HUD Issues Guidance on Multifamily Mortgage Forbearance Under the CARES Act

HUD has released two letters to provide guidance to borrowers and lenders during the COVID-19 pandemic. The first letter provides guidance for implementing the CARES Act multifamily mortgage forbearance provisions for FHA-insured multifamily loans.

The guidance closely follows the CARES Act in setting a maximum 90-day forbearance period and eviction moratoria for non-payment of rent. In a win for NAHB’s advocacy, HUD clarified: "In addition, mortgage modification tools are available to HUD-held loans, including adding the missed payments at the end of the mortgage as extended payments or a balloon payment; recasting the mortgage to cover the delinquency; or other reasonable measures."

Similarly, HUD addressed other NAHB requests by committing to review and quickly approve requests for suspension of Reserve for Replacement deposits, releases from the Reserve for Replacement or Residual Receipts account, or other measures to make debt service and tax and insurance payments. Finally, the guidance discusses outside funding sources for COVID-19 relief, loans and owner advances.

View the full letter.

The second letter is separate guidance to mitigate risks for FHA-insured Section 223(f) refinancing loans. HUD will require steps to offset additional risks of higher vacancy, lost rent and income disruptions as a result of COVID-19.

These actions include, but are not limited to, the requirement of a Debt Service Reserve (DSR) for Section 223(f) transactions to offset anticipated operating losses after closing. The letter provides instructions to HUD staff describing the new DSR requirements for market rate, affordable and cash out refinance transactions in the pipeline prior to and after receiving a firm commitment. This letter takes effect immediately and will remain in effect until HUD determines that the real estate markets that were negatively affected by the COVID-19 emergency have stabilized and additional actions for Section 223(f) transactions are no longer required.

View the FHA 223(f) letter.

For more information, contact Michelle Kitchen at 800-368-5242 x8352.