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Homes and Community Renewal

2005-B-01: Standards and Procedures for Processing Requests to Refinance by Mitchell-Lama Housing Companies

To: All Housing Companies
     Owners, Managing Agents and Site Managers

From: Jane I. Berrie, Director Housing Management Bureau

Date: January 6, 2005

Subject: Standards and Procedures for Processing Requests to Refinance by Mitchell-Lama Housing Companies


The following are DHCR's standards and procedures for processing requests by Mitchell-Lama housing companies for approval to refinance their mortgages pursuant to Section 20 of the Private Housing Finance Law.

A. DHCR's Policy Regarding Refinances

  1. DHCR encourages housing companies to refinance:

    1. to reduce their debt service in order to meet expenses with minimum rent increases;

    2. to raise additional funds for current capital improvements;

    3. to bolster reserve funds for future capital improvements.

  2. DHCR does not encourage housing companies to refinance:

    1. to avoid the use of excess reserve funds;

    2. where satisfaction of the mortgage might jeopardize the real property tax exemption;

    3. where satisfaction of the mortgage might jeopardize an existing governmental subsidy or grant.

  3. In order to facilitate approved refinances, DHCR is generally willing to modify its procedures to allow the lender to participate in the supervision of the housing company's use of loan proceeds and reserve and escrow funds. This is because it is recognized that the lender has an interest in ensuring that the loan proceeds are expended in the manner intended.

B. Request for DHCR Approval of Refinance

No less than thirty days prior to the anticipated date of closing, the housing company must submit to DHCR a request for approval of the refinance with the following information and supporting documents:

  1. reasons for refinance; if housing company is a cooperative, attach a copy of the resolution authorizing the refinance;

  2. name of new lender, amount of new loan, interest rate, debt service, and any application or commitment fee; attach a copy of the term sheet or commitment letter;

  3. credit enhancements, such as by Freddie Mac or SONYMA;

  4. government subsidies, such as Rental Assistant Payments ("RAP"), Housing assistance Payments ("HAP"), Rent Supplement, Property Improvement Program ("PIP") loans, Tenant Health and Safety grants, and Flexible Subsidies, with a statement as to what effect, if any, payment of the existing mortgage will have upon the subsidy;

  5. name of existing mortgagee [Housing Finance Agency ("HFA"), Urban Development Corporation ("UDC"), or New York State administered by the Office of State Comptroller ("OSC"), or private lender], approximate amount of existing mortgage, and brief description of mortgagee's pre-payment procedures;

  6. capital work, and the estimated cost thereof, to be done with loan proceeds; attach a copy of current physical condition survey or consultant's report;

  7. amount of reserves to be funded from proceeds of loan;

  8. analysis of current rent structure to show sufficiency to cover new debt service and other expenses, and if not, amount of rent increase applied for and status of application;

  9. requested changes in contributions to, or parties holding reserve and/or escrow accounts;

  10. description of process by which new lender was selected;

  11. anticipated date of closing.

C. Control Over Rents, Reserve Accounts, and Escrow Accounts

At the lender's request, under appropriate circumstances DHCR may agree to any of the following, the terms of which may be embodied in a multi-party agreement or approval letter issued by DHCR:

  1. Remedies for Default: Where warranted, DHCR may agree to promptly act within its authority to remedy the default, including proceedings to re-establish the rents.

    However, DHCR will not agree to act in a predetermined manner, but must retain its discretion to choose the appropriate remedy under the circumstances.

  2. Administration of Reserve Funds: Where appropriate, DHCR may agree to permit the lender to hold, free of encumbrance by DHCR, certain reserve funds, such as repair and replacement reserves pending completion of capital work, and to encumber those accounts as security for the loan which can be withdrawn without DHCR approval in the event of a default.

    However, DHCR must retain the authority to supervise the work, including review of specifications, bids, and change orders, and must have the opportunity to review and approve progress payments to the extent DHCR deems appropriate, although provision may be made to insure that DHCR's review does not delay release of progress payments.

  3. Administration of Escrow Funds: Where appropriate, DHCR may permit the lender to hold, free of encumbrance by DHCR, certain escrow funds for payment of debt service, taxes, and insurance, that are normally held in accounts controlled by DHCR.

    However, DHCR generally will not permit the housing company itself to hold the escrow funds.

D. Submission of Loan Documents

No later than two weeks prior to the anticipated date of closing, the housing company must submit the following proposed documents for DHCR's review:

  1. multi-party agreement;
  2. mortgage and note;
  3. security agreements and those involving reserve or escrow accounts;
  4. assignment of leases.

E. DHCR's concerns in reviewing loan documents

DHCR seeks to insure that the provisions of the loan documents:

  1. are not in conflict with any provision of the PHFL or regulations;

  2. are not unfair or overly burdensome to the housing company, such as imposing costs that are unreasonable or which the housing company may be unable to afford, or imposing duties that it is unable to perform;

  3. will not affect DHCR's authority to supervise the housing company, except to the extent agreed to by DHCR. To accomplish this, DHCR generally requires that the following clause be included in the multi-party agreement, mortgage, other security agreements, reserve agreements, and assignment of leases:

    "Nothing in this document, or any other document executed in connection with this refinance transaction, will have the effect of diminishing or otherwise modifying DHCR's authority to supervise the borrower under Article II of the Private Housing Finance Law and regulations promulgated thereunder except to the extent expressly set forth in the multi-party agreement."

  4. will give sufficient notice to the parties to the transaction, and anyone else who examines the loan documents, that the housing company is supervised by DHCR and subject to the Private Housing Finance Law and regulations. To accomplish this, DHCR generally requires that the above language be included in all of the documents (listed above) that deal with functions supervised by DHCR, and that at least one of these documents (usually the mortgage) be recorded.

-Jane I. Berrie

Last updated on 06/03/10