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Apartment Mortgage Loan Underwriter's Vacancy and Collection

Apartment financing for buildings with 5 to 10 residential units, the V&C shall be the greater of 10%, actual or the market vacancy for apartment mortgage loan qualification.

For commercial units, the V&C shall be based on the greater of 10% or market.  Underwriting will blend the V&C when Mixed-Use properties are involved.

Apartment Mortgage Loan Underwriter’s Operating Expenses:

Operating expenses shall be based on a blend of the appraiser’s forecasted expenses, expense data from comparable properties and historical expenses (except for non-recurring or extraordinary expenses as well as depreciation, interest or amortization expenses).

Generally, the expenses will include real estate taxes, insurance, utility, repair, decorating, off-site management, janitorial, resident manager’s salary, replacement reserves plus any other expenses unique to the property (including but limited to trash removal, pest control, interior & exterior decorating, cleaning expenses & supplies, general & administrative, association fees, and professional fees, i.e. legal & audit).  Apartment Lender has the right to adjust expenses accordingly when qualifying the apartment loan request.

Apartment Mortgage Loans & Real Estate Taxes: In a period of upward trending values, the estimate of real estate taxes needs to be given careful consideration.  Underwriting should be provided with the most recent copy of the real estate tax bill or other satisfactory proof of current real estate taxes to aid in this analysis.  The underwriter’s real estate tax expenses will reflect future increases and any special levies or assessments, with reliance on the appraiser’s forecast.  The expense will reflect any tax abatements that lower taxes in the short term but allow substantial increases in taxes over time.  For properties in California, underwritten real estate taxes shall be no less than the loan amount multiplied by the actual millage rate.  In the event of a sale, the sales price becomes the new assessed value.  In the event of a foreclosure, the outstanding apartment loan amount would become the assessed value. 

Insurance:  Insurance expense should be based on the actual insurance bill based on Apartment Lender’s coverage levels, see Section U160.00.  Insurance expense must also include flood & earthquake coverage, if applicable.  Underwriting must be provided with the current insurance policy, or other proofs of cost coverage. 

Utilities: All utilities paid by the landlord shall be included and an allowance for increases should be considered.   Reliance will be placed on the appraiser’s forecast.

Repairs: Repairs should not include one time capital expenditures.  The repair expense amount will be based on the higher of the appraiser’s forecast or $100 per unit per year.

Decorating: Decorating should not include one time capital expenditures.  The decorating expense amount will be based on the higher of the appraiser’s forecast or $100 per unit per year.

Janitorial:    At least $150 per unit per year is required for buildings with 9 units or more.

Resident Manager’s Salary:  This expense shall be based on the concessions for “staff units” as explained above in the paragraph titled Underwriter’s Annual Gross Income.

Replacement Reserves:  This expense shall be based on a minimum of $250 per unit per year.

Miscellaneous:  Any other expenses unique to the building must be included which the underwriter will base on the higher of the appraiser’s forecasted figures or historical data.

HISTORICAL DCR:

Historical data for qualifying the apartment mortgage loan request will be based heavily on the information provided from the applicable tax return schedules that report the income and expense data for the subject property.  When the schedules are not available due to tax preparation season, a Historical Operating Expense Statement will be utilized for the qualifying of apartment loan.  Any differences in the gross income reported on tax return schedules and the Historical Operating Expense Statement must be explained by the borrower, or Underwriting will apply the lower of the two.

Apartment Mortgage Loan Purchases

For Apartment properties outside of the State of California the minimum DCRs required is 1.20.

U310.30          Current Cash-Flow Analysis

Apartment Lender requires the one-time submission (at time of application) of the current rent roll of the subject property. The document shall be signed as “true and accurate”  by the Borrower. The appraiser (See Apartment Lender’s Appraisal Guidelines) will be provided with a copy of this document in addition to other documents.  Apartment Lender may require that the rent roll be re-certified at the closing.

Apartment Lender requires the submission of two years of historical income and expense information on the property in question. The analysis of this information is necessary to determine the sustainable level of net operating income for the apartment mortgage loan request. In addition, Apartment Lender requires the receipt of signed leases (copies are acceptable), (see lease requirements in Section U310.20 under calculation of Underwriter’s Annual Gross Income), and/or fully completed and signed Apartment Lender’s Rent Roll . The applicable required DCR will be applied to the lesser of the following: (i) the underwriter’s current net operating income; or (ii) the appraiser’s forecasted net operating income.  For purposes of compiling the rental amount of the current rent roll, market rents will be assigned to any vacant units that are both legal and habitable.

U310.50          Historical Cash-Flow Analysis- Refinances

Apartment Lender requires (i) an interim income and expense statement through the last month prior to apartment loan application and (ii) all income and expense statements (not to exceed 3 years) supported by Schedule Es.

In underwriting all apartment loan refinances, Apartment Lender will underwrite on the lesser of the following: (i) the actual net operating income for the most recent calendar year or trailing months annualized if the number of trailing months annualized is at least six months; (ii) the underwriter’s current net operating income; or (iii) the appraiser’s forecasted net operating income.

Apartment Lender also requires the receipt of signed leases (copies are acceptable) (see lease requirements in Section U310.20 under calculation of Underwriter’s Annual Gross Income), and/or fully completed and signed Apartment Lender’s Rent Roll Apartment Lender  

U310.60          Apartment Mortgage Loan Rent Stabilization Holdback

Underwriting will utilize market rents for vacant units in order to arrive at the required DCR which will determine the loan amount.  If the required DCR is not met, the apartment mortgage loan amount will be lowered accordingly.  Underwriting does consider what the DCR is with current rents less income for any vacant units.  In instances where the current rents less income for any vacant units are insufficient to meet the DCR requirements for a period of no longer than 6 months, a rent stabilization holdback may be required as a condition of apartment loan approval. The amount of the rent stabilization holdback is determined by multiplying the monthly rental shortfall necessary for an acceptable DCR, times the number of months the shortfall is expected to exist. If the amount of the calculation is less than $5,000.00, a rent stabilization holdback may not be required.

