Multifamily Financing FrontiersFFB Risk Sharing

Karen E. KelleherNCSHA Annual Conference & Showplace

Nashville, September 28, 2015

Changing HFA Environment

Need to offer Better Products and Better Terms

FHA Programs Comparison Chart MAP Programs

FHA MAP Insurance Programs (Typically Private, For-Profit Lenders)

Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity

New Construction or Substantial Rehab

Lending Program 223(f) 223(f) Tax Credit Pilot 221(d)(4)

FHA Risk % 99% 99% 99%

Rehab Per Unit Up to $17,500/Unit Up to $40,000/unit Over $40,000/unit

Davis Bacon Applies? No No Yes

Affordability Required? None None (but LIHTC does)

None

Equity Takeout Permitted?

Yes Yes Yes

Closing Process HUD MAP Underwriting/ Closing Process

HUD Pilot Underwriting/ Closing Process

HUD MAP Underwriting/ Closing process

Best Execution Taxable (GNMA) Tax-Exempt (GNMA) Either

Current Est. Lending Rate 3.41% 3.41% + COI 3.90%

FHA Programs Comparison Chart MAP Programs

FHA MAP Insurance Programs (Typically Private, For-Profit Lenders)

Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity

New Construction or Substantial Rehab

Lending Program 223(f) 223(f) Tax Credit Pilot 221(d)(4)

FHA Risk % 99% 99% 99%

Rehab Per Unit Up to $17,500/Unit Up to $40,000/unit Over $40,000/unit

Davis Bacon Applies? No No Yes

Affordability Required? None Yes (b/c LIHTC) None

Equity Takeout Permitted?

Yes Yes Yes

Closing Process HUD MAP Underwriting/ Closing Process

HUD Pilot Underwriting/ Closing Process

HUD MAP Underwriting/ Closing process

Best Execution Taxable (GNMA) Tax-Exempt (GNMA) Either

Current Est. Lending Rate 3.41% 3.41% + COI 3.90%

FHA Programs Comparison ChartTraditional HFA Risk-Sharing

HFA Traditional Risk Sharing Program

Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity

New Construction or Substantial Rehab

Lending Program HFA Risk Share HFA Risk Share HFA Risk ShareFHA Risk % 50-90% 50-90% 50-90%Rehab Per Unit 1 <15% of value <15% of value ≥15% of valueDavis-Bacon Applies? No No YesAffordability Required? 20%@50% of AMI or

40%@60% of AMI20%@50% of AMI or 40%@60% of AMI

20%@50% of AMI or 40%@60% of AMI

Equity Takeout Permitted?

Waiver Required Waiver Required Waiver Required

Closing Process HFA Underwriting,Limited HUD Review

HFA Underwriting, Limited HUD Review

HFA Underwriting, Limited HUD Review

Best Execution Taxable Tax Exempt Tax-ExemptCurrent Est. Lending Rate 5.25% 4.75% 4.95%

[1] 1. Value after rehab. Financing existing project without substantial rehab must be structured as acquisition. See 24 CFR §266.200.[2] 2. Applies only to substantial rehab or new construction of 12 or more units where construction advances are insured.[3] 3. HUD retained reviews include 2530, wage rate, subsidy layering, environmental, unless delegated. If HFA assumes <50% of risk, underwriting and loan terms are subject to HUD right to review, modification and approval by HUD. 5. The risk sharing statute currently prohibits pooling of risk shared mortgages into securities guaranteed by GNMA.

FHA Programs Comparison ChartTraditional HFA Risk-Sharing

HFA Traditional Risk Sharing Program

Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity

New Construction or Substantial Rehab

Lending Program HFA Risk Share HFA Risk Share HFA Risk ShareFHA Risk % 50-90% 50-90% 50-90%Rehab Per Unit 1 <15% of value <15% of value ≥15% of valueDavis-Bacon Applies? No No YesAffordability Required? 20%@50% of AMI or

40%@60% of AMI20%@50% of AMI or 40%@60% of AMI

20%@50% of AMI or 40%@60% of AMI

Equity Takeout Permitted?

Waiver Required Waiver Required Waiver Required

Closing Process HFA Underwriting,Limited HUD Review

HFA Underwriting, Limited HUD Review

HFA Underwriting, Limited HUD Review

Best Execution Taxable Tax Exempt Tax-ExemptCurrent Est. Lending Rate 5.25% 4.75% 4.95%

[1] 1. Value after rehab. Financing existing project without substantial rehab must be structured as acquisition. See 24 CFR §266.200.[2] 2. Applies only to substantial rehab or new construction of 12 or more units where construction advances are insured.[3] 3. HUD retained reviews include 2530, wage rate, subsidy layering, environmental, unless delegated. If HFA assumes <50% of risk, underwriting and loan terms are subject to HUD right to review, modification and approval by HUD. 5. The risk sharing statute currently prohibits pooling of risk shared mortgages into securities guaranteed by GNMA.

FHA Programs Comparison ChartHFA FFB Risk Sharing Program

[1] 5. Varies by region.

HFA FFB Risk Sharing Program

Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity

New Construction or Substantial Rehab

Lending Program HUD/FFB Risk Share HUD/FFB Risk Share HUD/FFB Risk ShareFHA Risk % 50% 50% 50%Rehab Per Unit $30,000-$40,000 $30,000-$40,000 >$30,000-$40,000Davis-Bacon Applies? No No YesAffordability Required? 20%@50% of AMI or

40%@60% of AMI20%@50% of AMI or 40%@60% of AMI

20%@50% of AMI or 40%@60% of AMI

Equity Takeout Permitted Waiver Required Waiver Required Waiver RequiredClosing Process HFA Underwriting,

Limited HUD ReviewHFA Underwriting, Limited HUD Review

HFA Underwriting, Limited HUD Review

Best Execution Participation Participation + Short-Term Tax-Exempt

??

Current Estimated Rate 3.71% 3.71% + COI ??

FHA Programs Comparison ChartHFA FFB Risk Sharing Program

[1] 5. Varies by region.

HFA FFB Risk Sharing Program

Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity

New Construction or Substantial Rehab

Lending Program HUD/FFB Risk Share HUD/FFB Risk Share HUD/FFB Risk ShareFHA Risk % 50% 50% 50%Rehab Per Unit $30,000-$40,000 $30,000-$40,000 >$30,000-$40,000Davis-Bacon Applies? No No YesAffordability Required? 20%@50% of AMI or

40%@60% of AMI20%@50% of AMI or 40%@60% of AMI

20%@50% of AMI or 40%@60% of AMI

Equity Takeout Permitted Waiver Required Waiver Required Waiver RequiredClosing Process HFA Underwriting,

Limited HUD ReviewHFA Underwriting, Limited HUD Review

HFA Underwriting, Limited HUD Review

Best Execution Participation Participation + Short-Term Tax-Exempt

??

Current Estimated Rate 3.71% 3.71% + COI ??

FFB Risk ShareClosing Process /Terms

• Few Differences from Traditional Risk Sharing• Rate Lock Process• Prepayment Lockout• Mortgage Reserve Fund• Final Endorsement/Closing Process

FHA vs. Risk ShareBorrower Choices

Terms– Interest Rate and Fees/Servicing Spread– Term and amortization– LTV Ratio, Loan Amount– Prepayment Rights– Davis-Bacon applicability– Rent/Vacancy Underwriting

Process– Rate Lock Process– Closing Process– Replacement Reserve Draw Process– Credit review

Questions?