Prepayment & Refinancing of Section 202 Direct Loans

The FAQ (Frequently Asked Questions) for HUD Notice 2012-08 released on September 24, 2012, provides clarifications regarding the Updated Requirements for the Prepayment and Refinancing of Section 202 Direct Loans. According to the FAQ, HUD intends to issue an update in the near future. Until that time, staff should refer to Housing Notice 2012-08 along with this FAQ document for guidance on Section 202 repayments.

The questions have been categorized into the following sections:

• Process (of applications)
• Re-refinances
• Use of Project Funds (residual receipts)
• Use of Proceeds (developer’s fee)
• Section 8 Contract Renewals
• Debt Service Savings
• Section 8 Rent Setting
• Sales Proceeds
• Distributions
• Pre-1974 Section 202 Projects

HUD is looking at different ways to encourage “preservation” of the existing properties. This means that HUD wants to do everything it can to keep the units operating under the project-based 202 subsidy program, rather than having owners pay off the mortgages and charge market rent for the apartments. Refinancing is one way of making sure that properties are in the best condition possible, and will be in existence for a long time to support our communities’ affordable housing needs.