Official Board Packet

Texas State Affordable Housing Corporation

Board Meeting

To be held at the offices of Texas State Affordable Housing Corporation

1005 Congress Avenue – Suite B-10 Conference Room Austin Texas 78701

Friday, March 10, 2006 10:30 a.m.

BOARD MEETING TEXAS STATE AFFORDABLE HOUSING CORPORATION

To be held at the offices of Texas State Affordable Housing Corporation

1005 Congress Avenue – Suite B-10 Conference Room Austin Texas 78701

March 10, 2006 at 10:30 am

AGENDA CALL TO ORDER, ROLL CALL Jerry Romero CERTIFICATION OF QUORUM Chair The Board of Directors of Texas State Affordable Housing Corporation will meet to consider and possibly act on the following: PUBLIC COMMENT REPORTS

♦ President’s Report David Long ♦ Executive Vice President’s Report Katherine Closmann ♦ Single Family Lending Report Paige McGilloway

♦ Presentation of Texas State Affordable Housing Corporation Single Family Mortgage Revenue Bonds (Professional Educator Home Loan Program) Series 2006A

♦ Presentation of the Proposed 2006 Nursing Faculty Home Loan Program ♦ Multifamily Lending Report Cari Garcia ♦ Asset Oversight & Compliance Report Emily Lah ♦ Financial Report Melinda Smith

♦ Presentation of Financial Statements and Budget Report ACTION ITEMS IN OPEN MEETING Tab 1 Presentation, Discussion and Possible Approval of Minutes of the Board Meeting held on February 10,

2006. Tab 2 Presentation, Discussion, and Possible Approval of a Resolution Approving Amendments to the Trust

Indenture Executed in Connection with the Corporation's Multifamily Housing Revenue Bonds (American Opportunity for Housing Portfolio) Series 2002; and Other Matters Related Thereto.

Tab 3 Presentation, Discussion and Possible Approval of a Resolution Ratifying and Confirming Amendments to the Origination, Sale and Servicing Agreements Relating to the 2005 Professional Educators Program and the 2005 Homes for Heroes Program.

Tab 4 Presentation, Discussion and Possible Approval of the Texas State Affordable Housing Corporation Investment Policy.

Tab 5 Presentation, Discussion and Possible Approval of the Texas State Affordable Housing Corporation’s

Investment Broker Listing. Tab 6 Presentation, Discussion, and Possible Approval relating to the Designation of General Counsel/Lender

Counsel/Issuer Counsel, Single Family/Multifamily Bond Counsel and Financial Advisor for the Corporation.

CLOSED MEETING Consultation with legal counsel on legal matters – Texas Government Code § 551.071 Deliberation regarding purchase, exchange, lease, or value of real property – Texas Government Code § 551.072 Deliberation regarding prospective gift or donation to the state or Texas State Affordable Housing Corporation – Texas Government Code § 551.073 Personnel Matters – Texas Government Code § 551.074 Implementation of security personnel or devices – Texas Government Code § 551.076 Other matters authorized under the Texas Government Code OPEN MEETING Action in Open Meeting on Items Discussed in Closed Meeting ADJOURN

Individuals who require auxiliary aids or services for this meeting should contact Laura Smith, ADA Responsible Employee, at 512-477-3555, x 400 or Relay Texas at 1-800-735-2989 at least two days before the meeting so that the appropriate arrangements can be made. Texas State Affordable Housing Corporation reserves the right to recess this meeting (without adjourning) and convene at a later stated time, if and to the extent allowed by law. If Texas State Affordable Housing Corporation adjourns this meeting and reconvenes at a later time, the later meeting will be held in the same location as this meeting. Texas State Affordable Housing Corporation also reserves the right to proceed into a closed meeting during the meeting in accordance with the Open Meetings Act, Chapter 551 of the Texas Government Code. If permitted by the Open Meetings Act, Chapter 551 of the Texas Government Code, any item on this Agenda to be discussed in open meeting may also be discussed by the Board (and any other authorized persons) in closed meeting.

President’s Report

Discussion

Texas State Affordable Housing Corporation'sProfessional Educators Home Loan Program Series 2005A

As of July 27, 2005 through February 22, 2006

Month # of

Loans

% ofTotal

LoansTotal

Originated

% ofTotal

OriginationJun-05 7 4% 828,787$ 4%Jul-05 18 11% 1,845,164$ 10%

Aug-05 20 12% 2,333,425$ 12%Sep-05 24 14% 2,705,421$ 14%Oct-05 21 13% 2,537,764$ 13%Nov-05 22 13% 2,776,305$ 14%Dec-05 33 20% 3,711,022$ 19%Jan-06 19 11% 2,196,774$ 11%Feb-06 3 2% 313,722$ 2%

Totals 167 100% 19,248,384$ 100%

Lender Originated Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Total Total %Countrywide Funding Corp. 2,698,848$ 1 4 4 2 2 9 4 26 16%

Wells Fargo Home Mortgage 2,005,725$ 4 2 3 1 1 4 4 19 11%Market Street Mortgage 1,503,375$ 1 4 2 3 2 12 7%

Residential Home Lending 1,255,016$ 1 1 1 1 1 2 1 2 10 6%Rocky Mountain Mortgage 1,119,100$ 3 1 2 1 1 1 1 10 6%Wachovia Mortgage Corp. 946,221$ 2 2 4 8 5%

Home Loan Corp. 864,897$ 1 1 1 2 1 2 8 5%Prime Lending Inc 804,706$ 1 1 2 1 2 7 4%

Texas Capital 794,647$ 1 5 6 4%Judith O. Smith Mortgage 583,070$ 2 1 1 4 2%

McAfee Mortgage 568,230$ 1 1 1 2 5 3%First Horizon Home Loan 503,314$ 1 1 1 1 4 2%

DHI Mortgage 501,705$ 1 1 2 4 2%WR Starkey 491,706$ 1 1 1 1 4 2%

CTX Mortgage Corp. 451,946$ 1 1 1 1 4 2%SFMC - Service 1st Mortgage 442,103$ 1 2 3 2%

Ryland Mortgage 385,497$ 1 1 1 3 2%Cornerstone Mortgage 357,542$ 1 2 3 2%

Universal American Mortgage 312,243$ 1 1 1 3 2%Ft. Worth Mortgage 297,867$ 2 1 3 2%

Hammersmith Financial 289,000$ 1 1 2 1%First Continental Mortgage 268,873$ 1 1 2 1%

Willow Bend Mortgage 258,000$ 2 2 1%Valley Mortgage Corp 254,298$ 1 1 1 3 2%

Milestone Mortgage 216,776$ 1 1 2 1%RBC 212,192$ 1 1 2 1%

TexasBank 135,500$ 1 1 1%New Century Mortgage 124,388$ 1 1 1%

1st Nat'l Bk dba 1st Comm 113,124$ 1 1 1%Home Trust Co. 111,435$ 1 1 1%

Pulaski Mortgage Company 104,176$ 1 1 1%Northstar Bank of Texas 101,500$ 1 1 1%NTFN Inc./ Premier Nat'l 94,864$ 1 1 1%

Fairway Independent Mortgage 76,500$ 1 1 1%Total Committed 19,248,384$ 7 18 20 24 21 22 33 19 3 167 100%

Texas State Affordable Housing Corporation'sProfessional Educators Home Loan Program Series 2005A

As of July 27, 2005 through February 22, 2006

Total Amount Originated $19,248,384Average Monthly Income $4,497Average Purchase Price $119,341Average Loan Amount $115,260

Average Household Size 2New/Existing

Existing 60%New 40%

Professional BreakdownTeacher 98.80%

Teacher Aide 0.06%School Counselor 0.06%School Librarian 0%

School Nurse 0%Type of Loan

FHA 73%FNMA 27%

VA 0%USDA-RD 0%

EthnicityNot specified 75%

White, not of Hispanic origin 19%Hispanic 2%

African American 4%Asian, South Pacific 1%

Top Origination Locations # of LoansHOUSTON 19

AUSTIN 9FORT WORTH 9

EL PASO 8RICHMOND 8

SAN ANTONIO 7MANSFIELD 5ARLINGTON 4

DALLAS 4HORIZON 4

LANCASTER 4

At a Glance Monthly Origination

$828

,787

$1,84

5,164

$2,33

3,425

$2,70

5,421

$2,53

7,764

$2,77

6,305

$3,71

1,022

$2,19

6,774

$313

,722

$19,2

48,38

4

7 18 20 24 21 22 33 19 3 167$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Totals

Bond ClosedJuly 27th, 2005

Occupational Origination Amounts

$19,026,834

$0

$99,750

$121,800

$0

TeacherTeacher AideSchool CounselorSchool LibrarianSchool Nurse

Texas State Affordable Housing Corporation'sHomes for Heroes Home Loan Program Series 2005B

As of October 25, 2005 through February22, 2006

Month # of

Loans

% ofTotalLoans

Total Originated

% ofTotal

OriginationSep-05 2 2% 204,150$ 2%Oct-05 12 13% 1,087,797$ 12%Nov-05 25 27% 2,209,788$ 25%Dec-05 17 18% 1,687,421$ 19%Jan-06 15 16% 1,363,175$ 15%Feb-06 23 24% 2,265,325$ 26%

Totals 94 100% 8,817,656$ 100%

Lender Originated Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Total Total %McAfee Mortgage 1,725,664$ 1 4 6 3 1 5 20 21%

Countrywide Funding Corp. 1,545,989$ 5 4 5 2 3 19 20%Wells Fargo Home Mortgage 953,634$ 1 1 1 5 3 11 12%

Residential Home Lending 706,360$ 1 3 3 7 7%CTX Mortgage Corp 669,260$ 1 2 3 1 7 7%

American Home Mortgage 418,784$ 1 2 1 4 4%Market Street Mortgage 413,532$ 1 2 1 4 4%

Universal American Mortgage 323,194$ 1 1 1 3 3%Cornerstone Mortgage 262,125$ 1 1 2 2%

Prime Leading, Incorporated 194,650$ 1 1 1%Jefferson Mortgage Services 171,990$ 1 1 1%

Valley Mortgage Corp. 154,190$ 1 1 2 2%SFMC - Service 1st Mortgage 153,589$ 2 2 2%

Home Loan Corp. 144,870$ 1 1 2 2%First Horizon Home Loan Corp. 139,900$ 1 1 1%

NTFM Inc./ Premier Nat'l 133,941$ 1 1 1%Texas Capital 132,051$ 1 1 1%

Wachovia Mortgage Corp. 126,621$ 1 1 1%Milestone Mtg 112,610$ 1 1 1%

New Century Mortgage 98,201$ 1 1 1%Chase 84,333$ 1 1 1%

Ft. Worth Mortgage 83,250$ 1 1 1%1st Natl Bk dba 1st Community 68,918$ 1 1 1%

Total Committed 8,817,656$ 2 12 25 17 15 23 94 100%

Texas State Affordable Housing Corporation'sHomes for Heroes Home Loan Program Series 2005B

As of October 25, 2005 through February 22, 2006

Total Amount Originated $8,817,656Average Monthly Income $3,851Average Purchase Price $95,200Average Loan Amount $93,805

Average Household Size 2New/Existing

Existing 75%New 25%

Professional BreakdownCorrectional Officers 39%

Fire Fighters 25%Peace Officer 30%County Jailer 5%

Public Security Officer 1%Type of Loan

FHA 76%FNMA 19%

VA 5%USDA-RD 0%

EthnicityNot specified 60%

American Indian/Native Alaskan 1%Hispanic 9%

African American 5%Non-White, Non-Hispanic 25%

Top Origination Locations # of LoansAMARILLO 5HOUSTON 4

BEAUMONT 3BEEVILLE 3

PLAINVIEW 3WICHITA FALLS 3

ALVARADO 2ANNA 2

ARLINGTON 2AUSTIN 2

BAYTOWN 2BURLESON 2

COPPERAS COVE 2CORPUS CHRISTI 2

HARLINGEN 2ORANGE 2

ROUND ROCK 2SAN ANTONIO 2

At a GlanceMonthly Origination

2 12 25 17 15 23 94 $204

,150 $1

,087,7

97 $2

,209,7

88

$1,68

7,421

$2,26

5,325

$8,81

7,656

$1,36

3,175

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

$9,000,000

$10,000,000

Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Totals

Bond ClosedOctober 25, 2005

Occupational Origination Amounts

$2,726,850

$2,489,909

$3,013,831

$152,346$434,720

Correctional OfficersFire FightersPeace OfficerCounty JailerPublic Security Officer

Multifamily Lending Report

Discussion

TEXAS STATE AFFORDABLE HOUSING CORPORATIONCOMPARISON OF BUDGETED TO ACTUAL OPERATING ACTIVITY

(For the Five Month Period Ending January 31, 2006)

% of AnnualRevenues Budget Actual Budget

Servicing Revenue, Net of Subservicer Fees 425,000 198,060 46.60%Multifamily Revenue 650,000 202,760 31.19%TDHCA Asset Oversight Revenue 509,000 220,059 43.23%Investment Revenue 120,000 52,369 43.64%University of Texas Single Family - 2,000 -Grant/Fundraising Income - - 0.00%TOTAL REVENUES 1,704,000 675,248 39.63%

