- 4 percent Housing Credit
- New construction
The HFA/HUD 542(c) Risk Sharing program is an FHA mortgage insurance tool used by CHFA and other housing finance agencies to provide credit enhancement to mortgages of multifamily affordable housing projects. CHFA originates, underwrites, processes, and services the loans to projects that include new construction, substantial rehabilitation, and refinance. CHFA and HUD share 50/50 in the risk of loss of the mortgage in the event of an insurance claim. The Risk Share credit enhancement provides full FHA mortgage insurance to enhance CHFA’s bonds and allows CHFA to borrow at more favorable rates in the capital markets.
Under the Risk Sharing program, CHFA serves as the originator, underwriter, processor, and servicer of the Risk Share loan. Because CHFA is the underwriter in lieu of HUD, the process and time to obtain a HUD firm approval for the FHA insurance is significantly streamlined. HUD still requires a NEPA environmental review, completion of the 2530 process, and the Affirmative Fair Housing Marketing Plan, and CHFA reviews the loan due diligence items to underwrite the loan. Typically, a CAPABLE loan takes 120 to 180 days from receipt of a complete loan application to construction loan closing.
This is true only if Risk Share mortgage insurance is utilized during the construction phase. The CAPABLE Program can either provide uninsured construction financing* or a Risk Share insured construction loan. The uninsured structure would not require Davis Bacon wages to be paid; a Risk-Share insured construction loan does require Davis Bacon wages. Risk Share insurance used for only the permanent loan would not require Davis Bacon.
*On a limited basis
CHFA typically manages any negative arbitrage that occurs during construction through the pricing of the permanent loan. The project only pays interest on the construction loan using a draw-down structure.
CHFA requires an operating reserve sized to six months of underwritten operating expenses and debt service. Replacement Reserve deposits and tax/insurance escrows are required once the project converts to the permanent period. For new construction projects, the minimum Replacement Reserve deposit is $250 per unit per year for senior properties, $300 per unit per year for family properties, and $350 per unit per year for permanent supportive housing properties. For acquisition/rehab properties, the corresponding reserves minimums would be increased by $50 per unit per year.