HUD Publishes Updated COVID-19 Q&A 01-04-21
On January 4, 2021, HUD published an update to the HUD Multifamily Housing COVID-19 Q&A.
Many of the updates made to existing answers were to extend the expiration date of certain relief provisions from December 31, 2020, to May 31, 2021. Other updates addressed using common areas of assisted properties to provide vaccines, the financial requirements for Economic Injury Disaster Loans, Loan Forbearance, and the extension of the CDC eviction moratorium. Besides updating existing answers, HUD also added two new questions and answers regarding Annual Unit Inspections and Mortgagee Letter 2021-11.
New Questions and Answers in HUD COVID-19 Q&A
One of the new Q&A’s added to the owner’s requirement to conduct unit inspections during the COVID-19 pandemic. HUD will not waive the requirement for owners to conduct annual unit inspections. (Page 23, Question 4)
Q4: During tenant file reviews, owners are concerned about being penalized on MORs for not having conducted annual unit inspections due to COVID-19. Will HUD forgo annual inspections for the tenant files represented at Addendum A, Section C, question 7 of form HUD-9834?
A: HUD will not waive the requirement for an owner to perform annual unit inspections at this time. Per HUD Handbook 4350.3, REV-1, paragraph 6-29.A.3, owners perform unit inspections on at least an annual basis to determine whether the appliances and equipment in the unit are functioning properly and to assess whether a component needs to be repaired or replaced. If local or state health department COVID-19 guidance prevents owners from entering a unit, the owner should consult with the tenant to confirm if there are any issues with appliances, equipment, or other components in the unit and document the tenant’s reporting. Owners may also consider utilizing electronic means to perform remote or virtual unit inspections and as a means of submitting work orders to minimize in-person interactions during the pandemic, when possible.
Mortgagee Letter 2021 –11
HUD also added a Q&A to address how the escrow requirements of Mortgagee Letter 2020-03 work with the escrow requirements provided in Mortgagee Letter 2020-11.
Q22: How does the cash out escrow requirement set forth in Mortgagee Letter 2020-03 work with the escrow requirements of Mortgagee Letter 2020-11?
A: Projects eligible under ML 2020-03 with cash back to the borrower require a 50% holdback of equity until the project meets programmatic Debt Service Coverage Ratio (DSCR) for six consecutive months. ML 2020-11 (prepared to offset risk during the COVID-19 pandemic) requires a nine-month reserve to be held for three months of programmatic DSCR or six months, whichever is longer. To reconcile how these two cash out holdback requirements work together, one should start with the total cash out amount, and then subtract the nine-month Debt Service Reserve (the 250% of repairs, if any, and assurance of completion). The three-year 50% holdback requirement is then calculated from the difference. Two separate escrow accounts may be appropriate as the three-year cash out escrow would likely be held for less time. See the following example below:
- Cash Out: $5M
- 9-Month DSR: ‒$1.5M (no repairs)
- Remainder: = $3.5M
- 50% Holdback: $1.75M
- Released to Borrower: $1.75M
Date Extension of Certain Relief provisions
MOR Inspections -HUD will, until May 31, 2021 (or a later date as HUD may determine), allow PBCAs, TCAs, and HUD staff to conduct on-site MORs, without entering resident units.
Due to the COVID-19 pandemic, the postponement of regular 10-year PCNA updates (as outlined in Section 10.10 of the Multifamily Accelerated Processing (MAP) Guide) is further extended until May 31, 2021, for properties with PCNA reports that are due between March 15, 2020, and May 31, 2021. This postponement will allow for additional time to schedule, conduct, and submit the 10-year PCNA.
Suspension of offsets for Residual Receipts
HUD will temporarily permit suspension of Residual Receipts Housing Assistance Payment (HAP) offsets, as outlined in Notice H12-14 and Handbook 4350.1 Chapter 25, section 10, in certain circumstances. All Project Rental Assistance Contracts (PRACs) may suspend offsets for Residual Receipts through May 31, 2021. Owners of properties receiving Section 8 HAP assistance payments must receive approval in advance to suspend offset payments. Asset Management Division Directors in the Multifamily Regional and Satellite Offices are authorized to suspend such offsets through May 31, 2021, for properties where COVID-19 expenses are 29 anticipated to exceed available resources. After May 31, 2021, all properties must offset HAP vouchers for all Residual Receipts above the minimum allowed retainable balance.
Effective Dates of HAP Contracts for RAD projects
In order to provide PHAs and owners additional time to execute individual leases with tenants in light of social distancing measures, HUD will permit the HAP effective date to be the first day of the third full month after closing upon request (rather than the first day of either of the first two months following closing). For example, a closing that occurs on May 15th could elect a HAP effective date of June 1st, July 1st, or August 1st. This option will be available for any closing that occurs through May 31, 2021.
HUD will temporarily (until May 31, 2021, or until the COVID-19 National Emergency is lifted, whichever occurs first) permit lenders to submit a sampling of units that is less than what is prescribed by the MAP Guide.
Other Updates in the COVID-19 Q&A HUD clarifies that in addition to using common areas for flu shots and/or COVID-19 testing, common areas may also be used to provide COVID-19 Vaccines. (Page 7, Question 15)
Economic Injury Disaster (EIDL) loans -HUD updated their answer to include that the Department’s standard subordinate financing requirements must also be followed for EIDL Loans. (Page 10, Question 2)
Loan Forbearance – HUD included a link to additional forbearance guidance in Housing Notice 2020-07. (Page 12, Question 7)
CDC Eviction Moratorium Order –HUD updated their guidance to reflect the extension of the CDC Eviction Moratorium from 12/31/20 to 1/31/21. (Page 17, Question 1)