Introduction
The Mortgage Lending Division of The Phares Company has been originating multifamily loans since 1991 and servicing the loans it originates since 1993. We offer loans to refinance existing properties as well as construction loans for new construction or substantial rehabilitation. All of our financing is done in tandem with the Department of Housing and Urban Development's mortgage insurance programs. By utilizing these HUD programs, we are able to offer long term, fixed rate, non-recourse, assumable loans at low rates. For more information on the HUD programs, go to our HUD Program Information page.
Loan Programs
The Phares Company is recognized by HUD as a MAP (Multifamily Accelerated Processing) lender. The MAP program was established by HUD to standardize and expedite processing nationwide. As a MAP lender, we can submit applications to any HUD office nationwide. We currently have projects in Kentucky, North Carolina, Florida, and Indiana and have worked with many other state HUD offices.
In addition to the MAP program, The Phares Company is also active in the Mark to Market program. This is a program designed by HUD to re-underwrite projects with expiring Section 8 contracts and reduce the cost of subsidizing the property. This reorganization usually involves reduction in size of the existing first mortgage with HUD making a payment from its insurance fund and taking back secondary debt for this payment. If you have a loan processing in Mark to Market, please contact us. We are able to provide very competitive rates even for small loans.
The loans we provide can be grouped into a few basic categories. Click on the button below to view more detailed information about the structure of each loan type.
Loan Categories
HUD Loan Overview
The HUD program we participate in is a mortgage insurance program. After your loan closes, a mortgage insurance premium (usually 0.5% of the outstanding principal balance) is paid into an insurance fund maintained by HUD. In the event of a loan default, we as a lender can assign the loan to HUD and make a claim on this insurance fund to repay our investors. This guaranty, backed by the full faith and credit of the federal government, enables us to secure rates and terms better than offered in the conventional markets.
HUD insured loans offer some very attractive financing terms not available in the conventional markets.
- Long term amortization (35 and 40 years).
- No personal liability.
- Assumable with HUD and lender's permission.
- Interest rate fixed for the full amortization term.
- A fast and easy program is available to lower the interest rate if market improves.
Typically once a client understand the benefits of these loan programs they rarely elect to prepay and seek conventional financing. Since we began retaining the loans we originated in 1993 we have closed 53 loans and still retain the servicing on 51 of these loans loans. This means that only two of the loans we originated under these HUD programs have opted to payoff and seek conventional financing. In addition, we have eight clients who are so satisfied with our services and the HUD programs that they have financed two or more projects with us. The HUD 223(a)(7) loan program is designed to allow projects with HUD insured loans to do a quick refinance to lower the interest rate and stay in the mortgage insurance program. Ten of the loans we were servicing opted for a 223(a)(7) refinance and during the refinance boom in 2003/2004 we have added 26 loans to our portfolio under this 223(a)(7) program. What this tells you is that project owners are very satisfied with the HUD programs and the level of service The Phares Company provides duing the loan origination and after closing.
Loans made under this program have some compliance requirements beyond those typically seen in loans made through conventional sources. For example:
- Borrower must sign a Regulatory Agreement outlining the terms for participation in the HUD program.
- The project is required to submit an annual audited financial statement.
- Surplus Cash (profits) can only be distributed semi annually.
- The project is subject to a physical inspection every one to three years.
- HUD will do a management review every few years.
- Escrows are required for taxes, insurance, and mortgage insurance premium.
- Property is required to fund and contribute to a replacement reserve account for capital improvements.
Beyond these restrictions, market rate projects financed through the HUD mortgage insurance programs function very similar to conventional financing. Many people associate HUD financing with low income or subsidized properties and expect onerous operational restrictions. That simply is not the case. We do finance very low income properties but we have also financed upper income properties with luxurious amenities (jetted tubs, indoor racquetball courts, tennis courts, clubhouses, pools and spas, vaulted ceilings, detached garages, etc). Below are examples of some common misconceptions about HUD mortgage insurance financing:
- There are no HUD imposed rent restrictions.
- You are not required to rent to Section 8 tenants.
- There are no HUD imposed income restrictions on tenants.
- HUD is not involved in the day to day operations of the property.
- You are not required to accept tenants off of a "HUD waiting list".
- You do not need HUD approval to rent to a tenant.
Once you become familiar with the benefits of the HUD insured loan and realize that the compliance requirements are not that onerous, you will most likely agree that is is the best program available for financing apartments.
For more information on the specific HUD programs, go to the HUD Program Information page or click the "HUD Information" button on the button bar.
Please contact Ford Phares for more information on the programs or to have a preliminary loan underwriting estimate prepared.