loan consortium 2014 03-01

Loan Consortium

Developing Affordable Multi-Family Housing Through Loan Participations

Loan Consortium: Affordable Multi-Family Housing

Pathway Lending, the Tennessee Bankers Association, and the Tennessee Housing Development Agency are working together to identify qualified developers, underwrite loan requests, and participate loans with Subscribing banks. These loans provide developers with a long-term, fixed rate, permanent mortgage for their Low-Income Housing Tax Credit awarded developments. These loans also play a major role in improving economic conditions, incomes, taxes, and jobs in low-income communities across Tennessee.

With a shortage of 100,000 affordable rental housing units in Tennessee, The Loan Consortium for Affordable Multi-Family Housing is an excellent example of how partnerships can be forged to achieve a common goal of providing safe, decent & affordable housing.

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Since the inception of the Low-Income Housing Tax Credit program in the 1986 tax reform, approximately $100 billion has been put to work in the development of more than 2.5 million affordable housing units in the United States.

More than 99% of Low-Income Housing Tax Credit (LIHTC) projects have performed without need for tax credit recapture. The LIHTC program has proved to be the most effective vehicle for raising private-sector community investments.

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The Consortium supports affordable multi-family housing in Tennessee by providing permanent financing to developers for projects including acquisition, construction, rehabilitation, and refinancing of LIHTC awarded developments.

This is a growing market with significant loan participation opportunities. THDA awards an average of $89 Million of LIHTCs to developers annually through a competitive application process.


Why You Should Participate in the Loan Consortium: Pathway Lending’s Loan Consortium for Affordable Multi-Family Housing is attractive to Financial Institutions because it offers the opportunity to view fully underwritten credit write-ups and participate in loans that help improve earnings and maintain diversification. The Consortium provides participating Financial Institutions with a proven model with historically low risk. Financial Institutions can choose their level of participation and purchase a portion of the permanent financing, with a minimum $200M commitment.

Your Financial Institution’s Benefits:

Excellent risk-adjusted returns

Predictable 15-year benefit stream

Regulatory (CRA) credit for

community development

Lowest default rate of all real estate-related asset classes

High-impact socially responsible investment

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The Loan Consortium identifies qualified developers in need of long-term, permanent financing. Pathway Lending underwrites loans and provides full due diligence and credit analysis.

Financial Institutions that complete the Subscription Agreement can review write-ups and supporting documents via a secure website and participate as they see fit. Membership is quick & easy. Joining opens you to all the benefits associated with CRA lending with limited risk. There is a $1,000 annual membership fee that gets you access to $10MM in high-quality deals annually.

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Subscribing Banks can purchase a portion of the permanent financing through a loan participation structure, with a minimum $200M commitment. Once the deal is fully subscribed Pathway Lending will originate the loan, execute Participation Agreements, and service the loan.


The Low Income Housing Tax Credit Program has been so effective in leveraging private capital because it is a low-risk investment opportunity that returns high rewards for your institution.

Experienced developers with a strong track-record of success and significant monitoring procedures in put place by tax syndicators ensure credit compliance during the 15 year project period.

LIHTC has extremely low levels of foreclosure and tax credit recapture. More than 99% of the 37,506 projects and almost 2,318,000 housing units placed in service since 1987 performed as agreed.

The Consortium Mitigates Risk through low Loan-to-Value Ratios:

Typically: Below 40% on New Construction Below 60% on Acquisition or Rehabilitation Up to 80% on Refinancing of “Mini Perms” Lo

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Join the Pathway Lending Loan Consortium for Affordable Multi-Family Housing Today.

Your Participation Yields Significant Benefits

For More Information:

Contact Mike Clinard at 615.425.7171 or [email protected]

To Complete the Subscription Agreement, Visit Us Online: www.PathwayLending.org

mailto:[email protected]


APPENDIX A: Loan Consortium Financing Structure The Loan Consortium for Affordable Multi-Family Housing provides a new source of long-term, permanent financing for the development, rehabilitation, and purchase of Low-Income Housing Tax Credit awarded multi-family housing in Tennessee.

Financing Structure: 15-Year Term with up to a 30-Year Amortization Fixed Rate Based on a 10-Year T-Bill Plus a Margin Maximum of 80% Loan-to-Value (see Slide 4 for further details) Minimum of 1.15x Debt Service Secured by First Deed of Trust (Additional Security May be Required)

Fees: Application Fee: $250 Commitment Fee (New Construction): 0.5% Non-Refundable Origination Fee (New Construction, Rehabilitation, Refinance): 1.0% Servicing Fee: Pathway Lending to receive 25bp during the term of the loan

Commitment Term: Up to 24 months on New Construction with 6 month extension option 60 days on Acquisition, Refinance, and Rehabilitation


APPENDIX B: Low-Income Housing Tax Credits 1. The federal government funds the program: The Department of the Treasury issues tax credits to the states and requires that the housing built by this program remain affordable for at least 30 years.

2. But the states largely shape what housing gets built: States control the type of housing, the location and other characteristics to best serve their residents. In Tennessee, at least 51% of units must provide housing for “low-income” persons (defined as 80% or less of the Area Median Income); Rents, including utilities, cannot exceed the applicable low-income rent ceiling (30% of household income), and; Qualified units must remain occupied by low-income tenant for the duration of the financing period.

3. Developers get funds toward construction: Developers may claim housing tax credits directly, but most sell the tax credits to raise equity capital for their housing project. Tax credits can be claimed annually over a 10-year period by the property owner. However, the developer needs the money immediately to pay for development costs, not 10 percent annually for 10 years. Accordingly, the developer typically syndicates the credits - i.e., sells the rights to the future credits in exchange for up-front cash. With the capital from the investor, developers can limit the money borrowed to fund construction, reducing both the amount of debt and rent levels.

4. Low-income renters get an affordable home: LIHTC properties must be rented only to families whose income is at or less than 80 percent of the Area Median Income. Tenants’ rent payments are limited to 30 percent of their income.

5. The Consortium Provides Gap Financing and Generates Benefits: Subscribing Banks contribute to the development or rehabilitation of low-income housing, creating safe, decent and affordable housing for the community. This plays a major role in improving economic conditions, incomes, taxes, and jobs in low-income communities across Tennessee. Subscribing Banks also receive significant benefits, including competitive yields and CRA Credit from their Regulatory Agencies.

loan consortium 2014 03-01

Economy & Finance