How Do You Underwrite That?

Written By: Bonnie Wilt-Hild

FHA issued a bulletin on April 18, 2012 informing the industry about HUD approved nonprofit participation in FHA loan financing. Basically HUD allows approved nonprofit agencies to act as a mortgagor utilizing FHA insured financing to purchase homes which will be designated for resale to low to moderate income families or in some instances rented to low moderate income families and as you can imagine where the affordable housing program concerned as it pertains to the rental units, the nonprofits may actually have more than one FHA insured mortgage. I will say that I find the overall concept noble, but beyond concept and into practice, and by that I mean underwriting, I am slightly concerned.

Need FHA Training? CLICK HERE:

First let me say that my concern is not simply that I know several industry professionals who are still having difficulty grasping the principals of residential underwriting, it’s more than that. My biggest concern is how to underwrite a non-profit borrower (the very term seems like a contradiction) or any other instrumentality as such for that matter. HUD has suggested that approved mortgagees review mortgagee letter 96-52 before embarking on the mortgage credit analysis of such a case which I did and it is my opinion that the guidance where underwriting is concerned resembles more that of a commercial loan than it does a residential loan. Further there are several areas of consideration which contradict everything we as residential underwriters have ever been taught.

There are some key elements where underwriting the nonprofits are concerned that are quite simple to perform. Things such as determining that its affordable housing program is consistent with FHA’s guidelines and that it has the management ability to operate such a program should be easy enough to resolve. The financial piece however is somewhat more cumbersome than and unfortunately not quite as transparent as residential borrower. Think about this for a minute, when underwriting a nonprofit, the lender must be able to conclude that the nonprofit will be able to support the mortgages for which it has applied and that it has the management resources available to administer the affordable housing program however at the same time HUD has stated that a nonprofit that appears to have taken on the role of a traditional, market rate landlord for cash-flow and income purposes without redistributing those funds back into its housing efforts will not have its program approved. Therefore it is safe to assume that you will not be underwriting instrumentalities (of which the very thought concerns me) with a demonstrated cash flow to support the monthly payment (ratio’s) or significant reserves if you will. Instead from an underwriting standpoint we will depend more on things such as funding streams from both private and public sources along with speculation as to if others are available to the nonprofit should one be curtailed. Things like liquidity must be examined as well as cash balances, restricted and unrestricted as well as several other aspects of these borrower types that simply don’t apply to residential underwriting.

Need FHA Training? CLICK HERE:

In closing I will say in contemplation of underwriting such a product, I wouldn’t know where to start and where underwriting principals are concerned I am not sure they exist. Mayhap merging commercial underwriting principals with residential underwriting principals will produce the hybrid needed to address such a product but it is something that would need to contemplate a little further. For now I will hope that the files that continue to hit my desk are the good old fashioned borrower based loans that I enjoy so much and hope that for some insane reason I don’t start contemplating the hybrid. Happy underwriting!

About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University ( as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at:

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.