ExpendituresSalaries & Payroll Related Expenditures 860,000 354,994 41.28%Professional Services - Legal, Audit & IT 177,000 83,523 47.19%Office & Equipment Lease 124,000 46,121 37.19%Travel & Meals 72,000 36,160 50.22%Interest on FHLB Notes 67,000 27,680 41.31%Marketing & Sponsorships 23,000 (9,127) -39.68%Insurance 23,600 7,643 32.39%Professional Dues & Training 12,000 4,907 40.89%Communication 12,000 5,030 41.92%Bank Fees & Charges 8,000 4,558 56.98%Office Supplies 8,000 4,508 56.35%Publications, Subscriptions, Office Maintenance 5,300 5,610 105.85%Freight, Delivery & Postage 6,000 2,202 36.70%Furniture, Equipment, & Software 20,000 11,706 58.53%Printing 1,500 606 40.40%Program and Loan Administration 4,000 365 9.13%TOTAL EXPENDITURES 1,423,400 586,486 41.20%

NET INCOME 280,600 88,762 31.63%

Target Percentage = 42%

FY 2006

TEXAS STATE AFFORDABLE HOUSING CORPORATIONCOMPARISON OF BUDGETED TO ACTUAL OPERATING ACTIVITY

(For the Five Month Period Ending January 31, 2006)

BOARD MEETING TEXAS STATE AFFORDABLE HOUSING CORPORATION

Held at the Offices of Texas State Affordable Housing Corporation

1005 Congress Avenue – Suite B-10 Conference Room Austin Texas 78701

February 10, 2006 at 10:30 am

Summary of Minutes Call to Order, Roll Call Certification of Quorum The Board Meeting of the Texas State Affordable Housing Corporation (the “Corporation”) was called to order by Jerry Romero, Chair, at 10:33 a.m., on February 10, 2006, at the offices of Texas State Affordable Housing Corporation, 1005 Congress Avenue – Suite B-10 Conference Room, Austin, TX 78701. Roll Call certified that a quorum was present. Members Present Jerry Romero, Chair Thomas Leeper, Vice Chair Jesse A. Coffey, Member Charles G. Rencher, Member Jo Van Hovel, Member Staff Present David Long, President Melinda Smith, Chief Financial Officer Katherine Closmann, Executive Vice President Cari Garcia, Multifamily Finance Manager Emily Lah, Asset Oversight & Compliance Manager Paige McGilloway, Single Family Programs Manager Laura Smith, Corporate Secretary Public Comment No public comment was given. Special Guests Steve Carriker, Texas Association of Community Development Corporations Kathryn Garner, Andrews Kurth LLP Mary Koelling, Fist Southwest Company Gary Machak, RBC Dain Rauscher Robin Miller, First Southwest Company Steve Schottman, Texas Department of Housing and Community Affairs Open Meeting

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Mr. Romero began by thanking Mr. Carriker, Executive Director of the Texas Association of Community Development Corporations (TACDC), for attending the meeting. Mr. Romero then proceeded to the tab items portion of the agenda. Tab 2 Presentation, Discussion and Possible Approval of Minutes of the Board

Meeting held on January 19, 2006. Mr. Rencher made a motion to approve the minutes of the Board Meeting held on January 19, 2006. Mr. Coffey seconded the motion. Motion passed unanimously. Tab 1 Presentation, Discussion and Possible Approval of Minutes of the Board

Member Training held on January 19, 2006. Mr. Rencher made a motion to approve the minutes of the Board Member Training held on January 19, 2006. Ms. Van Hovel seconded the motion. Motion passed unanimously. The Board then returned to the reports portion of the agenda. President’s Report Mr. Long began by thanking Mr. Coffey for his participation in the discussion prior to the meeting regarding the Single Family bond programs. Mr. Long then congratulated Mr. Coffey on his appointment to the Board, noting that the Governor’s office had made a formal announcement of the appointment. Mr. Long stated that a copy of the Board Members’ certificates of completion for the Open Meetings Act training had been printed and provided to the Board. Mr. Long refreshed the Board’s memory that RFPs had been issued for General Counsel/Lender Counsel/Issuer Counsel, Single Family/Mulifamily Bond Counsel, and Financial Advisor, and that the deadline for those responses had passed. Mr. Long informed the Board that the Corporation had received 6 responses for General Counsel/Lender Counsel/Issuer Counsel, 4 responses for Single Family/Multifamily Bond Counsel, and 2 for Financial Advisor. Mr. Long stated that the staff’s determinations and decisions would be presented at the March Board meeting. Mr. Long informed the Board that the Corporation had formed a partnership with the University of Texas Real Estate Department to assist in the transfer of homes off of University of Texas land. Mr. Long further explained the process. Mr. Romero inquired whether this was an informal partnership and Mr. Long explained that it was, that thru a Bill of Sale acquiring the improvements on the land the Corporation acquired the improvements from the University of Texas and then immediately transferred the improvements from the Corporation to the local non-profit. Mr. Long recognized Mr. Carriker with TACDC as being in attendance at the meeting. Mr. Long stated that he and staff had had the opportunity to meet with Mr. Carriker earlier in the week to discuss ideas for the Corporation’s programs. Mr. Long made the Board aware that he and Ms. Closmann had met with Representative Menendez’s staff in San Antonio to discuss the upcoming session and what things the Corporation would like to accomplish. Mr. Long also

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informed the Board that he and Ms. Closmann had attended a Wells Fargo reception for the Community Development Group of Wells Fargo. Mr. Rencher inquired whether the properties and homes being transferred by the Corporation through the partnership with the University had been donated, and Mr. Long replied that they were either donated or the University had acquired the land along with the house. Mr. Long clarified that the Corporation did not take title to the land, and only through Bill of Sale did they acquire the improvements on the land. Mr. Romero inquired whether this might be a partnership the Corporation could forge with Texas A&M and other state universities. Mr. Long stated that this would be a possibility that staff would pursue. Discussion followed. Mr. Rencher inquired about the RFPs issued and whether the staff would make a recommendation to the Board for the firms selected. Mr. Long stated that staff’s recommendations would be presented to the Board for approval at the next meeting. Executive Vice President’s Report Ms. Closmann began by refreshing the Board’s memory regarding a letter that was sent to the Ford Foundation requesting grant money for the Rural RFP. Ms. Closmann proceeded to update the Board that she had received a response from the Foundation stating that the areas addressed in the Rural RFP didn’t fall in their program area of helping to promote the accumulation of individual income and assets. Ms. Closmann stated that she would work on letters of inquiry to other foundations regarding the single family affordable homeownership program. Ms. Closmann stated that Ms. Saul, who was prospecting for grants for the Corporation, was putting together a corporate sponsor contact list. Ms. Closmann informed the Board that American Opportunity for Housing was considering following American Housing Foundation’s lead by doing a similar transaction. Ms. Closmann stated that the portfolio was in financial distress and this transaction would help the properties. Ms. Closmann explained that it would be a similar structure to the American Housing Foundation deal. Single Family Lending Report Ms. McGilloway began by reporting that the application for the 2006 Professional Educators Home Loan Program had been submitted to the Bond Review Board. Ms. McGilloway further stated that a TEFRA hearing regarding the program was scheduled for the following Monday. Ms. McGilloway informed the Board that she had attended lender trainings to familiarize herself with the process that lenders go through to book and reserve funds. Ms. McGilloway also stated that she had been meeting with realtors in the Austin area to further involve them in the programs. Ms. McGilloway made the Board aware of the many changes that had been implemented on the Corporation’s website. Mr. Romero inquired whether there was a list of authorized lenders available on the website, and Ms. McGilloway stated that there were two lists posted, one for each program. Ms. McGilloway informed the Board that staff continued to work with the Corporation’s professionals regarding the Nursing Educators Program.

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Ms. McGilloway stated that the Gulf Opportunity Zone Act of 2005 enabled the Corporation to designate as targeted areas for the Programs the 22 counties covered by the Act. Ms. McGilloway turned the Board’s attention to the reports that were provided in the Board packet. Ms. McGilloway proceeded to go through each report and explain the statistics. Ms. McGilloway stated that she was invited by Ms. Carolyn Johnston at the Texas Department of Criminal Justice (TDCJ) to attend their Board Meeting in May to give a brief presentation on the Homes for Heroes Program. Mr. Rencher thanked Ms. McGilloway and Mr. Long for participating in a conference call with him and several realtors he had assembled to discuss the programs. Mr. Rencher inquired whether any of the loans generated were conventional loans. Mr. Long answered that while some were conventional, most of the loans issued under these programs were FHA. Mr. Leeper stated that he would make himself available to attend the TDCJ Board Meeting in May. Mr. Romero commented that he liked the report presentation. Mr. Long pointed out to Mr. Rencher that the area with the largest number of people accessing the Corporation’s Professional Educators Program was Houston. Ms. Van Hovel inquired about loans originated in the Temple area and Ms. McGilloway agreed to prepare that information for her. Multifamily Lending Report Ms. Garcia began by turning the Board’s attention to Private Activity Bond Program RFPs. Ms. Garcia stated that deadlines for the Rehabilitation and Senior Housing RFPs had passed with no responses being submitted. Ms. Garcia informed the Board that the Rural Housing RFP was due on March 20, 2006. Ms. Garcia stated that she continued to market the program and had recently administered a training for the Rural Rental Housing Association in Temple. Ms. Garcia turned the Board’s attention to the Corporation’s Direct Lending Program. Ms. Garcia informed the Board that she had mailed 200 letters regarding the program to community banks and had made followup calls. Ms. Garcia stated that she had met with Mr. Bob Johnston with Pavillion Bank in Richardson regarding the program and he was interested in participating. Mr. Romero inquired whether Ms. Garcia had contacted the Independent Bankers Association. Ms. Garcia stated that she planned on contacting them, as well as other banking associations and mortgage bankers. Mr. Coffey inquired if there was a dollar limit with the Direct Lending program, and Ms. Garcia answered that the program was to serve the smaller development between $500,000 and $5 million. Ms. Garcia explained that the Corporation would underwrite the loan and application, and once it was closed, the loan would be sold to Community Development Trust out of New York. Discussion followed. Financial Report Ms. Smith began by turning the Board’s attention to the budgeted to actual expenditures operating statement for the first four months of the fiscal year. Ms. Smith noted that the Corporation had a profit of $82,543. Ms. Smith pointed out to the Board that the total revenue and expenditures were right on target for this part of the year.

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Ms. Smith then turned the Board’s attention to the unrestricted investments chart and graph that was handed to the Board prior to the meeting. Ms. Smith proceeded to explain these two items in detail. Tab 3 Presentation and Discussion of the Texas State Affordable Housing

Corporation Single Family Mortgage Revenue Bonds (Professional Educator Home Loan Program) Series 2006A Transaction.

Mr. Long began by stating that Mr. Machak with RBC Dain Rauscher would be making a presentation with regard to the structure of the transaction, using the handouts provided. Mr. Long stated that the structure had not been finalized, because different options for structuring the deal were still being examined. Mr. Long noted that the closing date might be pushed back one week. Mr. Machak with RBC Dain Rauscher introduced himself to the Board. Mr. Machak proceeded to go through and explain the current structure of the 2006 Professional Educator Home Loan Program. Discussion followed regarding the interest rate and cash contributions made by the Corporation. Mr. Rencher inquired as to when a loan under the program was considered committed. Ms. Koelling with First Southwest introduced herself to the Board. Ms. Koelling explained that a loan was committed when registered on Citimortgage’s website. Mr. Rencher inquired whether the difference in the usage of the Professional Educators and Homes for Heroes programs could be attributed to income levels, specifically in the Houston area. Ms. Koelling stated that income levels varied dependent upon areas of the state, but also groups qualifying for the Homes for Heroes program were generally more credit challenged as compared to those qualifying for the Professional Educators Program. Ms. Koelling further stated that because targeted areas for the programs were expanded to include Rita GO Zones (Harris and Fort Bend County), borrowers in the Houston area would fall in the targeted area and would therefore have higher income limits. Tab 4 Presentation, Discussion and Possible Approval of Target Areas of Housing

Need for the 2006 Multifamily Private Activity Bond Program Ms. Garcia stated that the Corporation had approximately 26 million available for the Private Activity Bond Program and it was the staff’s desire to redirect the money to the counties designated in the GO Zone. Ms. Garcia stated that she was seeking approval to designate another target area for the Private Activity Bond Program. Ms. Garcia referred the Board’s attention to the documents contained behind Tab 4 in the Board Book. Ms. Garcia stated that the first was a written summary of the staff’s proposal to issue another RFP for the disaster areas in the southeast and Gulf Coast region of the state. Ms. Garcia discussed the document in further detail, noting that HR4400 signed by President Bush designated 28 counties in the GO Zone and that developers using tax credits in those areas would receive a 30% boost. Ms. Garcia stated that Governor Perry under Executive Order RP-54 further delineated that 22 counties were disaster areas and authority was given to waive certain regulations and rules in order to get money into those areas for rebuilding. Ms. Garcia turned the Board’s attention to the two tables at the back of Tab 4. Ms. Garcia explained that one table was

