NEIGHBORHOOD LENDING PARTNERS OF, INC.
MINIMUM UNDERWRITING CRITERIA
Single-Family Residence Construction Loan Product
L o a n T e r m s
The following minimum underwriting criteria will be used when assessing NLP Single-Family Residence Construction loan applications. All NLP projects must provide affordable housing consistent with NLP’s Affordability Statement, but NLP may defer to use the affordability requirements set forth by any local government agency providing financial subsidy during construction. The underwriting criteria may be subject to revision by the Loan Committee under the direction of the Board of Directors.
These guidelines cover the guidelines for both a revolving line of credit relating to the construction of multiple, detached single-family homes and a non-revolving line of credit relating to the construction of a condominium project or attached townhomes.
Type: Construction of single-family residences where the loan structure can be either a revolving or a non-revolving line of credit.
Term: Up to 36 months for a revolving line of credit. Detached model homes may have an initial term of up to 24 months, detached spec homes up to 12 months, and pre-sold detached residences up to 12 months. The maximum number of each residence-type shall be determined by Loan Committee based on market criteria, loan structure, and borrower’s experience and capacity. The typical loan term for a revolving line of credit will have “due on demand” maturity language with annual reviews.
Up to 36 months for a non-revolving line of credit with the option of an extension of up to an additional six months. The project must have sufficient units pre-sold which will cover a minimum of 70% of the loan amount. Based on the release prices estimated for the units, a higher pre-sale requirement may be warranted.
Project phasing will be required if the entire scope of the project being financed cannot be released within the structured loan term specified above.
Release Prices: The minimum release price for detached residences funded via a revolving line of credit is 100% of the loan costs utilized for vertical construction costs, plus any applicable release provisions related to the lot A&D loan.
The minimum release price for attached residences funded via a non-revolving line of credit is 100% net sales proceeds from individual unit sales where net sales proceeds are defined as the contract sale price, less seller’s closing costs, with minimum dollar amounts predetermined for each unit. Equity should not be repaid until NLP is repaid in full. It is preferred to have secondary financing repaid after NLP is repaid in full, but a prorata release price during sell-out may be permitted.
Curtailments: For revolving lines of credit, there are no minimum curtailment requirements, but it is a sound underwriting practice to include them. It is suggested to require a 10% reduction on any spec units if the initial term is extended with 10% payments required semi-annually thereafter. Curtailments are not generally required on pre-sold homes or models (during their intended term). Collateral is not released with curtailment payments.
Interest Rate: Floating rate based upon a spread over the Prime Rate of interest as published in the Wall Street Journal, adjusted the day of change.
Security: First lien mortgage, collateral assignment of rents, leases, and profits, and UCC filing on furniture, fixtures, and equipment.
Loan-to-value: Maximum 80% of appraised value. If the borrower also has a Residential Lot A&D line of credit with NLP, then the maximum funding on the revolving construction line would be 80% of the appraised value, less the release price for the lot.
Loan-to-cost: For revolving lines of credit, the maximum is 100%, exclusive of any profit to the developer. For non-revolving lines of credit, the maximum is 80%, inclusive of a reasonable profit to the developer, as determined by Loan Committee.
Public Subsidy
Allowed: NLP will allow subordinate financing.
Prepayment
Penalties: There is no prepayment penalty during the term of the construction line of credit.
Minimum Loan: No minimum dollar amount, but the development must include a minimum of five residences.
Maximum Loan: Maximum of $5 million to any single project. Depending on which NLP affiliate is the lender, there may be other restrictions for credit exposure to any single developer/ guarantor/principal.
Pre-Sales: Pre-sales will be required. When considering pre-sale requirements and criteria, the following factors will be reviewed:
· Dependant upon the project and the pre-sale conditions, additional reservation agreements may be required.
· Contracts to parties related to the borrower or others in the project will not be considered.
· Purchase contracts by purchasers of multiple lots/residences must be pre-approved by NLP.
