S&P - Public Finance Criteria (2007). - The Global Clearinghouse
S&P - Public Finance Criteria (2007). - The Global Clearinghouse
S&P - Public Finance Criteria (2007). - The Global Clearinghouse
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FHA Insured Multifamily Mortgagesthe full principal amount of the mortgage noteas initially endorsed.■ <strong>The</strong> FHA may instruct the trustee to retain theremaining balance in the construction fund. Inthis case, payment of benefits is based on mortgageloan advances made prior to the date of thedefault. <strong>The</strong> trustee should convert all LOCs tocash as soon as possible after the mortgagor’sdefault. <strong>The</strong> remaining balance in the constructionfund should not be used for bond redemptionsuntil the trustee has received instructionsfrom the FHA about the disposition of thesefunds. To ensure that the FHA issues instructionsin a timely manner and to minimize reinvestmentrisk, Standard & Poor’s suggests that the indenturemake certain requirements of the trustee.<strong>The</strong> trustee should notify the FHA that, uponexpiration of the construction fund investmentagreement, the construction fund balance wouldbe applied to the redemption of bonds. However,the FHA can request that the trustee deliver theundrawn balance of the construction fund if thetrustee is notified not less than 30 days prior tothat date.<strong>The</strong> following procedures in the indenture willinstruct the trustee if a monetary default occurs andis not cured by the mortgagor within the 30-daygrace period:■ Once entitled to file a claim for mortgage insurancebenefits, the trustee immediately notifies theHUD area office in writing that an event ofdefault has occurred. Simultaneously, the trusteenotifies the HUD central office that it intends tofile a claim and will assign the mortgage to theFHA. At the same time, the trustee notifies theFHA that the assignment relates to a projectfinanced with rated bonds and is entitled to priorityprocessing. A schedule of bond paymentsand funds available to (including a statement ofall reserve fund balances) make such payments isincluded in the notice. In addition, the trusteerequests payment of the insurance benefits incash, if applicable. Standard & Poor’s receives acopy of each notice.■ <strong>The</strong> trustee immediately requests forms andinstructions relating to the assignment of themortgage. <strong>The</strong> trustee submits legal documentationwithin five days of receipt of the forms andinstructions to HUD’s Office of General Counselfor review. HUD requires the submission of acopy of the bond trust indenture or bond resolutionand a bond trustee statement of all reservefund balances accompany the claim. <strong>The</strong> trusteecommences completion of fiscal documentationin consultation with HUD’s Office of <strong>Finance</strong> &Accounting. <strong>The</strong> trustee should submit this fiscaldocumentation and any additional legal documentationfor review as soon as practically possible,no later than 30 days after recording theassignment of the mortgage loan.■ Within 30 days thereafter, or any shorter periodrequired by the FHA, the trustee files its applicationfor insurance benefits and assigns the mortgageloan to the FHA on the recordation date setby FHA.■ Within 30 days of recording the assignment ofthe loan to the FHA, the trustee submits completeand accurate legal and fiscal documents tothe FHA.■ <strong>The</strong> trustee may not foreclose on the mortgage.<strong>The</strong> trustee should pursue the assignment processin accordance with the above timetable, even ifthe indenture contains a mortgage note cure provisionthat allows an additional time for themortgagor to bring the mortgage loan current. Inaddition, any workout procedures should notconflict with the assignment process.<strong>The</strong> FHA requires mortgagees on projects subjectto HUD Mortgagee Letter 87-9 dated Feb. 20,1987 to request a three-month extension (the initialperiod) of the time to file an insurance claim if themortgage default occurs during the prepaymentlockout or penalty period. This is intended to allowthe mortgagee to effect a workout in lieu of assignment.Standard & Poor’s expects the trustee to proceedwith the assignment process simultaneouslywith any workout so that in the event a workout isdeclared infeasible, the mortgage is assigned toFHA in a timely manner. In this case, the documentsshould indicate that the trustee would follow,in addition to the steps above, the procedure outlinedbelow:■ On becoming entitled to file a claim, the trusteenotifies the HUD area office of the default.Simultaneously, the trustee files a request with theHUD central office for a three-month extension tofile a notice of intention and election to assign theloan (with a copy to Standard & Poor’s).■ <strong>The</strong> notice of default, as well as any communicationsto the HUD central office, includes aschedule of bond debt service payments indicatingfunds available to (including a statementof all reserve fund balances) make the paymentsand requests priority processing. Inaddition, the trustee immediately requestsforms and instructions relating to the assignmentof the mortgage.www.standardandpoors.com253