Arbor Commercial Mortgage’s $18 million FHA-insured loan for the refinancing of College Towne West Apartments in Lansing, Mich., doesn’t look unusual at first glance.
But this loan is actually an historic one: It’s the nation’s first FHA-insured loan using new closing documents adopted by the U.S. Department of Housing and Urban Development for its Federal Housing Administation multi-family mortgage insurance program.
“Because the FHA loan document forms haven’t changed in such a long time, for borrowers who have closed under the previous versions of the documents, there will be an education process,” said Joseph Donovan, senior vice president and national FHA director with Arbor. “In some respects, the new loan documents are better. They are more consolidated.”
The College Towne West loan closed smoothly, even with the change in loan documents, said Mike Jehle, Midwest regional director in the Bloomfield Hills, Mich., office of Arbor. This is largely because the new FHA loan document forms are consistent with the documents used to close Fannie Mae loans. The borrower in this deal had already closed many loans that had used the Fannie Mae documents, so the new FHA papers didn’t cause many problems, Jehle said.
The new FHA documents for the 223(f) multi-family loan haven’t changed much. But they have changed. Basically, the loan documents now require that borrowers or someone signing the papers acts in bad faith. For instance, if the borrower tells Arbor that it collects $100,000 in rent each month from a multi-family property being refinanced by in reality only collects $50,000 a month, that borrower is acting in bad faith.
Under the new FHA loan documents, this borrower would no longer have non-recourse debt. Instead, the borrower will be burdened with recourse debt. If the borrower eventually defaults, the lender can collect from the borrower and its assets instead of merely foreclosing on the property that it financed.
The new documents also require lenders to verify that they did their due diligence in recommending that HUD approve a loan.
“I liken the change to HUD coming up to the 21st Century with its loan documents,” Jehle said.
College Towne West Apartments includes 532 units. Its loan is a 34-year fully amortizing one. Because of its location near Michigan State University, 70 to 75 percent of its occupants are college students.
Jehle originated the loan for the complex’s refinance.
— Dan Rafter