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Apartment Lender does not require a
calculation of a personal debt-to-income ratio (PDR) for apartment
financing requests, however,
aspects of a Borrower’s creditworthiness are considered by the
underwriter before an apartment loan can be approved or declined.
Apartment Lender reserves the right to perform an additional
analysis. Sufficient information must be obtained, including:
A. Income history from last two
years Individual Federal Tax Returns, including all schedules,
signed by Borrower(s). No business tax returns are required (i.e.
Corporation, S-Corporation or Partnership), unless in apartment
mortgage loan refinance
transactions, a business tax return is reporting the subject’s
income and expenses, then the most recent past two years business
tax returns are needed for that specific entity only;
B. Copies of most recent two
years W-2s;
C. Bank account balances;
D. Stock ownership;
E. Credit history and rating;
Net worth as derived from the
apartment loan application (Form 1003) and Apartment Lender’s
Schedule of Real Estate Owned (SREO); and A year-to-date Profit &
Loss Statement for primary business self-employed.
U230.10 Credit Report
Apartment Lender will order an
in-house three bureau merged credit report on all Borrower(s),
including credit scores (See
Section U230.40)
from a minimum of three repositories to determine apartment
financing eligibility.
In order for Apartment Lender to
analyze the Borrower(s) credit history for an apartment loan, the following items will be
studied during the review of the credit report:
A. Delinquent Payments
1) When an individual borrower’s average
credit score is below 680, the borrower shall be required to
explain all delinquencies over 30 days past due. All accounts must
be brought current before closing;
2) When an individual borrower’s average
credit score is between 680 and 720, the borrower shall be required
to explain all delinquencies within 24 months of the apartment loan application
date. All accounts must be brought current before closing;
3) When an individual borrower’s
average credit score is greater than 720, the borrower shall only be
required to explain long term debt (installment/mortgage)
delinquencies within 24 months of the application date. All accounts
must be brought current before closing.
Additional documentation may be
required to support the borrower(s) written explanation;
B. Payment History on
Mortgages
Apartment Lender will analyze all
verifications of the payment history on a mortgage, whether gathered
via the credit report (Apartment Lender’s in-house report) or a
separate Verification of Mortgage (VOM) (must disclose at a two year
payment history).
Apartment Lender requires a
verification of mortgage (which includes either verification by a
credit report or a separate VOM) on 50% of the properties secured by
a lien on the SREO, which must include the apartment loan(s) on the
subject property (if a refinance.)
C. Judgments, Garnishments, or
Tax Liens Any judgments, garnishments, or tax liens, in excess of
$1,000/per item, $3,000/per all occurrences, must be paid in full
prior to closing. The Borrower(s) must furnish a satisfactory letter
of explanation and must have re‑established acceptable
credit;
D. Bankruptcy
A bankruptcy must have been discharged
fully and the Borrower(s) must have re‑established good credit and
demonstrated an ability to manage financial affairs. Apartment
Lender considers an elapsed time of at least 7 years for Chapter 13
and 10 years for Chapter 7 between the discharge of the bankruptcy
and the mortgage application sufficient time to re-establish credit.
The Borrower(s) must explain in writing the reason for the
bankruptcy. This explanation will need to be acceptable to Apartment
Lender;
E. Previous Mortgage
Foreclosure
Apartment Lender will not approve an
apartment loan if the Borrower(s) has been a defendant in mortgage
foreclosure proceedings that were completed in the past 10 years;
and
F. Late Charge & Bad Check Fee
Assessments on LaSalle Bank Corporation, Multifamily Finance Group
or related affiliates apartment loans.
Borrower(s) shall be required to
explain all late charge assessments and/or bad check fee assessments
they have on any open or paid LaSalle Bank Corporation, Multifamily
Finance Group or related affiliates apartment loans occurring within
two years of the date of
apartment financing application.
Further documentation may be required
to support the borrower(s) written explanations. In addition to the
requirements above, the Apartment Lender underwriter may require
additional written explanations on other late charge assessments
and/or bad check fee assessments noted on any of their open or paid
LaSalle Bank Corporation, Multifamily Finance Group or related
affiliates apartment loans.
U230.30 Borrower(s) without
established credit
Apartment Lender will require the
development of a credit history for the Borrower(s) who normally
do(es) not use credit to qualify for an apartment loan mortgage. Credit histories can be developed from rent
verifications, verification of utility payments, and verification of
personal property tax payments.