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created by the Governor’s Division of Emergency Management and showed various counties in the GO Zone that had reported damage. Ms. Garcia explained that the second chart was TDHCA’s order of counties being targeted with their 9 % housing tax credit funds. Ms. Garcia further explained how TDHCA’s tax credit program would work in relation to those designated counties. Ms. Garcia clarified for the Board that the counties designated in the Corporation’s RFP would be the 22 counties designated in the Governor Perry’s Executive Order, excluding Harris County. Mr. Rencher inquired as to why Harris County was excluded, and Ms. Garcia explained that the Corporation was trying to mirror TDHCA’s program. Ms. Closmann further explained that the Corporation was asking for forgiveness by TDHCA for an outstanding note, in exchange for putting those funds towards this new RFP. Ms. Closmann stated that staff thought this would present the best opportunity for the TDHCA Board to forgive the note. Mr. Rencher expressed his concern that economic damage to Harris County was not being taken into account. Ms. Garcia stated what she believed to be the reason behind TDHCA excluding Harris County. Mr. Schottman with TDHCA introduced himself to the Board. Mr. Schottman further elaborated on why Harris County was excluded from TDHCA’s program. Discussion followed. Ms. Van Hovel made a motion to approve the designated target areas for housing for the 2006 Multifamily Private Activity Bond Program. Mr. Coffey seconded the motion. Mr. Romero, Mr. Leeper, Mr. Coffey and Ms. Van Hovel voted to approve the motion. Mr. Rencher opposed the motion. Motion passed. Tab 5 Presentation, Discussion and Possible Approval of a Commitment to Provide

up to a $500,000 Loan to Finance a Portion of a Development Financed by the Corporation’s Private Activity Bonds

Ms. Closmann explained that she was asking that the Board approve $500,000 from the Corporation’s unrestricted funds to go toward the RFP for the Hurricane affected areas. Ms. Closmann referred the Board to the current breakout of designated use of unrestricted cash and investments as of January 2006. Ms. Closmann pointed out that $500,000 had been designated for the 2006 Private Activity Bond Program. Ms. Closmann stated that if the money for the note was forgiven it may be enough for the Hurricane RFP and therefore this $500,000 could be used for the Rural RFP. Mr. Romero asked for confirmation that this money had already been set aside and accounted for in the books, and Mr. Long and Ms. Closmann confirmed that this was the case. Mr. Romero made a motion to approve the commitment to provide up to a $500,000 loan to finance a portion of a development financed by the Corporation’s Private Activity Bond Program. Ms. Van Hovel seconded the motion. Motion passed unanimously. Tab 6 Presentation, Discussion and Possible Approval of a Commitment to Provide

up to a $500,000 Loan to Finance a Portion of a Hurricane-Affected Area Development or Developments Financed by the Corporation’s Private Activity Bonds, Contingent upon the Texas Department of Housing and Community Affairs Forgiving a Promissory Note in the Amount of $500,000

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Ms. Closmann referred the Board’s attention to the memorandum contained under Tab 6 of the Board book that explained in more detail the Corporation’s request to TDHCA to forgive a $500,000 loan so the money could be used to provide a gap financing loan for the rehabilitation, reconstruction, or replacement new construction of multifamily complexes in the target area approved earlier in the meeting. Ms. Closmann explained that staff was seeking the Board’s approval that if the TDHCA Board agreed to forgive the loan, the $500,000 designated to pay the note would go toward the Hurricane RFP. Ms. Closmann did note for the Board that if a deal wasn’t closed by the end of the year for the Private Activity Bond Program, the money forgiven by TDHCA would then be used for down payment assistance for the two single family bond programs. Ms. Closmann further explained the history of the loan from TDHCA. Mr. Romero extended his thanks to TDHCA for working with the Corporation in trying to establish a process where we could pay the money back, but also for allowing the Corporation to use the money for the Corporation’s programs. Ms. Closmann stated that this was contingent upon approval of forgiveness of the loan by the TDHCA Board. Mr. Long informed the Board that this matter was on the agenda for TDHCA’s February meeting. Discussion followed. Mr. Rencher made a motion to approve the commitment to provide up to $500,000 in a loan to finance a portion of the hurricane affected area of development or developments financed by the Corporation’s Private Activity Bond Program, contingent upon the approval of the Texas Department of Housing and Community Affairs forgiveness of a promissory note in the amount of $500,000. Mr. Leeper seconded the motion. Motion passed unanimously. Tab 7 Presentation, Discussion and Possible Approval of Amended Scoring Criteria

for the Hurricane Distressed Counties in Texas Governing the Method by which the Corporation Scores and Ranks Applications for an Allocation Under the Corporation’s 2006 Multifamily Private Activity Bond Program.

Ms. Garcia noted that the revised scoring criteria in the Board Packet related to the RFP for the Hurricane affected areas. Ms. Garcia noted that the only change was that more points would be given for developments that targeted a lower income category. Mr. Leeper made a motion to approve the amended scoring criteria for the hurricane distressed counties in Texas, governing the method by which the Corporation scores and ranks applications for allocation under the Corporation’s 2006 Multifamily Private Activity Bond Program. Mr. Coffey seconded the motion. Motion passed unanimously. Tab 8 Presentation, Discussion and Possible Approval of the issuance of a Request

for Proposals for Reconstruction, Rehabilitation, or Replacement New Construction of Multifamily Housing in the Gulf Opportunity Zone Designated Counties of Texas Under the Corporation's 2006 Multifamily Private Activity Bond Program.

Ms. Garcia began by referring the Board’s attention to the clean and blackline versions of the RFP found behind Tab 8 in the Board Packet. Ms. Garcia proceeded to go through and point out the changes that were made in comparison to the previous RFPs. Ms. Garcia made special note that it was the Corporation’s intention to still issue this RFP, even if TDHCA’s Board did not approve the forgiveness of the $500,000 loan. Ms. Garcia noted that responses would be due on

8

April 7, 2006 to coincide with TDHCA’s 9 percent tax credit policy. Ms. Garcia continued to go through the RFP and point out changes. Discussion followed. Ms. Closmann informed the Board that the RFP would go out immediately following TDHCA’s Board meeting. Ms. Closmann requested that the Board give staff the authority to implement changes should any minor changes be required by TDHCA’s Board before approval is given. Mr. Romero made a motion to approve the issuance of the Request for Proposals for the reconstruction, rehab, replacement new construction multifamily housing in the Gulf Opportunity Zone designated counties of Texas under the Corporation’s 2006 Multifamily Private Activity Bond Program, contingent on the amount that we will provide as support once TDHCA has approved or turned down the dollar amount of the forgivable note. If it is not approved, the language in the RFP will be changed to reflect a $500,000 loan. The staff would also therefore be authorized to make any non-substantive changes in the language that TDHCA recommends, as long as it doesn’t change the purpose of the RFP dramatically. Mr. Rencher seconded the motion. Motion passed unanimously. Closed Meeting Board Chair, Mr. Jerry Romero, called the Board into Executive Session at 12:02 pm. Mr. Romero resumed the Board Meeting at 12:14 pm Open Meeting After discussion it was determined that the next Board meeting would take place on Friday, March 10, 2006, at 10:30 am. It was also determined that the April meeting would take place on Friday, April 21, 2006. Adjournment Ms. Van Hovel made a motion to adjourn the meeting. Mr. Rencher seconded the motion. Motion passed unanimously. The Texas State Affordable Housing Corporation Board Meeting was officially adjourned at 12:15 pm. Respectfully submitted by________________________________________________ Laura Smith, Corporate Secretary

AOH Portfolio – Proposed Financial Restructuring and Asset Management Plan Greystone & Co. and MBIA are proposing to TSAHC a plan to help AOH stabilize the performance of its properties as well as meet its obligations to bondholder, MBIA and TSAHC. Purchase In Lieu of Redemption The first step of our proposal is for a purchase in lieu of redemption of the existing MBIA insured TSAHC senior bonds by Greystone & Co. In today’s interest rate environment, the fixed rate bonds senior bonds can be deposited into a floating rate trust/partnership structure to generate positive interest rate spread. Greystone & Co. will be responsible for structuring the floating rate trust/partnership and will bear all of the risks of managing that program. Greystone & Co. currently runs over $500 million of these programs with a variety of liquidity facility providers for its own account and in conjunction with credit enhancers like MBIA. The positive cash flow generated by this structure will be deposited into the Distribution Agreement and will be used to meet the obligations of AOH and will also be available for improvements at the properties. Asset Management Greystone Property Management Corp., Greystone’s property management subsidiary will provide asset management services to the transaction. The existing property manager will remain in place. GPMC specializes in affordable housing properties with over 6,000 units under management nationwide. GPMC has significant experience turning around sub-performing assets, usually in situations where Greystone & Co. has purchased the debt on the property or the real estate itself from an existing lender. In terms of the current status of the AOH portfolio, the primary difficulty with operations is the dramatic reduction in rent structure. The level of rent reduction being offered is equal to or greater than two months rent. We placed calls to properties in the same markets and found that the discounted rents offered were well below the market averages and unnecessary in their depth. While some of what is being shown on the operating statements as concessions will actually reduce gross rent potential, a good bit of it will be loss to lease and renewals will eliminate that over time and thus increase NOI. It will however, produce a higher than normal turnover rate as resistance to significant rent increases create move-outs and turnover costs. There is also an opportunity to improve income through a reduction in the bad debt. Great focus will be aimed at the rent collection and resident screening processes to ensure that move-outs from skips and evictions are reduced. Reducing the skips and evictions will allow the properties to put themselves in a position where leasing out paces the moveout activity and higher occupancy allows for increases in rent structure and a burn off of concessions.

While the reduction of the loss-to-lease will produce short term increases in turnover activity, a strict adherence to the rent collection policy and resident screening will ultimately produce long term turnover ratios of around 50%. Reduced operating expenses, specifically turnover costs, vacancy loss, and leasing commissions will further enhance NOI. We also see opportunity to reduce operating expenses through placement of property insurance at levels more reflective of current market averages. We have evaluated the payroll costs and find opportunity there as well. Also worth mentioning is the costs of contract services to the properties in areas such as unit painting and cleaning as well as landscaping services may also provide opportunity to cost reductions. From the broadest perspective, GPMC's approach to property performance enhancement is not terribly complicated. Through the application of roughly a half dozen basic areas of focus, stabilized operations will be achieved. These are as follows: 1. Appropriate rent structure based on the market in which each asset is located. We do not intend to lead the market initially but we certainly don't intend on being at the bottom of the market in rents. 2. Development of an appropriate marketing plan. This would include effective and targeted advertising, outreach into the community, professional marketing tools and a well trained and experienced leasing staff. 3. Strict enforcement of rent collection practices and a resident screening criteria that is appropriate for the property and its market. 4. The establishment of realistic and effective standards of property maintenance and cleaning with a goal of a clean property by 9:00am each morning and 24 hour response to all incoming workorders. 5. A schedule for the turnover of vacant units as they are vacated with the goal of always having more vacant units ready than vacant units leased. This ensures that the leasing staff can show a prospect a clean, ready vacant unit that they can lease. Nothing is harder than trying to lease a prospect on a unit that is not ready. On the other hand, nothing is easier than leasing an appropriately priced ready unit. 6. Most importantly, the placement of upper site management, the site manager and the maintenance supervisor, who appreciates the importance of NOI, personnel management, a strict adherence to budget and the professional approach to resident relations. Keep it clean, keep it repaired, collect rents, advertise the property and watch closely who is allowed into the units.

Not very complicated but proven to be effective. Pushing the properties to the top of the market will be achieved, in the long term, through training of staff in effective and proven leasing techniques such as feature/benefit selling, an interpersonal selling approach and effective closing methods.

