1. (a) Except for awards made under the SR/SH set-aside, all Multifamily Direct Loans awarded will be underwritten as fully repayable (must pay) at not less than the Discount window primary credit rate published by the Federal Reserve (https://www.federalreserve.gov/releases/h15/) on the date of initial publication of the NOFA, plus 200 basis points and a 30 year amortization with a term that matches the term of any superior loans (within 6 months) at the time of application. If the Department determines that the Development does not support this structure, the Department may recommend an alternative that makes the development feasible under all applicable sections of 10 TAC §10.300 related to Underwriting Policy, and §13.8(c). The interest rate, amortization period, and term for the loan will be fixed by the Board at Award and can only be amended prior to closing by the process in §13.12 of this chapter.
2. (b) Changes to the total development cost and/or other sources of funds from the publication of the initial Underwriting Report to the time of loan closing must be reevaluated by Real Estate Analysis staff who may recommend changes to principal amount and/or repayment structure for the Multifamily Direct Loan that will allow the Department to mitigate any increased risk. Where the Department determines such risk is not adequately mitigated, the award may be terminated or reconsidered by the Board. Increases in the principal or payment amount of any superior loans after the initial Underwriting Report must be approved by the Board.

3. (c) Direct Loans through the Department must adhere to the following criteria as identified in paragraphs (1) - (7) of this subsection if being requested as construction-to-permanent loans:

   1. (1) The term for permanent loans shall be no less than ten (10) years and no greater than forty (40) years and the amortization schedule shall be thirty (30) years. The Department's loan must mature at the same time or within six (6) months of the shortest term of any senior debt so long as neither exceeds forty (40) years and six (6) months.
   2. (2) Amortized loans shall be structured with a regular monthly payment beginning on the first day of the 25th full month following the actual date of loan closing and continuing for the loan term. If the first lien mortgage is a federally insured HUD or FHA mortgage or if a surplus cash flow structure is required for a loan from the SH/SR set-aside, the Department may approve a loan structure with annual payments payable from surplus cash flow provided that the debt coverage ratio, inclusive of the loan, continues to meet the requirements in this subchapter.
   3. (3) If the proposed first lien is a federally insured HUD or FHA mortgage that requires the Direct Loan to be subject to 75% of surplus cash flow, staff will require the debt service coverage ratio on both the federally insured loan and the Department's loan - as restricted to 75% of surplus cash flow - to continue to meet the minimum 1.15 in accordance with 10 TAC §10.302(d)(4)(D).
   4. (4) Loans shall be secured with a deed of trust with a permanent lien position that is superior to any other sources for financing including hard repayment debt that is less than or equal to the Direct Loan amount and superior to any other sources that have soft repayment structures, non-amortizing balloon notes, have deferred forgivable provisions or in which the lender has an identity of interest with any member of the Development Team; and,

   5. (5) If the Direct Loan amounts to more than 50 percent of the Total Housing Development Cost, except for Developments also financed through the USDA §515 program, the Application must include the documents as identified in subparagraphs (A) - (B) of this paragraph:

      1. (A) a letter from a Third Party CPA verifying the capacity of the Applicant, Developer, or Development Owner to provide at least 10 percent of the Total Housing Development Cost as a short term loan for the Development; or
      2. (B) evidence of a line of credit or equivalent tool equal to at least 10 percent of the Total Housing Development Cost from a financial institution that is available for use during the proposed Development activities.

   6. (6) If the Direct Loan is the only source of Department funding for the Development:

      1. (A) The Development Owner must provide equity in an amount not less than 20 percent of Total Housing Development Costs. (B) For Applicants proposing new construction, an "as completed" appraisal pursuant to 10 TAC §10.304 which results in total repayable loan to value of not greater than 80% must be provided.
      2. (B) For Applicants proposing new construction, an "as completed" appraisal pursuant to 10 TAC §10.304 which results in total repayable loan to value of not greater than 80% must be provided.
      3. (C) For Applicants proposing rehabilitation, the "as is" appraisal required by 10 TAC §10.205(4) may meet this requirement without needing an "as completed" appraisal provided the loan to value is not greater than 80%.
   7. (7) All Direct Loan applicants where other third-party financing entities are part of the sources of funding must submit a proforma and lender approval letter evidencing review of the Development and the Principals in accordance with 10 TAC §11.9(e)(1). Where no third-party financing exists, the Department reserves the right to procure a third-party evaluation which will be required to be prepaid by the applicant.

4. (d) Direct Loans through the Department must adhere to the following criteria as identified in paragraphs (1) - (3) of this subsection if being requested as construction only loans:

   1. (1) The term of the construction loan must be coterminous with any superior construction loan. In the event that the Direct Loan is the only construction loan, the term may not exceed 24 months;
   2. (2) The minimum interest rate will be 2%; and
   3. (3) Up to 75% of the construction loan may be advanced at loan closing should there be sufficient costs to reimburse that amount.

Source Note:The provisions of this §13.8 adopted to be effective January 8, 2017, 41 TexReg 10589; amended to be effective January 4, 2018, 42 TexReg 7668.