At closing, Apartment Lender will provide the borrower a Rent Stabilization Holdback Agreement, disclosing the requirements and procedures for the release of said holdback. Additionally, the agreement will disclose remedies for non-compliance.

U310.70          Extraordinary Appreciation

U320.00          APARTMENT LOAN-TO-VALUE RATIOS

Loan-to-Value Ratio (LTV) is defined as the apartment loan amount divided by the appraised value of the property, as determined by Apartment Lender. Combined Loan-to-Value Ratio (CLTV) is defined as the apartment mortgage loan amount from Apartment Lender and any other subordinate apartment financing divided by the appraised value of the property, as determined by Apartment Lender.

U320.10          Apartment Loan Purchases 

The following maximum LTV and CLTV apply to purchase transactions:

U320.21          Unseasoned Apartment Loans

For properties purchased less than 2 years from the date of underwriting, the value for the consideration of LTV/CLTV will be the lower of the following:

A.        original purchase price plus any verifiable capital improvements or

B.        current appraised value, as determined by Apartment Lender. 

The following LTV & CLTV ratios for unseasoned no cash-out refinances are as follows:

*For apartment mortgage loans over $2,000,000, Apartment Lender will consider an 80.00% LTV & 85.00% CLTV on Apartment Buildings and a 75.00% LTV & 80.00% CLTV for Mixed-Use Buildings that exhibit the following attributes:

The “Condition of Improvements” as noted by the appraiser must be in good condition:

The Borrower(s) must exhibit strong management skills in the subject’s property market for at least three years with similar type properties.  The borrower(s) must also live in the state of the subject property:

Borrower’s financial condition is satisfactory to Apartment Lender; and

The subject property must be superior to competing properties in the subject’s sub-market.

The following LTV & CLTV ratios for unseasoned cash-out apartment mortgage loan refinances are as follows: 

*For apartment mortgage loans over $2,000,000, Apartment Lender will consider a 75.00% LTV & 80.00% CLTV on Apartment Buildings and a 70.00% LTV & 75.00% CLTV for Mixed-Use Apartment Buildings that exhibit the following attributes:

The “Condition of Improvements” as noted by the appraiser must be in good condition:

The Borrower(s) must exhibit strong management skills in the subject’s property market for at least three years with similar type properties.  The borrower(s) must also live in the state of the subject property:

Borrower’s financial condition is satisfactory to Apartment Lender; and

The subject property must be superior to competing properties in the subject’s sub-market.

U320.22          Seasoned Apartment Mortgage Loans

The following LTV & CLTV ratios for seasoned no cash-out refinances are as follows:

*For apartment mortgage loans over $2,000,000, Apartment Lender will consider an 80.00% LTV & 85.00% CLTV on Apartment Buildings and a 75.00% LTV & 80.00% CLTV for Mixed-Use Buildings that exhibit the following attributes:

The “Condition of Improvements” as noted by the appraiser must be in good condition:

The Borrower(s) must exhibit strong management skills in the subject’s property market for at least three years with similar type properties.  The borrower(s) must also live in the state of the subject property:

Borrower’s financial condition is satisfactory to Apartment Lender; and

The subject property must be superior to competing properties in the subject’s sub-market.

U330.00          SUBORDINATE APARTMENT FINANCING

On purchases, Apartment Lender will not allow any secondary financing at the time of origination.  In the case of a apartment loan refinance, Apartment Lender will allow the subordination of an existing non-Lender first or second provided the maximum LTV and CLTV (See Section U320.00) as well as the minimum DCR and CDCR (See Section U310.20) are not exceeded. In addition, the lien shall be recorded and clearly subordinate to Lender’s first mortgage lien.  A copy of the subordinate apartment financing instrument should be submitted to Apartment Lender prior to closing confirmation and a fully executed copy must be provided at/or prior to our closing.  The Subordination Agreement must be found acceptable by Title Company & Lender in order to properly insure that the second lien will be subordinated to Lender’s first lien.  Lender may require a review by Lender’s legal counsel, which additional fees to be paid by Borrower(s) may apply.

U330.10          Apartment Financing Repayment Terms

Repayment terms for all subordinate financing must have regular payments to cover at least interest-only. If the debt to be subordinated has a balloon feature, the minimum balloon term must be 5 years from Lender’s closing date.

U330.20          Ineligible Types of Subordinate Financing

The following types of subordinate financing are not acceptable:

A.        Negative Amortization (condition created when Apartment loan payment is less than interest alone, resulting in the amount owing increasing);

                        B.         Wraparound Mortgages (mortgages combining the indebtedness of the first mortgage with that of the subordinated mortgage);

                        C.        Lacking provision for regular payments.

U340.00          RECOURSE REQUIREMENTS

Apartment Lender will require recourse from Guarantor(s) to varying amounts, dependent upon the initial DCR.

The initial DCR takes into consideration the requested amortization period, regardless of what the underwriter uses to qualify the loan (See Section U310.20). For example, if a 15 year amortization period is requested, regardless if the loan is underwritten at a longer amortization period, the percentage of recourse will be determined from the DCR based on the 15 year amortization.

Assuming an initial DCR @ 1.25 & above, the following recourse will be required:

Assuming an initial DCR above 1.15 and under 1.25, the following recourse will be required:

Assuming an initial DCR at or below 1.15, a 100% guaranty of the original apartment mortgage loan amount will be required.

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