note Modification/Interest Rate Reduction (IRR) protocol.
Acting as Financial Advisor, we developed the initial financial modeling of the transaction and coordinated the development of the formal IRR proposal with the existing loan servicer, whom we brought into the 2011 refinancing. HUD approved the IRR proposal in 63 days and the loan closed 28 days later.
The IRR reduced the interest rate by 40% and will generate total debt service savings of approximately $509,000 through the remaining term of the loan. The net present value of debt service savings exceeded was 17% of the unpaid principal balance of the existing loan.
Debt service savings will be used to increase deposits to the existing reserve fund for replacements, ensuring that future capital needs will be adequately met. The IRR, completed 10 years after our initial refinancing, is another example of SMF maintaining long-term relationships with our clients and delivering to them ongoing value.