Changes to the way Capital Needs Assessments (CNA) are conducted have caused some confusion for those planning on using HUD funding for their projects.  As a result, the United States Department of Housing and Urban Development (HUD) recently held hands-on training sessions around the country regarding the Capital Needs Assessment e-Tool (CNA e-Tool) for consultants to become familiar with the new requirements.

The training sessions were sponsored by HUD’s Office of Multifamily Housing, as the new CNA e-Tool is suitable for use by any multifamily housing program.  According to HUD, this new tool automates and standardizes the preparation, submission and review of a capital needs assessment. 

PM Environmental’s Architectural Consulting team attended the event in Detroit, and Architectural Consultant Eric Guikema answered some questions about what is to come.

Do all HUD projects in all US states necessarily have to use the CNA tool by Nov. 1?

Guikema: Yes, all HUD projects will be required to use the CNA e-Tool.  Our training instructor said pushback from consultants was actually a large part of why the actual implementation date was extended to October. The most recent delay, from October to November, was largely due to hurricanes Harvey and Irma. 

What has been included or left out of the requirements? 

Guikema: The utility baseline and energy audit is not required for 223(f) refinance projects, but it is still required for properties seeking the green mortgage insurance premium reduction.  The green mortgage insurance premium reduction is where a “green certification” (via LEED or others) is required and the property must earn and maintain an Energy Star Portfolio Manager rating of 75 or better.  

How will this new tool affect people looking for HUD funding?

Guikema: For those looking for the standard 223(f) refinance, there is some relief now that the utility baseline and energy audit will not be required. HUD has stated, however, that they may become a requirement in the future. 

Is this tool something that can be completed without the help of a consultant?

Guikema: No. The tool must be populated by a 3rd party consultant and submitted to an underwriter who then submits it to HUD.  

What were the main takeaways of the training session?

Guikema: As a consultant, the main takeaway was developing an understanding of how the report delivery process has changed and what adjustments we need to make to our approach. It was also important to understand what role the underwriter takes, since they are required to have a larger role in the deliverable.   

What are the differences between the conventional report format in PDF and the new tool? 

Guikema: Gone are the days of issuing a report in PDF format for HUD projects. The tool is now the deliverable. Under the previous report format, the discussions, opinions, and recommendations of the consultant were presented using familiar descriptions and commentary. Under the new tool, there is now a specified tab for commentary and descriptions that has a table of contents and text boxes with a limited amount of characters for each item.  This causes the written commentary to seem less important, or at least more buried then it was in the previous report format.  The tools purpose is to create uniformity in the data entry and financial analysis, but it does make the commentary portion much more cumbersome.

Additionally, the PDF report was completed by the consultant and delivered to the underwriter who submitted the report to HUD.  With the new tool, it is completed by both the consultant and the lender. The consultant completes their portion and uploads the report to an online validation engine to obtain a flag (error) summary.  The consultant then corrects any mistakes and submits the report to the underwriter who then reviews the work, enters various financial information, and submits to HUD via uploading the tool online. HUD will review the report and reject it if there are any items that need to be fixed, or they will approve once the tool meets their approval.

What challenges come with the new tool?

Guikema: Understanding the inner workings of the tool and becoming familiar with how things are laid out and how information is organized is the initial hurdle for both consultants and lenders. We, the consultants, need specific data to input into the tool that we obtain from the underwriters and property contacts. Much of the data can be obtained prior to the site inspection, but the likelihood of every property having all of the data readily available seems questionable.   Consultants will need to develop very detailed, lengthy and specific questionnaires directly tied to data inputs in the tool in order to prevent some flags from signaling. 

What is positive about using the e-Tool? Negative?

Guikema: The positive aspects about the e-Tool are that it provides consistency for underwriters and HUD. The data for any report will be located in the same place.  The tool should eliminate much of the revisions that occurred after conventional reports were reviewed. Previously, the underwriter would review with the owner, revisions would be requested and, in many cases, the consultant would be asked to bend or change an opinion to reflect conditions that would favor financial metrics but de-emphasize needs assessed by the needs assessor. Under the new format, the assessor makes recommendations and they do not change. The underwriter can now accept or reject the recommendations made by the consultant. HUD can also then see what the recommendations were and how they were accepted or rejected and why. 

On the flip side, the negative aspects about the e-Tool are that it is very data heavy and will require tedious data entry by the consultant. No common or repeatedly used data is saved or prepopulated in the tool and every tool will have to start from scratch. 

The tool requires granular level detail that was not previously needed i.e. square feet for any common space in each building must be entered, but these areas are almost never known by property contacts or measured.