Five Brothers

HUD Mortgagee Letter 2014-04: Revisions to Large Loan Risk Mitigation Policies


February 28, 2014




TO:  All Mortgagees

        All Multifamily Hub Directors

        All Program Center Directors

        All Project Managers

        All Field Office Directors


SUBJECT:  Revisions to Large Loan Risk Mitigation Policies


I. Purpose

This Mortgagee Letter updates HUD’s underwriting standards for large multifamily loans (Mortgagee Letter 2011-40), above $25 million and/or which support projects exceeding unit threshold. The intent is to facilitate compliance with these policies. This Mortgagee Letter simplifies and consolidates the tiered requirements for Debt Service Coverage Ratios (DSCR), Loan to Value Ratios (LTVR), and Loan to Cost Ratios (LTCR), Initial Operating Deficit (IOD), and Debt Service Reserves applicable to these Large Loans and supersedes ML 2011-40. Provisions changed from Mortgagee Letter 2011-40 are identified below in bold italics. All other requirements spelled out in Mortgagee Letter 2011-40 remain in effect and are thus repeated here. 

These policies do not apply to: a) loans below the loan size or unit thresholds specified in this Mortgagee Letter, b) refinancing loans processed under Section 223(a)(7), c) refinancing or substantial rehabilitation loans for properties with rental assistance contracts covering 90% or more of the property’s units, or d) the insurance programs administered by the Office of healthcare Programs.


II. Background

Mortgagee Letter 2011-40 and Notice H 2011-36 discussed the need for specialized underwriting standards to mitigate the increased risks to the insurance fund of losses from Large Loans on properties located in a single submarket with potentially hundreds of rental units. The revisions incorporated in this subsequent Mortgagee Letter are intended to provide greater clarity and thus enhanced understanding of the requirements on the part of both industry and HUD staff.


Please click here to view the online Mortgagee Letter in its entirety