The U.S. Department of Housing and Urban Development (HUD) has issued regulations for the sale of subsidized and unsubsidized multifamily mortgages held by the department.

Publication of the regulations clears the way for HUD to sell billions of dollars of FHA-insured multifamily loans acquired through assignment or foreclosure.

A subsidized mortgage is a mortgage on a project financed under the Section 221(d)(3) below market interest rate (BMIR), Section 236 or Section 202 programs, or a project in which more than 50% of the units receive rent supplement, Section 236 rental assistance payments, Section 23 assistance or project-based Section 8 subsidies. A project that received any of those forms of assistance before foreclosure on the mortgage is also considered a subsidized project, and a purchase-money mortgage taken back by HUD in the sale of a subsidized project is also a subsidized mortgage.

Subsidized mortgages will be sold only under terms which assure that, for at least the remaining term of the mortgage, the project will provide rental housing on terms at least as favorable for present and future tenants as the terms of the program under which the project was originally subsidized.

Current subsidized mortgages may be sold on a negotiated basis with FHA insurance to state and local governments, or to a group of investors including a state or local agency. In such sales, the terms of the transaction must include an agreement by the state or local government or agency to act as mortgagee or owner of a beneficial interest in the project and to ensure that the project will continue to serve its original target tenant group. In addition, the sales price must be the best HUD can get from a state or local government while maintaining occupancy by that tenant group.

All other mortgage sales will be conducted on a competitive basis. Current subsidized mortgages may be sold with FHA insurance to FHA-approved mortgagees, or they may be sold without FHA insurance if tenant protections equivalent to those in insured sales are provided. Delinquent subsidized mortgages will be sold only if, as part of the transaction, the mortgages are restructured and either FHA insurance or equivalent tenant protections are provided.

Current unsubsidized mortgages may be sold with or without FHA insurance. Delinquent unsubsidized mortgages may be sold without insurance, but HUD will not sell such mortgages if the department believes foreclosure is inevitable and the project is occupied by unsubsidized very low-income tenants who would have to pay more than 30% of adjusted income for rent.