Fannie Mae LIHTC Project Construction/Permanent Loan Program

Overview: Eagle Point and it's affiliated lender will provide financing for new construction and substantial rehabilitation of multifamily and seniors housing projects that utilize low income housing tax credits. This program is designed to achieve commitments for construction and permanent financing with one application, process and closing procedure at reduced costs and in an attractive amount of time. The program offers a forward commitment for permanent financing and the opportunity to lock the permanent interest rate at the closing of the construction loan.

Under this program, an acceptably rated bank will serve as the Construction Lender and will be responsible for: supervising and managing construction; the improvement, equipping and lease-up of the Project; disbursement of the construction loan proceeds to the Borrower in accordance with the terms of a Construction Loan Agreement; and collection from Borrower of amounts owing under the Construction Loan.

The lender will fund the permanent loan through the Construction Lender who will issue a letter of credit for the benefit of the borrower, thereby relieving The Lender and Fannie Mae of construction risk. The permanent interest rate is fixed at construction loan closing at Fannie Mae Tier II rates, plus .25% for the benefit of a 24-month forward rate lock. During construction, the mortgage is a fixed-rate, interest-only (up to 24 months) at .40% below the standard Fannie Mae Tier II rate (please call for today's rates).

For projects employing tax-exempt bonds and Fannie Mae AAA Credit Enhancement, the bonds will be sold at the close of the construction loan and the proceeds placed in a guaranteed investment contract (GIC) during construction. The interest earnings on the GIC will cover the interest payments on the bonds and the proceeds will be released to take out the construction loan once the project is built and leased up.

The Process: The borrower will concurrently submit one application to two lenders, one to the construction lender, and one to The Lender for permanent financing. After a quick review of the preliminary data with Fannie Mae to assure compliance with certain requirements and to deal with any initial policy or underwriting issues, The Lender will process and underwrite the application for acceptability for permanent financing. Simultaneously, the construction lender will review its application for acceptability as a construction loan.

Third party reports such as market study, appraisal, and environmental analysis will be shared by the lenders. A consulting architect may be engaged by The Lender to review the plans and specifications for asset quality, marketability and compliance with Fannie Mae's architectural guidelines. Physical needs assessments for newly constructed properties will not be required under this proposal.

If the applications are acceptable to both lenders, The Lender will issue a forward commitment for permanent financing to the borrower. The construction lender will also issue its commitment for a construction loan. Prior to closing on (or conversion to) the permanent loan and releasing the construction period security, The Lender must confirm that the permanent mortgage delivery requirements have been met, including project completion and achievement of minimum occupancy of 90% for three consecutive months. After making any necessary adjustments to the underwriting income and operating expenses (based on any differences between preliminary and actual operating numbers) The Lender will finalize the exact supportable permanent mortgage amount and make any adjustments to the permanent mortgage documents. If the project's stabilized net operating income at permanent loan closing is less than had been projected in the original forward commitment underwriting, the final mortgage amount may be less than was originally anticipated in the forward commitment, in which case the borrower may be forced to make up the balance to pay off the construction lender.

Underwriting and Funding Requirements:

• Loan Amounts: $2,500,000 to $15,000,000 (higher on case by case)
• Minimum Debt Service Coverage:
  • 1.10:1 for 100% restricted projects
  • 1.15:1 for mixed income projects
• Maximum Loan to Value:
  • 90% of restricted value on first mortgage
  • 95% combined with mandatory payment subordinate debt
  • 100% combined with soft subordinate debt
• Income & Expense Trending: Income and expenses are underwritten on today's low -income rents and market expenses without trending for the construction period.
• Amortization:
  • Interest only during construction
  • Up to 30 years for permanent mortgage
• Loan Terms: Construction term is 24 months. Minimum term for permanent mortgage is 18 years. For projects utilizing subordinate debt, the permanent mortgage must be fully amortizing
• Replacement Reserves: Full funding of replacement reserves at a minimum of $150 per unit per year is required.
• Completion: The project must be completed in accordance with approved plans and specifications with a certificate of occupancy issued for all units. The consulting architect must conduct a final inspection and certify completion.
• Occupancy: The minimum occupancy requirement for permanent mortgage funding is 90% physical occupancy at pro forma rents, which must have been maintained continuously for the previous three consecutive months.

Fee and Expense Summary:

• Application Fee and Expense Escrow -
  • The Lender will require a $2,500 processing fee upon commencement of processing. In addition, we typically require a $17,500 expense escrow deposit to cover costs of appraisal, environmental report, and due diligence.
• The Lender Loan Origination Fee: 1.25% - 1.50% due at closing of construction loan.
• The Lender Legal Fees: Vary with type of financing, i.e. cash, bonds, etc.
• Fannie Mae MBS Commitment Fee:
  • $3,000 non-refundable fee due upon rate lock.
  • (for bond transactions) plus $1,000 pool contract fee for fixed rate bonds
• Fannie Mae Legal Fees: Payable for outside counsel with bond transactions only.
  • - estimated at $25,000 for fixed rate bonds
  • - estimated at $40,000 for variable rate bonds
• Fannie Mae Review Fee: $1,500 payable for non-bond (cash) transactions.
• Bond Issuance Costs: Vary with bond size and complexity, issuing authority, etc. Payable for bond counsel, underwriter's fees, issuer's fees, printing, trustee's fee, rating agency fees, other counsel, etc.
• Construction Lender's Fees: Determined by construction lender.

For more information or to discuss a specific transaction, please call

Bob Clark
(619) 792-0884