HOU:2553062.2

RESOLUTION 06-__

RESOLUTION APPROVING AMENDMENTS TO THE TRUST INDENTURE EXECUTED IN CONNECTION WITH THE CORPORATION’S MULTIFAMILY HOUSING REVENUE BONDS (AMERICAN OPPORTUNITY FOR HOUSING PORTFOLIO) SERIES 2002; AND OTHER MATTERS RELATED THERETO

WHEREAS, the Texas State Affordable Housing Corporation (the “Corporation”) has

entered into a Trust Indenture dated as of March 1, 2002 between the Corporation and Wells Fargo Bank Texas, N.A., as trustee (the “Trustee”) and amended pursuant to the First Amendment to Trust Indenture, dated as of May 2, 2002 (as amended, the “Trust Indenture”), relating to the Corporation’s Multifamily Housing Revenue Bonds (MBIA Insured--American Opportunity for Housing Portfolio) Series 2002A issued in the aggregate principal amount of $53,165,000 (the “Series A Bonds”), the Corporation’s Multifamily Housing Revenue Bonds (MBIA Insured-- American Opportunity for Housing Portfolio) Taxable Series 2002A-T issued in the aggregate principal amount of $335,000 (the “Series A-T Bonds”), the Corporation’s Multifamily Housing Revenue Bonds (American Opportunity for Housing Portfolio) Junior Series 2002B issued in the aggregate principal amount of $5,400,000 (the “Series B Bonds”), the Corporation’s Multifamily Housing Revenue Bonds (American Opportunity for Housing Portfolio) First Subordinate Series 2002C issued in the aggregate principal amount of $4,120,000 (the “Series C Bonds”) and the Corporation’s Multifamily Housing Revenue Bonds (American Opportunity for Housing Portfolio) Second Subordinate Series 2002D issued in the aggregate principal amount of $1,075,000 (the “Series D Bonds” and, together with the Series A Bonds, the Series A-T Bonds, the Series B Bonds and the Series C Bonds, the “Bonds”);

WHEREAS, the proceeds of the Bonds were used to make a loan in the aggregate principal amount of $64,095,000 (the “Loan”) to American Opportunity for Housing – 2002 Portfolio, LLC, a Texas limited liability company (the “Borrower”), to provide financing for the acquisition and rehabilitation of five multifamily residential housing facilities (collectively, the “Projects”) located within Dallas County, Harris County, Montgomery County and Tarrant County, Texas and to pay certain costs associated with the issuance of the Bonds all pursuant to that certain Loan Agreement dated as of March 1, 2002 and amended pursuant to the First Amendment to Loan Agreement, dated as of May 1, 2002 (as amended, the “Agreement”) among the Corporation, the Trustee and Borrower; and

WHEREAS, contemporaneous with the issuance of the Bonds, MBIA Insurance Corporation (the “Bond Insurer”) issued its financial guaranty insurance policies with respect to the Series A Bonds and the Series A-T Bonds; and

WHEREAS, Section 10.2(5) of the Indenture allows the amendment thereof by the Corporation and the Trustee, with the prior written consent of the Bond Insurer, to make any changes which do not have a material adverse affect on the Owners of the Bonds, based on receipt of written confirmation from Standard & Poor’s Ratings Services (the “Rating Agency”) that such amendment will not result in a downgrade, qualification or withdrawal of the then-current rating on any of the Bonds (the “Rating Confirmation”); and

HOU:2553062.2

WHEREAS, Section 10.7 of the Indenture requires the Trustee to obtain an opinion of Bond Counsel (the “Bond Counsel Opinion”) in connection with any amendment to the Indenture stating that such amendment is authorized or permitted by the Act (as defined in the Indenture) and will not adversely affect the exclusion of interest on the Tax-Exempt Bonds from the gross income of the recipients thereof for Federal income tax purposes; and

WHEREAS, each of the Corporation and Trustee, in reliance upon the Rating Confirmation as required pursuant to Section 10.2(5) of the Indenture and the opinion of Bond Counsel as required by Section 10.7, will evidence its consent to the amendment of the Indenture as set forth in such amendment (the “Second Amendment”) by the signature of an authorized signatory hereto; and

WHEREAS, the Bond Insurer will evidence its consent to the amendment of the Indenture as set forth in the Second Amendment by the signature of an authorized signatory of the Bond Insurer thereto; and

WHEREAS, the Rating Agency will provide written confirmation (the “Rating Agency Confirmation”) that the Second Amendment will not result in a downgrade, qualification or withdrawal of the current rating on any of the Bonds; and

WHEREAS, in connection with the Second Amendment, the Corporation will execute a Distribution Agreement among the Borrower, the Corporation, the Bond Insurer and Wells Fargo Bank, National Association, as paying agent, as it may be amended from time to time in accordance with the terms thereof (the “Distribution Agreement”); and WHEREAS, the Board has determined that the amendment should be approved; NOW, THEREFORE, BE IT RESOLVED BY THE TEXAS STATE AFFORDABLE HOUSING CORPORATION THAT: Section 1. The recitals to this Resolution are hereby approved by the Board and incorporated into and made a part of this Resolution. Section 2. Terms used herein and not otherwise defined have the meanings given in the Trust Indenture.

Section 3. The Second Amendment to Trust Indenture, in substantially the form attached hereto as Exhibit A, is hereby approved, subject to such further modifications as are acceptable to the officers of the Corporation, and upon receipt by the Corporation of the Rating Agency Confirmation and the Bond Counsel Opinion, the officers of the Corporation are hereby authorized and directed to execute such Second Amendment to Trust Indenture, such signatures evidencing their consent to any modifications made thereto, and to deliver such Second Amendment to Trust Indenture to the Trustee.

Section 4. The Distribution Agreement, in substantially the form attached hereto as Exhibit B, is hereby approved, subject to such further modifications as are acceptable to the officers of the Corporation, and upon receipt by the Corporation of the Rating Agency

HOU:2553062.2

Confirmation and the Bond Counsel Opinion, the officers of the Corporation are hereby authorized and directed to execute such Distribution Agreement, such signatures evidencing their consent to any modifications made thereto, and to deliver such Distribution Agreement to the appropriate parties. Section 5. The officers of the Corporation are hereby authorized, jointly and severally, to take any and all steps necessary, do any and all things required, and execute and deliver such endorsements, instruments, certificates, documents or papers as may be necessary, advisable or appropriate to carry out the intent and purposes of this Resolution. Section 6. The Resolution shall be in full force and effect from and upon its adoption, and shall expire, and the approvals and authorizations granted herein shall expire, if the Distribution Agreement and the Second Amendment to the Trust Indenture are not executed and all necessary actions to accomplish this transaction are not completed by July 31, 2006. Section 7. The Board hereby directs this Resolution to be made a part of the Corporation’s books and records that are available for inspection by the general public. Section 8. It is hereby officially found and determined that the meeting at which this Resolution was adopted was open to the public, and public notice of the time, place and purpose of said meeting was given, all as required by the Open Meetings Act, Chapter 551, Texas Government Code, as amended.

Section 9. If any section, paragraph, clause or provision of this Resolution shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such section, paragraph, clause or provision shall not affect any of the remaining provisions of this Resolution.

Section 10. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency.

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HOU:2553062.2

PASSED AND ADOPTED this ____________________________, 2006. TEXAS STATE AFFORDABLE HOUSING CORPORATION Jerry Romero Chair, Board of Directors

ATTEST:

Secretary to the Board

HOU:2553062.2

EXHIBIT A

Second Amendment to Trust Indenture

HOU:2553062.2

EXHIBIT B

Distribution Agreement

4831-5863-9872.3

KUTAK ROCK LLP DRAFT 02/21/06

SECOND AMENDMENT TO TRUST INDENTURE

This Second Amendment to Trust Indenture is dated as of March 1, 2006 (this “Second Amendment”) and is made by and between Texas State Affordable Housing Corporation, a Texas public, nonprofit corporation duly organized and existing under the laws of the State of Texas pursuant to Subchapter Y of Chapter 2306, Texas Government Code (together with any successor to its rights, powers, duties and obligations hereunder, the “Issuer”) and Wells Fargo Bank, National Association (as successor-in-interest to Wells Fargo Bank Texas, N.A., together with any successor trustee hereunder, the “Trustee”), a national banking association organized under the laws of the United States of America, and amends and supplements the Trust Indenture dated as of March 1, 2002 between the Issuer and the Trustee, as amended pursuant to the First Amendment to Trust Indenture dated as of May 1, 2002 (as amended, the “Indenture”) relating to the Issuer’s Multifamily Housing Revenue Bonds (MBIA Insured—American Opportunity for Housing Portfolio) Series 2002A issued in the aggregate principal amount of $53,165,000 (the “Series A Bonds”) and the Issuer’s Multifamily Housing Revenue Bonds (MBIA Insured—American Opportunity for Housing Portfolio) Taxable Series 2002A-T issued in the aggregate principal amount of $335,000 (the “Series A-T Bonds” and, collectively with the Series A Bonds, the “Bonds”). The Bonds were issued simultaneously with, but are senior to, the Issuer’s Multifamily Housing Revenue Bonds (American Opportunity for Housing Portfolio) Junior Series 2002B issued in the aggregate principal amount of $5,400,000 (the “Series B Bonds”), the Issuer’s Multifamily Housing Revenue Bonds (American Opportunity for Housing Portfolio), First Subordinate Series 2002C issued in the aggregate amount of $4,120,000 (the “Series C Bonds”) and the Issuer’s Multifamily Housing Revenue Bonds (American Opportunity for Housing Portfolio), Second Subordinate Series 2002D issued in the aggregate principal amount of $1,075,000 (the “Series D Bonds” and, together with the Series B Bonds and the Series C Bonds, the “Subordinate Bonds”).

RECITALS:

WHEREAS, the proceeds of the Bonds and the proceeds of the Subordinate Bonds were used to make a loan in the aggregate principal amount of $64,095,000 (the “Loan”) to American Opportunity for Housing—2002 Portfolio, LLC, a Texas limited liability company (the “Borrower”), to provide financing for the acquisition and rehabilitation of five multifamily residential housing facilities (collectively, the “Properties”) located within Dallas County, Harris County, Tarrant County and Montgomery County, Texas, to pay certain costs associated with the issuance of the Bonds and to fund certain reserves all pursuant to that certain Loan Agreement dated as of March 1, 2002 (as amended, the “Agreement”) among the Issuer, the Trustee and Borrower; and

WHEREAS, contemporaneous with the issuance of the Bonds, MBIA Insurance Corporation (the “Bond Insurer”) issued its financial guaranty insurance policies with respect to the Bonds; and

WHEREAS, Section 10.2(5) of the Indenture allows the amendment thereof by the Issuer and the Trustee, with the prior written consent of the Bond Insurer, to make any changes which do not have a material adverse effect on the Owners of the Bonds, based on receipt of written

4831-5863-9872.3 2

confirmation from Standard & Poor’s Ratings Services (the “Rating Agency”) that such amendment will not result in a downgrade, qualification or withdrawal of the then-current rating on any of the Bonds or the Subordinate Bonds (the “Rating Confirmation”); and

WHEREAS, Section 10.7 of the Indenture requires the Trustee to obtain an opinion of Bond Counsel in connection with any amendment to the Indenture stating that such amendment is authorized or permitted by the Act (as defined in the Indenture) and will not adversely effect the exclusion of interest on the Tax-Exempt Bonds (as defined in the Indenture) from the gross income of the recipients thereof for Federal income tax purposes; and

WHEREAS, each of the Issuer and Trustee, in reliance upon the Rating Confirmation as required pursuant to Section 10.2(5) of the Indenture and the opinion of Bond Counsel as required by Section 10.7, evidences its consent to the amendment of the Indenture as set forth in this Second Amendment by the signature of an authorized signatory hereto; and

WHEREAS, the Bond Insurer evidences its consent to this amendment of the Indenture as set forth in this Second Amendment by the signature of an authorized signatory of the Bond Insurer hereto; and

WHEREAS, the Rating Agency has provided written confirmation, attached hereto as Exhibit A, that this Second Amendment will not result in a downgrade, qualification or withdrawal of the current rating on any of the Bonds or the Subordinate Bonds.

NOW, THEREFORE, in consideration of the premises and for other valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

Section 1. Recitals. The foregoing recitals are hereby agreed to and acknowledged. All capitalized terms used in this Second Amendment and not otherwise defined have the meanings assigned in the Indenture.

Section 2. Definitions. Section 1.1 is hereby amended to add the following definition:

“Distribution Agreement” means that certain Distribution Agreement among the Bond Insurer, the Issuer, the Borrower, Greystone & Co. and Wells Fargo Bank, National Association, as paying agent and as Trustee, dated as of the date of the Second Amendment, as it may be amended from time to time in accordance with the terms thereof, or any additional or successor distribution agreement relating to the exercise by the Bond Insurer of its rights pursuant to Article 11.9 hereof, as identified to the Trustee by the Bond Insurer.

Section 3. Amendment to Section 11.1 of the Indenture. Section 11.1 is hereby replaced in its entirety by the following:

“Section 11.1. Series A Bonds or the Series A-T Bonds Remain Outstanding. In the event that the principal and/or interest due on any Series A Bonds or the Series A-T Bonds shall be paid by the Bond Insurer pursuant to the Bond Insurance Policy or the Series A Bonds or the Series A-T Bonds shall be purchased by the Bond Insurer or its designee pursuant to Section 11.12 hereof, such Bonds shall remain Outstanding for all purposes of this Indenture, and the assignment and pledge of this Indenture and all

4831-5863-9872.3 3

covenants, agreements and other obligations of the Issuer to the holders of the Series A Bonds and the Series A-T Bonds shall continue to exist and shall run to the benefit of the Bond Insurer or its designee, as applicable, and the Bond Insurer or its designee, as applicable, shall be subrogated to the rights of such holders of Series A Bonds and the Series A-T Bonds.”

