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Housing Policy --- Section 9

SUBORDINATION POLICY
Policy Statement

The City of Boston is not legally required to agree to subordinate its mortgage to any new financing proposals. However, upon written request, the City may consider the subordination of its mortgage(s) for refinancing proposals that will not seriously impact the affordability of the property or security of the public investment.

Policy
Single Family Properties (1-4 family, owner occupied)
For those City mortgages without subordination clauses, the policy to grant subordinations is based on the following criteria:
  1. The total mortgage debt, including the City's mortgage, does not exceed 85% of the appraised value of the property.
  2. Lenders must show a reasonable belief that the borrower has the ability to repay the loan before the lender can make it. The ability to pay back the loan is defined as: the borrower's scheduled monthly payments, including principal, interest, taxes, insurance and assessments, combined with the scheduled payments for all other debt, do not exceed 50% of the borrower's monthly gross income.
  3. Lenders may not include financing of excessive points and fees.
    The City of Boston will review Subordination requests only once in a two year time period, unless it will substantially lower the borrower's rate.
Investor Owned, Large Residential Real Estate Loan Subordination and Restructure policy
No cash proceeds restructures, primarily rate reductions
For requests that simply reduce the interest rate and does not negatively affect the potential cash flow to DND the following procedure is in effect.
  1. The borrower and all related entities shall be current on their loans, taxes and financial reporting prior to considering the request.
  2. DND may require that the units be inspected to ensure compliance with HQS or physical standards as may be required in the loan documents, any expenses incurred shall be the responsibility of the owner.
  3. DND may allow reasonable increases to reserves made from increased cash flow resulting from interest rate reductions.
  4. The borrower shall pay all costs of the subordination, including a full review and modification of existing DND documentation by DND's outside attorney. An estimate of the cost shall be provided when the request is submitted. A deposit against this estimate may be required with the balance due at closing.
Restructures that generate cash to the project
For requests that refinance the first mortgage or other debt senior to DND and involve an increase in the amount of debt that is senior to DND the following procedure is in effect:
  1. All proceeds from the transaction must be used to make capital improvements to the subject asset.
  2. The borrower and all related entities shall be current on their loans, taxes and financial reporting prior to considering the request.
  3. DND may require that the units be inspected to ensure compliance with HQS or physical standards as may be required in the loan documents, any expenses incurred shall be the responsibility of the owner.
  4. The borrower shall pay all costs of the transaction, including a full review and modification of existing DND documentation by DND's outside attorney. An estimate of the cost shall be provided when the request is submitted to DND. A deposit against this estimate may be required with the balance due at closing.
  5. A full review of the effect of the proposal will be done in conjunction with the housing division.
  6. An attempt will be made to generate additional years of affordability for the project.
  7. DND may require that the repayment terms on its loan be modified or that cash flow definitions be modified.
  8. Loan to value after the refinance (for the first mortgage) should not exceed 85%
Subordination Forms
Download and complete the following forms, then return them with the other information detailed on the checklist.

Subordination Request Form (pdf format)

Subordination Checklist (pdf format)

REMINDER: A decision may take 7-10 business days upon receipt of ALL of the necessary requirements. Please be certain to send all the requirements, preferably at the same time to:

DEPARTMENT OF NEIGHBORHOOD DEVELOPMENT
Attn: Loan Management Unit
26 Court Street, 11th floor
Boston, MA 02108
or
Fax: 617-635-0262

9 (9/05)

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