U230.40 Credit Scoring
Apartment Lender requires that the
credit report contain three credit scores. Lender uses credit scores
as a tool for judging credit and bankruptcy risk. Lender does not
make credit decisions based on credit scores alone.
Acceptable refinance transactions are defined as:
A. an
apartment mortgage in
which the proceeds are used to pay off an existing mortgage lien
(including interest, prepayment penalties, and any other fee(s)
necessary to pay off the mortgage) on the subject property; or
B. an apartment mortgage on a property when there is currently
no mortgage lien on the property, provided the Borrower(s) is
currently in title; or
an apartment mortgage in which proceeds are used to pay off an
Articles of Agreement for Deed (including interest, prepayment
penalties, and any other fee(s) necessary to pay off the Articles of
Agreement for Deed), including any rehabilitation or renovation; or
apartment mortgage loans used to pay off an interim construction
loan. The cost basis is established through the summation of the
cost of the land and the all-in cost of construction (hard and soft
costs).
Acceptable refinance transactions fall into the following two
categories: “No cash-out apartment loan program” refinances and
“Cash-out apartment loan program” refinances.
U300.21 “No
cash-out apartment loan” refinance (with an allowance of 1.50% of
the apartment loan amount)
The proceeds are used to pay off a first
apartment mortgage loan, any
subordinate liens over two years old, and all closing costs
associated with the refinance transaction. A property that has
subordinate liens less than two years old may be treated as a “no
cash-out” refinance provided the proceeds are not used to pay off
the subordinate lien(s). This lien(s) must be subordinated to
Apartment Lender’s first mortgage and the monthly payment will be
included in the analysis of the debt coverage ratio (DCR) and
combined debt coverage ratio (CDCR) (See Section U310.20). The
combined Loan-to-Value (CLTV) of the first and any subordinate liens
must conform to Apartment Lender’s guidelines (See Section U320.21).
The only time an exception will be made is when the subordinate lien
was used in connection with the original purchase money and the
borrower(s) is able to document that a minimum of 20% of borrower(s)
funds were invested. If this is the case, Apartment Lender would
consider the payoff of the subordinate lien as “no cash-out”.
U300.22
“Cash
out apartment loan” Refinances
The proceeds are used to pay off any existing liens on the
subject property, all closing costs, and any additional cash that
the borrower(s) request. This also applies when there is currently
no existing lien on the property. Apartment Lender considers
the payoff of subordinate apartment financing to be cash out within the first
two years of the purchase, unless written evidence demonstrates it
was secured at the time of the purchase. If this is the case,
Apartment Lender will require additional documentation evidencing
that the minimum percentage, as stated in Section U210.00, of
borrower(s) funds were invested at the time of purchase.
U300.30
Minimum/Maximum Apartment
Mortgage Amount Limits
The Apartment Lender’s Loan Program Rate sheet will govern the
minimum apartment mortgage amount limits. The maximum apartment loan amount is
$5,000,000 with regional, state and county limitations, as
determined by Apartment Lender’s management. Minimum apartment
mortgage loan
amount is $500,000, except for the State of California. The
minimum apartment loan amount in California is $750,000. In Apartment
Lender’s Community Reinvestment Areas (CRA), will allow loans down
to a minimum of $250,000. CRA areas apply to the State of
Illinois, Michigan and certain parts of Indiana. Please
contact your regional manager for further details on CRA areas.
U310.00
MULTIFAMILY HOUSING
PROPERTY ANALYSIS
The collateral is an integral part of the overall transaction.
The effective age of the property is an important factor in
determining if the cash flow will continue. The property’s ability
to generate sufficient future cash flow, as determined by
underwriting, to support the loan request will be analyzed.
U310.10
Remaining Economic Life/Amortization Periods
Apartment Lender recognizes that each individual property has
certain characteristics which may or may not contribute to its
future cash flow capacity. The appraiser’s development of the
remaining economic life (REL) will be analyzed. Apartment Lender
will allow an amortization period which is equal to 100% of the REL,
rounded down to the nearest 5 year increment, with a maximum of 25
years.
If the REL is 30 years or greater and the actual age of the
property is not greater than 50 years old, Apartment Lender will
allow an amortization period up to 30 years provided the DCR (See
Section U310.20) is at least 1.20. Apartment Lender may
consider 30 year amortization for buildings that are over 50
years of age, and completely renovated and in good condition as long
as the DCR is at least 1.20 and the REL is 30 years or greater.
