HUD’s Office of Multifamily Housing recently published Notice H 2013-25 entitled “Updated Guidelines for Continuation of Interest Reduction Payments after Refinancing: "Decoupling," as allowed by the National Housing Act, under Section 236(e)(2).” The Notice establishes updated procedures for the optional continuation of Interest Reduction Payment (IRP) assistance when projects assisted under Section 236 are refinanced.
Notice H 2013-25 supersedes Housing Notice 2000-8 except with regard to Section 236(b) transactions and applies to multifamily projects currently receiving IRP pursuant to Section 236 including all projects with mortgages insured or held by HUD and all State Agency non-insured projects. It does not apply to any former Section 236 project owned or sold by HUD. More specifically the Notice provides updated policy on requirements for Section 236(e)(2) decouplings, including minor changes to the process for HUD reviews and a description of the requirements related to the refinance of formerly decoupled projects. It also provides guidance for transactions involving the refinance of previously decoupled projects for the purposes of making additional project repairs or improvements.
Significant items include (as defined in a recent memo from Nixon Peabody):
- LIHTC fees, deferred developer fee and rent increases. The Notice recognizes that LIHTC financed transactions typically require the project to pay for many traditional LIHTC fees such as the syndicator’s asset management fee, and state allocating agency compliance and asset monitoring fees. In a huge departure from prior written notice, this new guidance allows such fees to be included as project expenses in budget-based rent calculations. IN addition, the Notice allows for deferred developer fees plus interest (capped at the AFR) over a 12-year term to be included as an expense for budget purposes.
- Refinancing formerly decoupled properties. For the first time, HUD has put into writing a policy on “re-decouplings.” Many 236 decouplings happened between 1999 and 2006, and in some cases the earliest deals are ripe for refinancing or additional rehabilitation. The Notice implements a mrope informal policy that HUD has followed in these cases over the past couple years, addressing both cases where the owner wishes to continue receiving the IRP subsidy and where the owner is prepared to relinquish future IRP subsidy. The Notice imposes differing conditions under two scenarios, where the IRP subsidy continues after a new refinance and also where an owner chooses not to continue the decoupled IRP subsidy.
- Tenant relocation. Unlike prior decoupling guidance, the Notice focuses on on- and off-site relocation. Involuntary displacement of residents is not allowed. The Notice provides new standards with respect to the typical rehab-in-place model of rehabilitation that many developers utilize.
- Post-decoupling monitoring. HUD details what it expects public agencies to do in those cases where a state or local agency provides the SEction 236 regulatory oversight pursuant to an IRP agreement.