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Mortgage Insurance for Cooperative Housing: Section 213

Section 213 insures mortgage loans to facilitate the construction, substantial rehabilitation, and purchase of cooperative housing projects. Each member shares in the ownership of the whole project with the exclusive right to occupy a specific unit and to participate in project operations through the purchase of stock.

Section 213 insures lenders against loss on mortgage defaults. Section 213 enables nonprofit cooperative housing corporations or trusts to develop or sponsor the development of housing projects to be operated as cooperatives. Section 213 also allows investors to provide good quality multifamily housing to be sold to non-profit corporations or trusts upon completion of construction or rehabilitation.

Type of Assistance:
FHA mortgage insurance for HUD-approved lenders.

Eligible Activities:
Insured mortgages may be used to finance construction, acquisition of existing or rehabilitated detached, semidetached, row, walk-up, or elevator type housing projects consisting of five or more units. The program has statutory per unit mortgage limits which may vary according to the size of the unit, the type of structure, and the location of the project. There are also loan-to-replacement cost limitations. Contractors for new construction and substantial rehabilitation housing projects must comply with prevailing wage requirements under the Davis-Bacon Act.

Eligible Borrowers:
Non-profit cooperative ownership housing corporations or trusts are eligible to use Section 213. They may sponsor projects directly, sell individual units to cooperative members, or purchase projects from investor-sponsors.

Eligible Customers:
HUD imposes no restrictions on the income or characteristics of individual shareholders/residents in an insured cooperative.

The sponsor has a pre-application conference with the local HUD Multifamily Region to provide general application guidance and to determine the feasibility of the project. The sponsor must then submit a site appraisal and market analysis (SAMA) application (for new construction projects) or feasibility application (for substantial rehabilitation projects), arranges for an environmental assessment, and check with the State to determine its requirements. Following HUD's issuance of a SAMA or feasibility letter, the sponsor submits a firm commitment application through a HUD-approved lender for processing. Considerations include, market need, zoning, architectural merits, capabilities of the borrower, and availability of community resources. If the project meets program requirements, the local HUD Multifamily Region issues a commitment to the lender for mortgage insurance.

Technical Guidance:
This program is authorized by Section 213 of the National Housing Act
(12 U.S.C. 1715e). Program regulations are found in 24 CFR 213. The basic program instructions are in HUD Handbook 4550.1 - Basic Cooperative Housing Insurance available on HUDclips. The program is administered by the Office of Multifamily Housing Programs, Office of Production, Program Administration Division.

Program Accomplishments:
update In FY2023, the Department insured mortgages for 2 projects with 110 units, totaling $36.4 million.

If you have questions, please contact Juan E. Seneca

Last updated: 10/11/2023