Pre-sales must have a written contract with a deposit appropriate for the end-loan financing requirement. NLP should have a commitment letter from the permanent lender, or a letter certifying that the residence-buyer currently qualifies for a permanent first mortgage loan as provided by either the permanent lender or the agency that qualifies the residence-buyer on behalf of the permanent lender. NLP reserves the right to analyze the underwriting agency for experience, historical performance, and relationships with the permanent lenders/brokers it does business with to determine adequacy of its program and NLP’s ability to rely on it. If the down payment is not provided 100% by the buyer, then the source of the subsidy funds needs to be identified.
F e e S t r u c t u r e
Application Fee: The application fee for the Lot A&D loan program is inclusive of the Single-Family Residence Construction loan application fee. The application fee is due prior to the preparation of the loan approval package. The current fee is $1,500 for loans up to $1,000,000, $3,000 for loans up to $3,000,000, and $5,000 for loans over $3,000,000.
Origination Fee: Generally 1.0% of the loan amount. Final determination of fees based upon such factors as size, turnover, type, and complexity of loan, and project sponsor.
Loan Processing Fee: An applicable fee will be charged, typically $1,000.
Loan Draw Fee: There are no additional NLP fees associated with loan advances (construction draws) relating to a revolving line of credit financing detached single-family homes. When NLP is providing a non-revolving line of credit for a condominium project or attached townhomes, an applicable fee will be charged for each draw request, ranging from $150-$300, based upon such factors as the number of expected draws and complexity of loan.
Other: Borrower must also pay any legal fees, appraisal fees, inspection fees, any other third-party reports and other out-of-pocket costs whether or not the loan closes.
N L P G e n e r a l R e v i e w G u i d e l i n e s
Review of Project Sponsor
and Borrower: Project sponsors and borrowers will be reviewed for their development record including their construction/development history, as well as their operating and management performance for existing projects, and their credit history. The sponsors/borrower must provide sales history and work-in-process reports. The experience should be adequate for the type and size of development.
For-profit sponsors and/or borrowers, if a corporation or partnership, will be required to provide three years of corporate or partnership financial statements for the borrowing entity and principals. Individuals must provide three years of tax returns. All for-profit borrowers will be required to provide resumes of principals and organizational documents.
Not-for-profit sponsors and/or borrowers will be required to provide the following: Financial statements for the past three years (preferably audited and/or prepared by a CPA); organizational documents, including Articles of Incorporation and Bylaws, evidence of tax-exemption, list of board members and their resumes; list of primary contributors, if applicable; and operating statements on existing projects.
Appraisal
Requirements: Current appraisal by a pre-approved NLP appraiser, to be ordered by NLP or designated Member bank and paid for by the borrower/developer when ordered. Recommended NLP appraisers and appraisal policy to comply with requirements of regulators. The appraisal must be reviewed for compliance and there is an appraisal review fee charged, currently listed at $150. If the scope of the development/construction includes multiple detached residences based on one model-type, then one master appraisal for that model-type, inclusive of add-on values, will be adequate. If the scope of the development/construction is to deliver a number of residential units at one time, then the appraised value will be based on a bulk sale to one buyer and NLP will also obtain a gross sell-out value along with a feasibility study to verify demand.
Environmental
Audit/Assessment: An Environmental Audit (Phase I) is required when the transaction (loan) size is at least $1 million. When the transaction size is less than $1 million, but at least $500,000, then only a Transaction Screen Process (“TSP”) is required. All third-party environmental reports must be completed by a NLP approved Environmental Engineer and they must meet the current ASTM 1528 standards. If the home sites are infill or located in a developed residential subdivision, then a visual inspection may only be required. If the home sites are not infill or located in a developed residential subdivision, a Site Inspection Questionnaire (“SIQ”) will be required when the transaction size is less than $500,000. If the scope of the work involves rehabilitation of an existing building, then research and review of lead-in-paint and asbestos issues will be required as well.