Section 4. Addition of Section 11.12 of the Indenture. Article XI, Section 11.12 is hereby added to the Indenture and will read as follows:

“Section 11.12. Purchase in Lieu of Redemption on Date of Acceleration. If, at any time, the maturity of the Series A Bonds or the Series A-T Bonds shall be accelerated pursuant to Section 8.2 of this Indenture, the Bond Insurer or its designee shall have the option of purchasing or causing to be purchased all of the Series A Bonds or the Series A-T Bonds then Outstanding in lieu of redemption or payment on the date of such acceleration at a purchase price equal to the principal amount of the Series A Bonds or the Series A-T Bonds, plus accrued interest to the date of acceleration. The Bond Insurer shall give written notice to the Trustee and the Issuer of its election to effect such a purchase concurrently with its direction to the Trustee to accelerate such Bonds. On the date established for payment of the Series A Bonds or the Series A-T Bonds upon acceleration, the Trustee shall use moneys deposited by or on behalf of the Bond Insurer to effect a purchase of such Bonds in lieu of redemption upon acceleration. On the payment date, the Trustee shall make such arrangements with DTC as necessary to effect the transfer of the beneficial ownership of the purchased Series A Bonds or the Series A-T Bonds to the Bond Insurer or its designee, as appropriate. The Series A Bonds or the Series A-T Bonds purchased in lieu of redemption or payment upon acceleration shall remain Outstanding under this Indenture and shall continue to be subject to all terms and conditions hereof unless and to the extent the Bond Insurer directs the Trustee to redeem and prepay such Bonds.

Following the purchase of any such Bonds in lieu of redemption or payment upon acceleration pursuant to this Section 11.12, the consequences of such acceleration shall be immediately annulled (although the related Events of Default shall not be deemed waived or otherwise cured) and the provisions of this Indenture shall be applied and interpreted as though such acceleration had not occurred (unless the Bond Insurer otherwise directs the Trustee in writing). The Bond Insurer may exercise its rights under this Section 11.12 one or more times in its sole and absolute discretion.”

Amounts provided to the Trustee pursuant to a Distribution Agreement for deposit to a Fund or Account held under this Indenture shall be deposited by the Trustee in accordance with the applicable provisions of the Distribution Agreement. All such amounts, together with the Issuer’s interest therein and in the Distribution Agreement are pledged to the Trustee pursuant to this Indenture as though specifically enumerated in the Granting Clauses hereof, and the Trust Estate “shall be deemed to include such amounts and the Issuer’s interest in the Distribution Agreement.”

Section 5. Ratification. Except as amended and supplemented hereby, all provisions of the Indenture remain in full force and effect and unamended hereby, and the Indenture, as

4831-5863-9872.3 4

amended and supplemented by this Second Amendment, is hereby ratified. No references to this Second Amendment need be made in any instrument or document at any time referring to the Indenture. Any such reference to the Indenture in any such instrument or document is deemed to be a reference to the Indenture as amended hereby.

Section 6. Counterparts. This Second Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

[Remainder of page intentionally left blank; signature pages follow]

4831-5863-9872.3

IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed, all as of the date set forth above.

TEXAS STATE AFFORDABLE HOUSING CORPORATION, Issuer

By Name Title

[Signature Page of Issuer for Second Amendment to Trust Indenture ]

4831-5863-9872.3

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee

By Name Title

[Signature Page of Trustee for Second Amendment to Trust Indenture]

4831-5863-9872.3

MBIA INSURANCE CORPORATION, as Bond Insurer

By Name Title

[Signature Page of Bond Insurer for Second Amendment to Trust Indenture]

4831-5863-9872.3

EXHIBIT A

RATING LETTER

4829-2388-9920.10

KUTAK ROCK LLP DRAFT 03/03/06

DISTRIBUTION AGREEMENT

Among

MBIA INSURANCE CORPORATION, as Bond Insurer,

TEXAS STATE AFFORDABLE HOUSING CORPORATION, as Issuer,

AMERICAN OPPORTUNITY FOR HOUSING—2002 PORTFOLIO, LLC, as Borrower,

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Bond Trustee

and

GREYSTONE & CO., INC., as Structuring Agent

Dated as of March 1, 2006

Texas State Affordable Housing Corporation Multifamily Housing Revenue Bonds

(MBIA Insured—American Opportunity for Housing Portfolio), Series 2002A

4829-2388-9920.10

Table of Contents Section 1. Defined Terms ....................................................................................................2 Section 2. Appointment of Paying Agent.............................................................................3

Section 3. Creation of Grantor Trust....................................................................................3 Section 4. Borrower Loan; Terms and Conditions ...............................................................5

Section 5. Distributions; Responsibilities of Paying Agent ..................................................6 Section 6. Duty of Care .......................................................................................................7

Section 7. Termination ........................................................................................................7 Section 8. Making of Distributions ......................................................................................7

Section 9. Pledge of Borrower’s Rights ...............................................................................8 Section 10. No Waiver; Cumulative Remedies ......................................................................8

Section 11. Waivers, Amendments........................................................................................8 Section 12. Notices ...............................................................................................................8

Section 13. Change of Address..............................................................................................9 Section 14. Governing Law...................................................................................................9

Section 15. Headings.............................................................................................................9 Section 16. Severability.........................................................................................................9

Section 17. Execution in Counterparts.................................................................................10 Section 18. Distribution of Issuer Reports ...........................................................................10

4829-2388-9920.10

DISTRIBUTION AGREEMENT

THIS DISTRIBUTION AGREEMENT, dated as of March 1, 2006 (this “Distribution Agreement”), is among MBIA INSURANCE CORPORATION, a New York stock insurance corporation (the “Bond Insurer”), TEXAS STATE AFFORDABLE HOUSING CORPORATION, a Texas public, nonprofit corporation duly organized and existing under the laws of the State of Texas pursuant to Subchapter Y of Chapter 2306, Texas Government Code (together with any successor to its rights, powers, duties and obligations hereunder, the “Issuer”), AMERICAN OPPORTUNITY FOR HOUSING—2002 PORTFOLIO, LLC, a Texas limited liability company (the “Borrower”), GREYSTONE & CO., INC., a New York corporation (the “Structuring Agent”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Trustee for the Bonds (in such capacity, the “Bond Trustee”) and as paying agent hereunder (the “Paying Agent”).

WITNESSETH:

WHEREAS, pursuant to that certain Trust Indenture, dated as of March 1, 2002, between Texas State Affordable Housing Corporation (the “Issuer”) and Wells Fargo Bank, National Association (the “Bond Trustee”), as amended pursuant to the First Amendment to Trust Indenture, dated as of May 1, 2002 (collectively, the “Original Indenture”), the Issuer issued certain multifamily revenue bonds, including its Multifamily Housing Revenue Bonds (MBIA Insured—American Opportunity for Housing Portfolio), Series 2002A (the “Bonds”); and

WHEREAS, the proceeds of the Bonds, together with the proceeds of other subordinate debt of the Issuer were used to make a loan to the Borrower to provide for financing for the acquisition and rehabilitation of five multifamily residential housing facilities (collectively, the “Properties”) located within Dallas County, Harris County, Tarrant County and Montgomery County, Texas and to pay certain costs and fund certain reserves associated with the issuance of the Bonds; and

WHEREAS, the Issuer and the Bond Trustee are entering into that certain Second Amendment to Trust Indenture, dated as of March 1, 2006, to the Original Indenture (the “Second Amendment” and, together with the Original Indenture, the “Indenture”); and

WHEREAS, the Bonds are presently in default; and

WHEREAS, the Bond Insurer has elected to exercise its right under Section 11.12 of the Indenture to cause the Bonds to be purchased in lieu of acceleration; and

WHEREAS, the Structuring Agent has agreed, pursuant to the terms hereof, to establish a secondary market floating rate trust into which the Bonds will be deposited; and

WHEREAS, the parties hereto have agreed that any funds received from the Structuring Agent representing amounts subject to distribution pursuant to this Distribution Agreement will be distributed as herein provided;

4829-2388-9920.10 2

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

Section 1. Defined Terms. In addition to the terms defined elsewhere in this Distribution Agreement, the following words and terms used in this Distribution Agreement shall have the following meanings:

“Asset Management Agreement” shall mean that certain Asset Management Agreement dated as of August 15, 2005 by and between the Borrower and Greystone Property Management Corp., as amended in accordance with its terms.

“Asset Oversight Agent’s Fee” shall mean the annual amount of $25 per unit in the Properties (to be increased annually based on any corresponding increase in the Consumer Price Index or as otherwise adjusted pursuant to the Asset Oversight Agreement) per year payable semi-annually on each March 1 and September 1.

“Available Commitment” shall mean the available commitment under the terms of the Liquidity Agreement.

“Borrower Loan” means the subordinate loan made to the Borrower by the Structuring Agent with funds disbursed pursuant to this Distribution Agreement as further described in Section 4 hereof.

“Certificate Trustee” shall mean the bank or trust company engaged by the Structuring Agent to act as trustee relative to the Grantor Trust.

“Grantor Trust” shall mean a grantor trust established by the Structuring Agent pursuant to the terms hereof into which shall be deposited the Bonds.

“Interested Parties” shall mean the Bond Insurer, the Issuer, the Paying Agent, the Borrower and the Structuring Agent.

“Issuer Administration Fee” shall mean the Issuer’s annual fee, in the greater amount of (a) 0.10% of the aggregate principal amount of the Bonds outstanding or (b) $5,000, payable semiannually on March 1 and September 1 of each year.

“Issuer Compliance Fee” shall mean the amount of $20 per unit in the Properties (to be increased annually based on any corresponding increase in the Consumer Price Index or as otherwise adjusted pursuant to the Compliance Agreement) per year payable semiannually on each March 1 and September 1.

“Liquidity Agreement” shall mean any standby bond purchase agreement, letter of credit or other similar instrument providing liquidity support for the Trust Certificates as identified to the Interested Parties in writing by the Structuring Agent.

“Liquidity Fee” shall mean, collectively (i) the Liquidity Provider’s fee accruing at a rate not to exceed (without the prior written consent of the Bond Insurer) the amount set forth in

4829-2388-9920.10 3

Section 3(b) hereof, plus (ii) any fees associated with a draw thereon plus (iii) any fee increase due to an event of default under the terms of the Liquidity Agreement. Notwithstanding the foregoing, if the Grantor Trust contains assets other than the Bonds, “Liquidity Fee” shall refer only to the pro rata portion of all fees and expenses comprising the Liquidity Fee attributable to the Bonds.

“Liquidity Provider” shall mean the person so identified to the Interested Parties in writing by the Structuring Agent; each Liquidity Provider shall, unless otherwise approved in writing by the Bond Insurer, have a short-term rating in the highest rating category of either Moody’s or S&P.

“Residual Amounts” shall mean all amounts remaining in the Grantor Trust after payment of the Trust Certificates and the Trust Expenses.

“Trust Certificates” shall mean trust certificates representing interests in the Grantor Trust bearing interest at variable rates issued by the Grantor Trust pursuant to the terms hereof.

“Trust Expenses” shall mean all reasonable fees and expenses payable by or to the Certificate Trustee with respect to the Grantor Trust, including, without limitation, the fees and expenses of the Certificate Trustee, the Liquidity Fee and any fees payable to a remarketing agent. Notwithstanding the foregoing, if the Grantor Trust contains assets other than the Bonds, “Trust Expenses” shall refer only to the pro rata portion of all fees and expenses comprising the Trust Expenses attributable to the Bonds.

Terms not otherwise defined in this Distribution Agreement shall have the meanings given to them in the Indenture.

The singular form of any word used herein shall include the plural, and vice versa, if applicable. The use of a word of any gender shall include all genders, if applicable. This Agreement and all of the terms and provisions hereof shall be construed so as to effectuate the purposes contemplated hereby and to sustain the validity hereof. All references to any person or entity shall be deemed to include any person or entity succeeding to the rights, duties and obligations of such person or entity.

Section 2. Appointment of Paying Agent. The Interested Parties hereby appoint the Paying Agent, and the Paying Agent hereby agrees to act, as exclusive paying agent in connection with the distribution of any amounts received by the Paying Agent pursuant to the provisions hereof.

Section 3. Creation of Grantor Trust.

(a) Purchase in Lieu of Acceleration of Bonds. Upon the execution of this Distribution Agreement, the Structuring Agent shall, at the direction of the Bond Insurer, purchase or cause to be purchased the Bonds pursuant to the provisions of Section 11.12 of the Indenture. The Structuring Agent shall be solely responsible for funding such purchase, and the Bond Insurer shall have no obligation to provide the funds for such purchase or otherwise arrange financing therefor. The Structuring Agent shall, in addition, pay all costs and expenses relating to the documentation and consummation of

4829-2388-9920.10 4

the purchase in lieu of redemption of the Bonds (including, without limitation, the costs associated with the approval, execution and delivery of the Second Amendment to Trust Agreement with respect to the Bonds) as set forth on Exhibit A hereto, subject to reimbursement as herein provided. The parties hereto agree and acknowledge that the Bond Insurer’s execution of this Distribution Agreement and/or purchase in lieu of acceleration of the Bonds is not intended to limit, waive or otherwise restrict any of the Bond Insurer’s rights with respect to the Bonds and the related mortgage loan, and that the Bond Insurer retains all its rights with respect thereto, including, without limitation, its right to accelerate the Bonds in the future and to cause a foreclosure on the mortgage loan in accordance with the terms of the Indenture and the Bond Documents. The execution, delivery and performance of this Distribution Agreement is not intended to waive or cure any Event of Default now or in the future existing under any Bond Document.