U310.20
Debt Coverage Ratio (DCR) & Combined Debt Coverage Ratio (CDCR)
For purposes of underwriting, Apartment Lender defines DCR as the
ratio of annual net operating income (NOI) to annual debt service (ADS)(Monthly
principal and interest payments X 12), as determined by
underwriting. For example, if NOI is $15,000 and ADS is
$12,000, the resultant DCR is 1.25. The DCR will be based on
the amortization period as determined by Section U310.10, and the
locked interest rate. In cases where the apartment mortgage
loan rate is locked under
the 1/1 LIBOR Arm program, underwriting will calculate the DCR at an
interest rate of 7.000%. CDCR takes into consideration
existing apartment financing which will be subordinated to Apartment Lender’s
first lien position. Apartment Lender will not allow secondary
apartment financing at the time of origination on a purchase transaction.
If the apartment loan request is for a 15 year amortization period,
underwriting will qualify the loan amount based on the maximum
amortization period available (See Section U310.10), as long as the
DCR at 15 years amortization does not fall below 1.00. If the
DCR at 15 year amortization falls below 1.00, then the loan amount
will need to be lowered accordingly. In the event borrower(s)
payment performance on the new loan is less than satisfactory,
Apartment Lender reserves the right to switch the apartment mortgage loan to a longer
amortization schedule.
Underwriting will calculate three types of DCRs, which are the
forecasted DCR (based on appraiser’s forecast), actual DCR and
historical DCR.
FORECASTED DCR:
The forecasted DCR will be based on the appraiser’s forecasted
annual gross income (AGI) less forecasted vacancy & collection
loss (V&C) arriving at the forecasted effective gross income (EGI)
less the forecasted expenses resulting in the appraiser’s forecasted
NOI divided by the ADS
ACTUAL DCR:
The actual DCR will be based on the underwriter’s estimates of
the AGI less the V&C arriving at the underwriter’s EGI then less
expenses resulting in an underwriter’s NOI divided by the ADS.
Underwriter’s Annual Gross Income:
Underwriting will base the potential gross income from the analysis
of the most current rent roll and all leases for units that are
either rented annually or semi-annually (copies are acceptable and
one full copy is needed then the rest of the leases may be the first
page that shows the terms). If the units are rented
month-to-month, no leases are required. In lieu of annual or
semi-annual leases, Apartment Lender will accept the most recent
three consecutive bank statements showing the subject’s total monthly rental deposit. The documentation must
clearly link and identify the deposits with the subject property’s
monthly rental income. For Mixed-Use properties, Section 8
Tenants, and furnished units, must have copies of all leases, no
substitutes with bank statements.
Underwriting will allow market rents for any vacancy(ies).
In cases where the property provides units for staff members at
either a below market rate or for free, “staff units” will be
included in gross potential income at the
full market value. The amount of the concession (market rent –
amount paid by staff member) will be included in the janitorial
expense to offset income. For example, a staff unit is
receiving free monthly rent of $600. The gross income will
reflect a market rent for this unit, and the janitorial expense will
include $7,200 plus any other applicable expenses, if any.
Model units or any other type of unit which are not generally
available for rent (such as a unit used as an office, or a unit used
as a guest suite that may have rent available on a weekly or daily
basis due to the fluctuation in revenue) will be considered a vacant
unit. Units that are rent controlled (i.e. Section 8 with
contract rents), furnished or have master lease components will be
based on the lower of the contract rent or the market rent.
Apartment loan underwriting will allow other monthly income that is
continuous, such as: laundry/vending fees, administrative fees,
cleaning fees and non-refundable deposits (if typical of the
market). Apartment Lender will not allow late fees, NSF
charges, income from cell towers, billboards or other forms of
advertising.
Properties with concessions and/or concessions in the property’s
submarket are acceptable to Apartment Lender and will be reflected
in an adjusted AGI. The underwriter will first determine
Actual DCR with no concessions as described in the preceding
paragraphs. Underwriting will then determine the most
prevalent rental concession being offered whether in the market
and/or at the subject property and reduce the actual AGI by the free
rent. The monthly rental concession will not be applied to all
of the units, since Underwriting understands that typically not all
of the units will turn over and be forced to offer a rental
concession. Underwriting will determine the actual rate of
turnover in the last 12 months per the months continuous occupancy
information completed on the Rent Roll. Any units that have a
month’s continuous occupancy of less than 12 months are considered
units that turned over. Thus, the total number of units that
have turned over in the last year will be divided by the total of
number of units in the subject. The turnover rate is capped at
50%.
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