NEIGHBORHOOD LENDING PARTNERS, INC.
MINIMUM UNDERWRITING CRITERIA
Residential Lot A&D Lines of Credit
L o a n T e r m s
The following minimum underwriting criteria will be used when assessing NLP Residential Lot A&D loan applications. All NLP projects must provide affordable housing consistent with NLP’s Affordability Statement and all transactions for this loan product must include subsidized funding sources. The underwriting criteria may be subject to revision by the Loan Committee under the direction of the Board of Directors.
Type: Residential lot acquisition and development lines of credit are available only when NLP is also providing the financing for the construction of single-family homes. The Residential Lot A&D loan is typically structured to be a non-revolving line of credit.
Term: Up to 36 months. Recommended terms would include a 24-month initial term with six-month extensions, subject to approval.
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 lot release price is the greater of (a) 125% of the prorata loan amount per lot, or (b) 80% of gross sales price. A preferable release price would be 133% - 150% of the prorata loan amount. There may be certain instances where net sales proceeds is the preferred release price as well. The prorata loan amount should include any letter of credit exposure derived from covering a Warranty Bond/Letter of Credit requirement on the infrastructure that is not already properly collateralized beyond the security of the project.
Curtailments: Curtailments are required after 12 months with semi-annual curtailments thereafter. Suggested realistic ranges would be 50%-70% of proforma. 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. Generally, the spreads range from 0.5% to 1.5%.
Interest Reserve: The loan shall be structured to include a full interest reserve based on proforma sales and the current interest rate plus a spread as determined by Loan Committee. The continued funding of the interest reserve will be based on sales performance.
Security: First lien mortgage, collateral assignment of rents, leases, and profits, collateral assignment of sales contracts, and UCC filing on furniture, fixtures and equipment.
Loan-to-value: Maximum 75% of discounted appraised value. Any appreciation in the value of the land since acquisition, or the appraised value of the land in excess of its acquisition cost, may be considered as equity only if the developer has been the owner of record for no less than three years.
Loan-to-cost: Not to exceed 85% of total development cost. The total development costs should be adequate to complete the project and the borrower should only be expected to receive any developer’s fee from net sales proceeds. If any budget line item is deemed to be excessive, the Lender can eliminate or reallocate the excessive funds in its sole discretion. All soft costs must have invoices.
Public Subsidy: NLP will allow subordinate financing.
Prepayment Penalties: There is no prepayment penalty during the term of the A&D loan.
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, inclusive of construction financing. Depending on which NLP affiliate is the lender, there may be other restrictions for credit exposure to any single developer/ guarantor/principal.
Credit Exposure: From time to time, local governments require a letter of credit from a developer equal to 100%-125% of the infrastructure costs in order to guarantee the completion of the infrastructure. If the cost to complete the infrastructure is already included in the A&D loan, then any letter of credit exposure resulting from covering 100% of these costs is considered to be redundant credit exposure and shall not be added to the A&D loan amount in determining the overall credit exposure. However, any exposure above 100% coverage, inclusive of any warranty/maintenance letters of credit, shall be added to the loan amount to derive an overall credit exposure.
Other Criteria: The following criterion represents various other criteria relating to Residential A&D Lot Development Lines of Credit:
§ The development of the lots must commence within 60 days of the loan closing.
§ The first lot takedown must be scheduled within 6-9 months of the loan closing, exclusive of vertical improvements.
§ A final development completion date should be set that takes into consideration reasonable time delays outside the control of the developer.
§ Loan draws will be limited to a maximum of one per month.
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.
Letter of Credit Fees: Any fees associated with the issuance of any letter of credit shall be established by the issuing Member institution.
Loan Processing Fee: 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/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. 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. For-profit borrowers, if 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.
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 1527 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/rehab loans of $1,000,000 or greater; and interest and operating reserves as required by Loan Committee. 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, and community support. Favorable consideration is given to leases to a service provider when such service provider offers services that enrich the community. There may be commercial tenant/business operation restrictions.
Project Management: An experienced management agent, management plan and project manager acceptable to NLP.
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.
Operating statements on the project will be required monthly if the project is in a rehabilitation or construction period, if rental units are available for rent. Once the project is stabilized, operating statements will be required quarterly thereafter.
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). |