(b) Creation of Grantor Trust; Terms. Upon acquisition of the Bonds pursuant to Section 3(a) hereof, the Structuring Agent shall immediately transfer the Bonds to the Grantor Trust. The Structuring Agent shall create or cause to be created the Grantor Trust, and the costs relating thereto shall be born solely and exclusively by the Structuring Agent, except as otherwise expressly provided herein. The assets of the Grantor Trust shall consist solely of the Bonds and other “AA/Aa” or higher rated tax-exempt obligations and payments thereon, and the Grantor Trust shall have no obligations other than (i) the Trust Certificates, (ii) reasonable, ordinary and customary fees and expenses of the Certificate Trustee, (iii) reasonable, ordinary and customary fees and expenses of a remarketing agent with respect to the Trust Certificates and (iv) the Liquidity Fees. The Trust Certificates shall bear interest at a floating rate determined weekly (or on such other basis as shall be approved in writing by the Bond Insurer). None of the Interested Parties shall have any obligation to make any payments due with respect to the Grantor Trust or the Trust Certificates (although nothing herein shall be interpreted to limit or restrict the obligations of the Interested Parties with respect to the Bonds). The Bonds shall constitute less than 50% of the total assets of the Grantor Trust. The Grantor Trust shall be structured so as to ensure that (i) it is not subject to federal or state income taxation and (ii) interest received by owners of the Trust Certificates is exempt from federal income taxation to the extent interest on the Bonds would be exempt if the Bonds were owned directly by the owners of the Trust Certificates. The Structuring Agent shall obtain opinions of counsel experienced in such matters opining (with standard qualifications, limitations and assumptions) that the Grantor Trust meets the requirements of the preceding sentence. Such opinions shall be addressed to (or reliance letters shall be provided to) the Interested Parties. The aggregate Trust Expenses (exclusive of any amounts payable as a consequence of an event of default under the terms of a Liquidity Agreement) shall not exceed .50% of the aggregate principal amount of the Bonds per annum without the prior written consent of the Bond Insurer.

(c) Remittance of Residual Amounts. The Structuring Agent shall cause the Certificate Trustee to remit to the Paying Agent for the benefit of the parties hereto, as their interests may appear herein, the Residual Amount on each Interest Payment Date with respect to the Bonds and upon termination of the Grantor Trust. The Residual

4829-2388-9920.10 5

Amounts shall be distributed by the Paying Agent in accordance with the provisions of Section 5 hereof.

(d) Records and Reports. The Structuring Agent shall provide to each of the Interested Parties, within 30 days of each Interest Payment Date, an annual written accounting of all amounts received by and payments made from the Grantor Trust for the six-month period ending with such Interest Payment Date. The Structuring Agent shall further provide to each Interested Party, at the request of any such Interested Party, such additional information regarding the Grantor Trust, the Trust Certificates or the actions, fees or expenses of the Structuring Agent relating thereto as such Interested Party shall request.

(e) Indemnification. The Structuring Agent hereby agrees to indemnify and hold harmless the other Interested Parties, their officers, employees, members, directors and agents, from and against all liability and all expenses (including, without limitation, reasonable attorney’s fees) arising from or relating to the creation and administration of the Grantor Trust, the deposit of the Bonds in the Grantor Trust and the marketing, remarketing, offering and sale of the Trust Certificates. Without limiting the generality of the foregoing, such indemnification shall include any liability or expenses relating to violations or alleged violations of any provision of federal or state securities laws, including the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Trust Indenture Act of 1939, as amended, and the Investment Company Act of 1940, as amended.

(f) Maintenance of Trust. The Structuring Agent hereby agrees to maintain the Grantor Trust in accordance with the terms hereof, and not to cause, direct or consent to any termination of the Grantor Trust or any transfer, encumbrance or alienation of the Bonds by the Grantor Trust, unless (i) the interest rate payable on the Trust Certificates plus the relevant Trust Expenses exceeds the interest payable on the Bonds for a period of three (3) consecutive months or (ii) the Bond Insurer otherwise consents in writing.

(g) Hedge Transactions. The Borrower shall not enter into any interest rate swap or cap or other hedging transaction without the prior written consent of the Bond Insurer. The Structuring Agent may enter into hedges with respect to the Grantor Trust without the consent of the Bond Insurer provided that (i) the costs of such hedges are paid solely by the Structuring Agent and (ii) the Residual Amounts payable to the Paying Agent are not reduced as a consequence of such hedge.

Section 4. Borrower Loan; Terms and Conditions. The parties hereto agree and acknowledge that all amounts distributed pursuant to Section 5(a)(i) through (vii) hereof shall be deemed to constitute a loan from the Structuring Agent to the Borrower (the “Borrower Loan”). The Borrower Loan shall be subordinate to all obligations of the Borrower with respect to the Bonds or under the Bond Documents, shall be evidenced by a promissory note in the form attached hereto as Exhibit B, and shall be payable solely and exclusively from amounts otherwise available for release to the Borrower from the Residual Fund pursuant to the Indenture. The Structuring Agent hereby agrees that, so long as any amounts remain owing by the Borrower with respect to the Bonds or to the Bond Insurer, the Structuring Agent shall not

4829-2388-9920.10 6

take any action to enforce the Borrower’s obligations with respect to the Borrower Loan (provided, however, that the Structuring Agent may take such actions, subject to the provisions hereof, as are necessary to cause payments with respect to the Borrower Loan to be made from amounts payable to the Borrower from the Residual Fund). Notwithstanding the foregoing, the Structuring Agent may not, so long as any amounts remain owing by the Borrower with respect to the Bonds or the Bond Insurer, institute any bankruptcy, insolvency or other similar action against the Borrower, nor may the Structuring Agent take any action to require payments of the Borrower Loan from the general assets of the Borrower. The Borrower Loan will be secured solely by the note attached hereto as Exhibit B and by the Borrower’s right to distributions of funds from the Residual Fund, and the Borrower Loan shall not be secured by the Properties or any property (whether real or personal) relating thereto. The note evidencing the Borrower Loan will, as provided in Exhibit B hereof, contain the limitations set forth in this Section 4. Default by the Borrower under the Borrower Loan shall not constitute a default hereunder, nor shall it entitle the Structuring Agent to limit or suspend performance of its obligations hereunder. The Structuring Agent shall not transfer the Borrower Loan or any interest therein without the prior written consent of the Bond Insurer.

Section 5. Distributions; Responsibilities of Paying Agent.

(a) Distribution. Upon receipt of any funds from the Structuring Agent pursuant to Section 3 hereof, the Paying Agent shall distribute such funds as follows:

(i) First, to pay fees associated with the implementation of this Distribution Agreement, including but not limited to fees of counsel of the Interested Parties, all as set forth in Exhibit A attached hereto, and to pay to the Issuer $25,000 as a credit against amounts otherwise payable to the Issuer under (vii) below;

(ii) Second, upon receipt of written direction from the Bond Insurer, for transfer to the Bond Trustee to replenish any fund or account held under the Indenture relating to the Bonds or to pay amounts payable with respect to the Bonds but not paid (including, without limitation, principal of and interest thereon (including replenishment of any transfer from the Senior Debt Service Reserve Fund to pay debt service on the Bonds on the most recent Interest Payment Date), Trustee Fees and fees and expenses payable to the Bond Insurer, including, without limitation, due but unpaid Bond Insurance Premiums);

(iii) Third, to pay to the Issuer, in such order as the Issuer shall specify, any Issuer Administrative Fee, Asset Oversight Agent’s Fee or Issuer Compliance Fee accruing from and after March 1, 2006 and to pay to the Borrower $5,000 semi-annually to be applied towards the provision of social services at the Properties (such amounts shall be considered the minimum amount made available by the Borrower for residential social services—the Borrower and its property manager shall make every effort, including using other financial resources available to the Borrower, to provide adequate social services to the residents of the Properties);

4829-2388-9920.10 7

(iv) Fourth, to fund any required capital expenditures or operating expenses relative to the Properties, as directed in writing by the Bond Insurer;

(v) Fifth, to pay any amounts owing under the Asset Management Agreement;

(vi) Sixth, to pay to the Structuring Agent and to the Bond Insurer, pro rata, an amount equal to, in the case of the Structuring Agent, .50% per annum of the outstanding principal amount of the Bonds, plus any amount due but unpaid pursuant to this provision (vi) previously and, in the case of the Bond Insurer, .25% per annum of the outstanding principal amount of the Bonds, plus any amount due but unpaid pursuant to this provision (vi) previously (amounts due hereunder shall be paid in arrears based on the average principal amount of the Bonds outstanding for the period covered by any payment pursuant to this provision (vi));

(vii) Seventh, to pay to or at the direction of the Issuer, in such order as the Issuer shall specify, any Issuer Administrative Fee, Asset Oversight Agent’s Fee or Issuer Compliance Fee due and owing as of March 1, 2006 or due and owing pursuant to (iii) above and not timely paid; and

(viii) Eighth, any remaining amounts shall be distributed as follows:

(A) 35% of such amounts shall be distributed to the Structuring Agent; and

(B) 65% of such amounts shall be deposited on behalf of the Borrower to the Revenue Fund under the Indenture.

(b) Books and Records. The Paying Agent shall keep and maintain such books and records as are consistent with prudent industry practice. The Paying Agent shall supply, upon each distribution or on written request of the Bond Insurer, the Issuer, the Structuring Agent or the Borrower, a record of amounts received from the Structuring Agent and distributions made pursuant to this Distribution Agreement.

Section 6. Duty of Care. The Paying Agent shall exercise the same care with respect to the funds held by it hereunder as the Paying Agent exercises with respect to funds held on behalf of other entities held in a similar capacity. No provision of this Distribution Agreement shall be construed to relieve the Paying Agent from liability for any loss occasioned by the negligence or willful misconduct of, or the conversion, misappropriation or theft by the employees of the Paying Agent.

Section 7. Termination. This Distribution Agreement shall terminate upon the earlier of (a) payment in full of the Bonds, (b) the termination of the Grantor Trust or (c) the mutual agreement of the parties hereto.

Section 8. Making of Distributions. All distributions by the Paying Agent pursuant to this Distribution Agreement shall be made in immediately available funds at the address

4829-2388-9920.10 8

specified in Section 12 hereof or such other office of the relevant parties as they may designate to the Paying Agent in writing from time to time.

Section 9. Pledge of Borrower’s Rights. The Borrower hereby pledges and assigns to the Bond Trustee, as further security for the Loan Payments required under Section 3.2 of the Loan Agreement, all of the Borrower’s right, title and interest in and to this Distribution Agreement, the proceeds of the Borrower Loan and all amounts payable to or for the benefit of the Borrower hereunder. The Borrower covenants to pay or cause to be paid or assigned, immediately, to the Bond Trustee any amounts received by the Borrower hereunder. The Borrower further consents to the assignment and pledge by the Issuer of its rights hereunder to the Bond Trustee. The Borrower expressly authorizes the Bond Trustee and the Bond Insurer to file and refile all required financing statements to perfect the Trustee’s security interest in the Borrower’s interest in this Distribution Agreement and any amounts payable to or for the benefit of the Borrower hereunder.

Section 10. No Waiver; Cumulative Remedies. The parties hereunder shall not by any act, delay, omission or otherwise be deemed to have waived any of their rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by any such party, and then only to the extent therein set forth. A waiver by any party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such party would otherwise have on any further occasion. No failure to exercise nor any delay in exercising by the any of the parties hereunder of any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law.

Section 11. Waivers, Amendments. None of the terms or provisions of this Distribution Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the Bond Insurer, the Issuer, the Borrower, the Structuring Agent and the Paying Agent.

Section 12. Notices. Unless otherwise provided for in this Distribution Agreement, any notice required or permitted to be given under this Distribution Agreement shall identify the Bonds by appropriate caption and may be given by certified or registered mail, return receipt requested, or by facsimile or telecopy, charges prepaid, or by commercial overnight delivery service, prepaid, addressed:

To the Bond Insurer as follows: MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: IPM-Structured Finance Telephone: (914) 765-3788 Telecopy: (914) 765-3799

4829-2388-9920.10 9

To the Issuer as follows: Texas State Affordable Housing Corporation 1005 Congress Avenue, Suite 500 Austin, Texas 78701 Attention: Katherine Closmann Telephone: 512-477-3555 Telecopy: 512-477-3557

To the Borrower as follows:

To the Paying Agent as follows: Wells Fargo Bank, National Association 6th Street & Marquette Avenue MAC N9303-120 Minneapolis, Minnesota 55479 Attention: Susan Jacobsen Telephone: 612-667-3253 Telecopy: 612-667-9825

To the Structuring Agent as follows: Greystone & Co., Inc. 60th Floor 152 West 57 Street New York, New York 10019 Attention: Ken Rogozinski Telephone: 212-649-9700 Telecopy: 212-649-9701

Any notice sent by mail shall be deemed given five (5) days after it is deposited in the mails. Any notice sent by facsimile shall be deemed given when confirmed by facsimile answer back or sent, respectively. Any notice sent by commercial overnight delivery service shall be deemed given one (1) Business Day after it is deposited for delivery.

