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UPDATE: FAQ was issued on RAD, clarifying which RPCA studies are necessary for HUD Section 221(d)(4) projects


My last blog was about a new RAD FAQ regarding 221(d4) mortgage insurance and RAD, specifically the following new FAQ on 10-14-2014: 


Posted: 10/14/2014

Question: Is a RAD Property Condition Assessment (RPCA) required on the Section 221(d)(4) transaction?

Answer: No. A RPCA narrative report is not required on any 221d4 transaction. However, the RPCA Excel tool IS required on all 221d4 sub-rehab projects where the scope of rehab does not include “the removal and replacement of substantially all interior finish surfaces exposing the underlying building frame (i.e. gut rehab). For these non-gut rehab transactions, the RPCA tool will be required: 1) to size the project’s reserve for replacement account’s deposit, and 2) to capture utility consumption baseline data. The required portions of the RPCA tool which must be completed include: a. Utility Baseline - Summary b. Utility Baseline - Monthly c. Cap Needs Input For FHA 221d4 new construction and gut rehab transactions, Lenders should use the FHA Section 221(d)(4) formula to size the reserve for replacement account deposit.


But, I want to thank a very astute client who culled the RAD FAQ’s this week, only to find that that the original FAQ response was modified (yet the date of issue remained the same)The new language is:


Posted: 10/14/2014

Question: Is a RAD Property Condition Assessment (RPCA) required on a new construction or substantial renovation transaction?

Answer: A RPCA is required for all RAD transactions, except the following: 1) New Construction; 2) Gut Rehab (essentially, down to the stud); or 3) Recently modernized or constructed buildings (based on the recommendation of the HUD RAD Transaction Manager and approval by the RAD Team Lead). However, the RPCA Excel tool is still required to size the reserve for replacement deposit on all sub-rehab transactions, with the exception of “gut rehabs”. “Gut rehabilitation” is defined as “removal/replacement of all or substantially all interior finished surfaces”.


I see the major change being that they removed the Utility Consumption Baseline (UCB) requirement, which makes sense and reduces the time and cost of the study.  Kudos to HQ for making this smart change, and Kudos to AGM Andy for finding the change!

 Full issued FAQ here: radfaq-1.pdf

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