Rehabilitation/Construction
Risk Management: Review of plans and specifications, general contract and detailed total cost budget by pre-approved NLP engineer to be paid by developer; progress inspections by pre-approved NLP construction inspector and inspecting architect; soil tests for new construction; evidence of conforming zoning; utility letters; rehabilitation escrow or disbursement on a percentage of completion basis, depending upon the extent of rehabilitation; builder’s risk insurance for all projects with new construction/ rehabilitation, except for minor rehabilitation that are cosmetic in nature; payment and performance bonds for all new construction/ rehabilitation loans of $1,000,000 or greater on non-revolving lines of credit; and interest and operating reserves as required by Loan Committee. In the case of a Borrower/GC, a payment and performance bond must be issued to cover the major subcontractors, which will be determined by NLP. A contingency fund of 10% may be required for all loans approved for rehabilitation of a property.
Project Review: Project review will include but not be limited to project location, feasibility, jurisdictional approvals, community support, and parking adequacy.
Project Management: An experienced management agent, management plan and project manager acceptable to NLP. There must be a developed sales plan and a demonstrated experience of sales management.
Condominium
Documentation: When the line of credit is for the construction of a condominium project, the commitment must conform to all legal and regulatory requirements for specialized condominium financing within the State of Florida. The condominium declaration is not to be recorded until 50% pre-sales have been evidenced. No closing/ partial releases are to be permitted until the declaration has been recorded.
Guarantees: Full recourse will be required without any burn-off provision on loans to for-profit developers.
Subordinate Financing: Subordinate financing allowed; pre-approval by NLP required.
Not-for-profit
Developers: NLP recognizes that not-for-profit developers can contribute significantly to the development of affordable housing in NLP’s primary market. NLP will undertake an affirmative marketing program to not-for-profits through extensive outreach, personal contacts, technical assistance, and appropriate flexibility in the application of credit standards. For example, in its credit review of not-for-profit sponsored projects, NLP will recognize the importance of the following types of issues in its analysis: support of local jurisdictions, third party equity support including subordinate financing, land donations or write-downs, and “soft” equity in the form of rezoning density bonuses, etc. Joint ventures between not-for-profit and for profit developers will be encouraged in appropriate circumstances.
For newly created not-for-profit borrowers, and at the discretion of the Loan Committee, NLP’s credit analysis may include: the financial strength of an organization’s sponsor or affiliate organization; the resumes of the sponsor and borrower’s Board of Directors; the development and/or management strength of the borrower’s staff; and the amount and nature of local government support.
Other Requirements: The borrower must pay all attorney fees, title insurance premiums, and fees and all other out-of-pocket expenses associated with the loan.
Surveys by a licensed surveyor satisfactory to NLP in form and content will be required. A total of three surveys will be required: (1) a boundary survey, (2) a slab survey once the slab(s) are poured, and (3) an as-built survey upon completion.
A structural report by a licensed engineer will be required on any loan involving major rehabilitation or construction or when the appraisal indicates structural obsolescence or the like. NLP may require one on other loans at the sole discretion of the Loan Committee.
Schedules for Loan
Committee Packages: When a loan package is submitted for approval to the Loan Committee, the package shall contain the following schedules:
1. Site Plan, if applicable;
2. Detailed Sources and Uses of Funds of the Project to show that sources equal uses and the identification of each source;
3. Calculation of a reasonable expectation of the qualifying first mortgage for the affordable home buyers;
4. Identification of all cash and non-cash proceeds at time of home sale to verify adequate cash to satisfy release requirements of NLP financing, by product type (i.e., affordable home buyer versus market home buyer), and verify buyer subsidy limitations are not being over-utilized.
5. Monthly cash flow proforma to identify and track all cash and non-cash transactions, inclusive of developer profits and selling costs.
6. Experience of developer, general contractor, and sale’s management.
7. Financial statements and/or financial summary of the borrower(s) and, when applicable, guarantor(s). |