Section 13. Change of Address. Each party may change the address for service of notice upon it by a notice in writing to the others.

Section 14. Governing Law. The obligations of the parties under this Distribution Agreement shall be governed by and construed in accordance with the laws of the State of Texas.

Section 15. Headings. Section headings in this Distribution Agreement are for convenience of reference only and shall not govern, or be used in, the interpretation of any of the provisions of this Distribution Agreement.

Section 16. Severability. If any provision of this Distribution Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatever.

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Section 17. Execution in Counterparts. This Distribution Agreement may be executed in multiple counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Section 18. Distribution of Issuer Reports. The Issuer agrees to provide to the Bond Insurer and to the asset manager under the Asset Management Agreement any compliance audit reports or asset oversight reports produced by or on behalf of the Issuer.

[Remainder of page intentionally left blank]

4829-2388-9920.10

IN WITNESS WHEREOF, the parties hereto have executed this Distribution Agreement as of the date first above written.

MBIA INSURANCE CORPORATION

By Name Title

TEXAS STATE AFFORDABLE HOUSING CORPORATION

By Name Title

AMERICAN OPPORTUNITY FOR HOUSING—2002 PORTFOLIO, LLC

By Name Title

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Paying Agent

By Name Title

GREYSTONE & CO. INC., as Structuring Agent

By Name Title

4829-2388-9920.10

EXHIBIT A

FEES AND EXPENSES

Payee Purpose Amount TSAHC Restructuring Fee $10,000

First Southwest Advisory Fee 20,000 Andrews & Kurth Bond Counsel Fee 20,000

Kutak Rock LLP MBIA Counsel Fee 15,000 Greenberg Traurig Tax Counsel Fee 10,000

4829-2388-9920.10

EXHIBIT B

BORROWER LOAN NOTE

G:\Legal\Miscellaneous\FSRTennessee.Note III.doc

EXHIBIT B

N O T E $x,xxx.xx New York, New York

x,x, 2006 FOR VALUE RECEIVED, AMERICAN OPPORTUNITY FOR HOUSING – 2002 PORTFOLIO, LLC, a Texas non-profit corporation (“Maker”), subject to the terms and conditions set forth herein, promises to pay to the order of GREYSTONE FUNDING CORPORATION, a Virginia corporation with a business address at 152 W. 57th Street, 60th Floor, New York, New York 10019 (“Payee”), the principal sum of x and xx/100 ($xxx.xx) DOLLARS, in lawful money of the United States of America. The total principal amount, together with interest from the date of disbursement, on the outstanding balance thereof, shall be paid on the terms set forth herein, as follows (Ccapitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Trust Indenture, dated as of May 1, 2002, between the Texas State Affordable Housing Corporation and Wells Fargo Bank, National Association (as amended, the “Indenture”): 1. Interest and Principal. Interest shall accrue in arrears, without setoff or deduction, on the principal balance outstanding from time to time. Interest hereunder shall be computed at a rate equal to 8.0% per annum (the “Interest Rate”). Maker shall pay from funds available for such purpose from the Residual Fund, without setoff or deduction, monthly installments of interest only on the last day of each calendar month (each, a “Payment Date”), commencing , 2006 and continuing on the last day of each successive month thereafter through and including the Maturity Date (defined below); provided, all payments required to be made by the Maker to the Issuer pursuant to the IndentureAgreement have been paid. Interest payments not made on a Payment Date shall be added to the then outstanding principal balance of this Note and will thereafter accrue interest at the Interest Rate. The entire unpaid balance of principal remaining due hereunder, all interest due thereon and all other sums payable hereunder shall be due and payable in full on March 1, 2032 (“Maturity Date”). Notwithstanding anything to the contrary herein, prior to payment in full of the Senior Bonds, amounts due and owing hereunder shall be payable solely from amounts available for release to the Maker from the Residual Fund held under the Indenture. Prior to payment in full of the Senior Bonds, Payee may not institute and bankruptcy, insolvency or other similar action against Maker, nor may Payee take any action to require payment of any amount hereunder from the general assets of Maker. This Note and the amounts due hereunder are not and shall not be secured by any collateral other than amounts distributable to Maker from the Residual Fund. 2. Place of Payment. The principal and interest shall be payable at the address of Payee set forth above, or at such other place as Payee, from time to time, may designate in writing. 3. Prepayment. Maker shall have the privilege of prepaying this Note in full or in part without penalty at any time.

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4. Late Charges. If any regularly scheduled installment of interest or principal and interest or any other payment is not paid within ten (10) days of the time when due under the terms of this Note (but only if funds are available in the Residual Fund for payment of such payment), then there shall also be immediately due and payable a late charge at the rate of three percent (3%) of the delinquent payment. 5. Default. It is further understood, however, that should any default be made in the payment of any installment of principal and interest or any other payment due under this Note, then after any applicable notice and grace periods, Payee, at its option and without notice to Maker unless expressly required elsewhere in this Note may declare due and payable immediately the entire unpaid balance of principal with interest accrued on it at the applicable rate specified above to the date of default and after that date at a “default rate” which shall be five (5) percentage points higher than the rate specified above which would otherwise be applicable before default, and all other sums due by Maker under this Note, notwithstanding anything to the contrary in this Note and payment may be enforced and recovered in whole or in part at any time by one or more of the remedies provided to Payee in this Note. In such case Payee may also recover all costs of suit and other expenses in connection with it, together with reasonable attorneys’ fees for collection, together with interest or any judgment obtained by Payee at the default rate (defined above), including interest at the default rate from and after the date of any execution, judicial or foreclosure sale until actual payment is made to Payee of the full amount due Payee. 6. No Waiver. Payee’s failure to exercise its option to accelerate the indebtedness evidenced by this Note shall not constitute a waiver of the right to exercise that option at any other time so long as that event of default, remains outstanding and uncured, or to exercise it upon the occurrence of another default. Except as otherwise provided herein, Payee shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies under this Note unless the waiver is in writing and signed by Payee, and then only to the extent specifically set forth in the writing. A waiver on one event shall not be construed as continuing or as a bar to or waiver of any right or remedy to a subsequent event. 7. Waiver. Maker and all endorsers waive presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note and they agree that the liability of each of them shall be unconditional without regard to the liability of the other party, and shall not be affected in any manner by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee. 8. Savings Clause. If any provision of this Note is held to be invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Note shall remain in full force and effect and shall be construed liberally in favor of Payee in order to effectuate the provisions of this Note. In no event shall the rate of interest payable under this Note exceed the maximum rate of interest permitted to be charged by the applicable law (including the choice of law rules) and any interest paid in excess of the permitted rate shall be refunded to Maker. That refund shall be made by application of the excessive amount of interest paid against any sums outstanding and shall be applied in such order as Payee may determine. If the excessive amount of interest paid

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exceeds the sums outstanding, the portion exceeding the sums outstanding shall be refunded in cash by Payee. Any crediting or refund shall not cure or waive any default by Maker under this Note. Maker agrees, however, that in determining whether or not any interest payable under this Note exceeds the highest rate permitted by law, any non-principal payment including, without limitation, prepayment fees and late charges shall be deemed, to the extent permitted by law, to be an expense, fee, premium or penalty rather than interest. 9. Governing Law. This instrument shall be governed by and construed according to the laws of the State of New York. 10. Miscellaneous. Whenever used, the singular number shall include the plural, the plural the singular, the use of any gender shall be applicable to all genders, and the words “Payee” and “Maker” shall be deemed to include the respective heirs, personal representatives, successors and assigns of Payee and Maker. If Maker consists of more than one person, corporation or other entity, the obligations and liabilities of such persons, corporations or other entities under this Note shall be joint and several, and the word “Maker” shall mean all or some of any of them. Maker acknowledges that Payee may, at any time and from time to time, release any one or more of the parties comprising Maker from its obligations under this Note and such action shall not in any way affect or diminish the liability of the other parties hereunder. This Note is not transferable by Payee except in accordance with the Distribution Agreement dated as of February 1, 2006 by and among Maker, Payee, Bond Insurer, Issuer and Bond Trustee. 11. Waiver of Jury Trial. MAKER AND PAYEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, VERBAL OR WRITTEN STATEMENTS OR ACTIONS OF EITHER PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEE TO MAKE THE LOAN EVIDENCED BY THIS NOTE. IN WITNESS WHEREOF, Maker, intending to be legally bound, has duly executed and delivered this Note.

AMERICAN OPPORTUNITY FOR HOUSING – 2002 PORTFOLIO, LLC

By: Name: Title:

45719723.1\10416192

RESOLUTION NO. ______

A RESOLUTION RATIFYING AND CONFIRMING AMENDMENTS TO THE ORIGINATION, SALE AND SERVICING AGREEMENTS RELATING TO THE 2005 PROFESSIONAL EDUCATORS PROGRAM AND THE 2005 HOMES FOR HEROES PROGRAM

WHEREAS, the Board of Directors (the “Board”) of the Texas State Affordable Housing Corporation (the “Corporation”) has heretofore issued its Single Family Mortgage Revenue Bonds (Professional Educators Home Loan Program) Series 2005A (the “Series 2005A Bonds”) and its Single Family Mortgage Revenue Bonds (Fire Fighter and Law Enforcement or Security Officer Home Loan Program) Series 2005B (the “Series 2005B Bonds”).

WHEREAS, the President of the United States has made a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act for certain areas in the State of Texas;

WHEREAS, the Congress of the United States has adopted the Gulf Opportunity Zone Act of 2005 (the “GO Zone Act”), which, among other things, added new sections to the Internal Revenue Code of 1986, as amended (the “Code”);

WHEREAS, section 1400T was added to the Code by the GO Zone Act;

WHEREAS, said section 1400T provides, in part, that section 143 of the Code shall be applied by treating owner-occupied residences in the Rita GO Zone, as defined in the GO Zone Act, as targeted area residences;

WHEREAS, the Rita GO Zone includes 22 counties in Texas where owner-occupied residences that are eligible to be financed through the Corporation’s home loan programs associated with the Series 2005A Bonds and the Series 2005B Bonds can be treated as targeted area residences for purposes of those programs;

WHEREAS, the Corporation has previously authorized the President of the Corporation to effect changes to documents associated with the Series 2005A Bonds and the Series 2005B Bonds;

WHEREAS, the President, on behalf of the Corporation, has entered into amendatory documents, copies of which are attached hereto as Exhibit A and incorporated herein for all purposes and thereby has afforded the opportunity to originate more home loans under the 2005 Professional Educators Program and the 2005 Homes for Heroes Program;

WHEREAS, the Corporation desires to formally ratify and confirm such amendatory action;

NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE TEXAS STATE AFFORDABLE HOUSING CORPORATION:

Section 1. That the entering into the First Amendment to Origination, Sale and Servicing Agreement relating to both the Series 2005A Bonds and the Series 2005B Bonds, in the forms attached hereto as Exhibit A, is, for all purposes, ratified and confirmed as of the date the President executed said amendments.

45719723.1\10416192 2

Section 2. That this Resolution shall be effective upon its adoption.

Passed, Approved and Adopted, this ______ day of ________________________ 2006.

TEXAS STATE AFFORDABLE HOUSING CORPORATION

Chairperson

Attest:

Secretary

Page 1 of 17

INVESTMENT POLICY

SUBMITTED FOR APPROVAL ON MARCH 10, 2006

Page 2 of 17

TEXAS STATE AFFORDABLE HOUSING CORPORATION INVESTMENT POLICY

TABLE OF CONTENTS

I. POLICY

II. SCOPE

III. PRUDENCE

IV. OBJECTIVES

V. INVESTMENT STRATEGY

VI. DELEGATION OF AUTHORITY AND RESPONSIBILITY

VII. ETHICS AND CONFLICTS OF INTEREST

VIII. AUTHORIZED BROKER/DEALERS AND FINANCIAL INSITUTIONS

IX. AUTHORIZED INVESTMENTS

X. UNAUTHORIZED INVESTMENTSXI. DIVERSIFICATION

XII. EFFECT OF LOSS OF RATING

XIII. COLLATERALIZATION

XIV. SAFEKEEPING AND CUSTODY

XV. INTERNAL CONTROLS

XVI. REPORTING

XVII. INVESTMENT POLICY ADOPTION

ATTACHMENT A: CERTIFICATION OF INVESTMENT POLICY

Page 3 of 17

TEXAS STATE AFFORDABLE HOUSING CORPORATION INVESTMENT POLICY

I. POLICY

It is the policy of Texas State Affordable Housing Corporation (the “Corporation”) to invest public funds in a manner which will fulfill, by priority, the following objectives:

1. Safety of principal;

2. Sufficient liquidity to meet the Corporation’s cash flow needs;

3. Diversification to reduce market and credit risk;

4. A market rate of return for the risk assumed; and

5. Conformation to all applicable state statutes governing the investment of public funds including the Corporation’s enabling legislature, Texas Government Code, Section 2306, Subchapter Y, and specifically Texas Government Code, Section 2256, the Public Funds Investment Act. (the “Act”).

