U.S. Department of Housing & Urban Development (HUD) has just implemented debt service reserve requirements on 223(f) refinance and acquisition loans for existing multifamily properties in response to the economic instability and increased risk environment caused by COVID-19.  This requirement will remain in effect until such time HUD deems the associated risks mitigated.

Generally, under the new rules, a 9-month reserve will now be required on market rate projects and up to a 12-month reserve will be required on affordable projects. LIHTC projects with similar reserve facilities required by the tax credit investor that are available to cover the HUD loan debt service requirements may offset the HUD debt serve reserve requirement, subject to HUD approval on a case by case basis.  Projects with Section 8 project-based rental assistance covering greater than 90% of units will be exempt from the debt service requirement.  The debt service reserve will be eligible for release 6 months post-closing after the project achieves 3 consecutive months of underwritten debt service coverage.

Additional details are provided in the formal HUD publication: HUD Mortgagee Letter 2020-11.  Give us a call for more information or to learn more about HUD loan programs. 

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