HUD multifamily lenders, like most of our conventional lending colleagues, underwrite deals based on metrics like loan-to-cost (LTC), loan-to-value (LTV) and debt service coverage (DSC).
However, HUD’s multifamily mortgage insurance programs also include a unique loan sizing metric: Statutory Unit Limitations. Wut? These are fixed dollar amounts by unit sizes, increased annually based on inflation, and adjusted by a High Cost Percentage depending upon geographic location.
The lowest amount based on DSC, LTV, LTC or Statutory Unit Limitations becomes the controlling HUD-insured loan.
This loan sizing does not measure underwriting risk like traditional lending metrics; it is a statutory speed bump to assure Congressional intent that HUD mortgage programs finance multifamily properties affordable to most Americans. Unfortunately, in recent years this speed bump has become more like a speed trap, as otherwise-creditworthy HUD-insured multifamily loans are now being constrained by the static sizing of Statutory Unit Limitations.
Where are we headed with this?
An integral part of the loan based on Statutory Unit Limitations is the computation of Costs Not Attributable to Dwelling Use, or CNA. This provides a boost to the overall loan sizing beyond the fixed dollar amounts per unit. CNA is a very cumbersome calculation to prepare, and often devolves into an esoteric, time consuming and expensive endeavor, sometimes only marginally affecting the amount of additional loan after hours of painstaking analysis.
Fortunately, last week, HUD issued a Mortgagee Letter announcing a new, improved way to calculate CNA. It simplifies the process, is expected to result in higher loan amounts based on Statutory Unit Limitations and will hopefully bring them more in line with the more traditional loan sizings based on LTV, LTC and DSC.
To HUD’s new CNA calculation, we say YAY!