II. SCOPE

A. This Investment Policy (“Policy”) applies to all financial assets of the Corporation, except for any promissory notes payable to the Corporation.

III. PRUDENCE

A. Investments shall be made with judgment and care under circumstances then prevailing which persons of prudence, discretion and intelligence exercise in the management of their own affairs; not for speculation, but for investment, considering the probable safety and liquidity of their capital as well as the probable income to be derived.

B. The standard of prudence to be used by the Investment Officer shall be the “prudent person” standard and shall be applied in the context of managing an overall portfolio. Investment Officers (hereinafter defined) acting in accordance with the Policy and written procedures and exercising due diligence shall be relieved of personal liability for an individual security’s credit risk or market price changes, provided that deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.

IV. OBJECTIVES

The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles commensurate with the Corporation’s investment risk constraints and cash flow needs. A maximum dollar-weighted average maturity will be six (6) months. A benchmark for risk in the portfolio shall be the six-month U.S. Treasury Bill. The following are the primary objectives of investment activities in order of priority:

1. Safety of Principal

Preservation and safety of principal is the foremost objective of the investment program. Investments of the Corporation shall be undertaken in a manner that

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seeks to ensure the preservation of capital. The principal will be protected by limiting credit risk through purchase of high credit quality securities and limiting interest rate risk through a structured portfolio which addresses projected cash flow requirements.

2. Liquidity

Liquidity risk is the risk that funds will not be available to pay liabilities or the inability to sell a security for needed cash. To protect liquidity needs the Corporation will prepare a cash flow analysis to direct investments and limit its maximum final stated maturity to three years. The Corporation’s investment portfolio shall contain a liquidity buffer to meet all unanticipated cash flow needs. In addition, securities with active secondary or resale markets will be used to meet unanticipated liabilities.

3. Diversification

The Corporation shall diversify its portfolio to eliminate the risk of loss resulting from over concentration of assets in a specific maturity, a specific issuer or a specific class of investments. Investment shall always be selected that provide for stability of income and reasonable liquidity.

4. Yield

The Corporation’s investment portfolio shall be designed with the objective of attaining a reasonable market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and cash flow needs of the Corporation. Return on investment is of less importance than the safety and liquidity. Reasonable returns will be obtained through competitive bidding on all transactions and comparative analysis of all market alternatives available within the parameters of this Policy.

V. Investment Strategy The Corporation will commingle its operating funds for maximum investment efficiency and economy of scale. Interest will be distributed as applicable among the funds. The authorized securities, investments or pools utilized for this portfolio will be of the highest credit quality and marketability supporting the Corporation’s objectives of safety, liquidity and yield.

Securities, when not matched to a specific liability, will be short term and of a liquid nature to provide adequate cash flow for the Corporation. The portfolio shall be diversified to protect against credit and market risk in any one sector. Diversification requirements can be fully met through use of an authorized pool. The weighted average maturity on the pooled investment group will be no greater than six (6) months. Because the funds are pooled for investment purposes, the portfolio will address the varying needs of all funds in the pooled fund.

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VI DELEGATION OF AUTHORITY AND RESPONSIBILITY

Board of Directors

A. The Board establishes investment policy and objectives, obtains such expert advice and assistance with respect to its actions as is necessary to exercise its responsibilities prudently, and monitors the actions of staff and advisors to ensure compliance with its Policy. It is the Board’s intention that this Policy be carried out by those persons who are qualified and competent in their areas of expertise.

C. The delegation of authority as provided below in no way diminishes the Board’s ultimate responsibility as a fiduciary to follow the policies and objectives established by this Policy.

D. Each member of the Board shall attend at least one training session relating to the person’s responsibilities under the Act within six months after taking office or assuming duties. Training under this section may be provided by the Texas Higher Education Coordinating Board and include investment controls, security risks, strategy risks, market risks, diversification of investment portfolio, compliance with the Act and compliance with the Policy.

Investment Officer(s) A. Authority to manage the Corporation’s investment program is granted to the Chief Executive Officer (CEO), or President when the CEO and President are not the same individual. The Board designates by resolution responsibility for the operation of the investment program to the Chief Financial Officer as the designated “Investment Officer”. B. The Investment Officer shall be responsible for all transactions undertaken and shall establish internal controls to regulate the activities of subordinate officials. Procedures should include reference to safekeeping, delivery vs. payment, investment accounting, repurchase agreements, wire transfer agreements, collateral/depository agreements and banking service contracts. Such procedures may include explicit temporary delegation of authority to persons responsible for investment transactions.

C. The Investment Officer shall establish written procedures for the operation of the investment program consistent with this Policy.

D. Investment Officer shall attend 10 hours of training within twelve months of assuming the position and in each succeeding two-year period and may receive the training from any independent source approved by the Board. Training is to include investment controls, security risks, strategy risks, market risks, diversification of investment portfolio, and compliance with the Act.

E. The Investment Officer may temporarily delegate investment responsibilities to subordinate staff. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions.

F. No person may engage in an investment transaction except as provided under the terms of this Policy and the procedures established by the Investment Officer.

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VII. ETHICS AND CONFLICT OF INTEREST

An Investment Officer of the Corporation has a personal business relationship as defined by the Act (2256.005(i) with a business organization offering to engage in an investment transaction with the Corporation, the Investment Officer shall file a statement disclosing that personal business interest with the Corporation’s Board and the Texas Ethics Commission.

1. An Investment Officer who is related within the second degree by affinity or consanguinity to an individual seeking to sell an investment to the Corporation shall file a statement disclosing that relationship with the Corporation’s Board and the Texas Ethics Commission.

VIII. AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS

A. The Corporation shall maintain a list with a minimum of three qualified broker/dealers authorized to engage in investment transactions with the Corporation. This list of qualified brokers shall be reviewed, revised and adopted at least annually by the Board.

B. Broker/dealers shall, at a minimum, provide information as required by the Investment Officer and provide evidence of SEC registration and NASD membership.

C. Any person/firm offering to engage in an investment transaction with the Corporation shall be provided a copy of the current Investment Policy. The Certification or a form acceptable to the Corporation shall affirm that the person/firm:

1. Has received and reviewed the Policy; and

2. Acknowledged that the business organization has implemented reasonable procedures and controls in an effort to preclude investment transactions that are not authorized by the Policy, except to the extent that this authorization is dependent on an analysis of the makeup of the entire portfolio or requires an interpretation of subjective investment standards.

E. The Investment Officer of the Corporation may not buy any securities from a person who has not delivered the signed Certification to the Corporation.

E. If the brokerage subsidiary of the banking services bank is used for purchase of securities, the securities should be safe-kept in trust to perfect delivery versus payment settlement.

E. No less than every five years, the Corporation shall, through a competitive process chose a banking services institution to serve as its primary depository and a custodian for Corporation owned securities.

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IX. AUTHORIZED INVESTMENTS

The Corporation is empowered by Texas Government Code Section 2306.555 to invest its money in bonds, obligations or other securities, or place its money in demand or time deposits, whether or not evidenced by certificates of deposit. Notwithstanding any grant or program limitations to the contrary, the following are permitted investments:

A. Obligations of or Guaranteed by Governmental Entities:

1. obligations, including letters of credit, of the United States or its agencies and instrumentalities;

2. obligations of this state or its agencies and instrumentalities;

3. collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States the underlying security for which is guaranteed by an agency or instrumentality of the United States, which have a market value of not less than the principal amount of the certificates;

4. other obligations the principal and interest of which are unconditionally guaranteed or insured by or backed by the full faith and credit of the State of Texas or the United states or their respective agencies and instrumentalities;

5. obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; and

6. bonds issued, assumed, or guaranteed by the State of Israel.

B. Certificate of Deposit and Share Certificates

1. A certificate of deposit is an authorized investment under this Policy if the certificate of deposit is issued by a state or national bank domiciled in the State of Texas or a savings bank domiciled in the State of Texas or a state or federal credit union domiciled in the State of Texas and is:

a. guaranteed or insured by the Federal Deposit Insurance Corporation (FDIC) or its successor or the National Credit Union Share Insurance Fund or its successor;

b. secured by obligations that are described in Section VIII(A) above, including mortgage backed securities directly issued by a federal agency or instrumentality that have a market value of not less than the principal amount of the certificates excluding any collateral as described in Section IX of this Policy; or

c. secured in any other manner and amount provided by law for deposits of the Corporation.

C. Repurchase Agreements

1. A “repurchase agreement” is a simultaneous agreement to buy, hold for a specified time, and sell back at a future date obligations of the United States or its

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agencies and instrumentalities at a market value at the time the funds are disbursed of not less than the principal amount of the funds disbursed. The term includes a direct security repurchase agreement and a reverse security repurchase agreement.

2. A fully collateralized repurchase agreement is an authorized investment under this Policy if the repurchase agreement:

a. has a defined termination date;

b. is secured by collateral described in Section VIII(A)(1) of this Policy;

c. requires the securities being purchased by the Corporation to be pledged to the Corporation, held in the Corporation’s name, and deposited at the time the investment is made with the Corporation or with a third party selected and approved by the Corporation; and

d. is placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in the State of Texas;

3. The term of any reverse security repurchase agreement may not exceed 90 days after the date the reverse security repurchase agreement is delivered. Money received by the Corporation under the terms of a reverse security repurchase agreement may be used to acquire additional authorized investments, but the term of the authorized investments acquired must mature not later than the expiration date stated in the reverse security repurchase agreement.

D. Banker’s Acceptances

1. A banker’s acceptance is an authorized investment under this Policy if the banker’s acceptance:

a. has a stated maturity of 270 days or fewer from the date of its issuance;

b. will be, in accordance with its terms, liquidated in full at maturity;

c. is eligible for collateral for borrowing from a Federal Reserve Bank; and

d. is accepted by a bank organized and existing under the laws of the United States or any state, if the short-term obligations of the bank, or of a bank holding company of which the bank is the largest subsidiary, are rated not less than A-1 or P-1 or an equivalent rating by at least one nationally recognized credit rating agency.

E. Commercial Paper

1. Commercial Paper is an authorized investment under this Policy if the commercial paper:

a. has a stated maturity of 270 days or fewer from the date of its issuance; and

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b. is rated not less than A-1 or P-1 or an equivalent rating by at least (i) two nationally recognized credit rating agencies, or (ii) one nationally recognized credit rating agency and is fully secured and by an irrevocable letter or credit issued by a bank organized and existing under that laws of the United States or any state.

F. Mutual Funds

1. A no-load money market mutual fund is an authorized investment if the mutual fund:

a. is registered with and regulated by the Securities and Exchange Commission;

b. provides the Corporation with a prospectus and other information required by the Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.) or the Investment Company Act of 1940 (15 U.S.C. Section 80a- 1 et seq.);

c. has a dollar-weighted average stated maturity of 90 days or fewer; and

d. includes in its investment objectives the maintenance of a stable net asset value of $1 for each share.

2. In addition to a no-load money market mutual fund permitted as an authorized investment in subsection (1) above, a no-load mutual fund is an authorized investment under the Policy if the mutual fund:

a. is registered with the Securities and Exchange Commission;

b. has an average weighted maturity of less than two years;

c. is invested exclusively in obligations authorized under Subchapter A of the Act;

d. is continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent; and

e. conforms to the requirements set forth in Sections 2256.016(b) and (c) relating to the eligibility of investment pools to receive and invest funds of investing entities.

3. The Corporation is not authorized by this section to:

a. invest in the aggregate more than 15 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, in mutual funds described in subsection (2) above;

b. invest any portion of bond proceeds, reserves and funds held for debt service, in mutual funds described in subsection (2) above; or

c. invest its funds or funds under its control, including bond proceeds and reserves and other funds held for debt service, in any one mutual fund described

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in subsection (1) or (2) above in an amount that exceeds 10 percent of the total assets of the mutual fund.

G. Guaranteed Investment Contracts

1. A guaranteed investment contract is an authorized investment for bond proceeds under this Policy if the guaranteed investment contract:

a. has a defined termination date;

b. is secured by obligations described in Section VIII(A)(1) above, excluding those obligations described by Article IX below, in an amount at least equal to the amount of bond proceeds invested under the guaranteed investment contract;

c. is pledged to the Corporation and deposited with the Corporation or with a third party selected and approved by the entity.

2. Bond proceeds, other than bond proceeds representing reserves and funds maintained for debt service purposes, may not be invested in a guaranteed investment contract with a term of longer than 5 years from the date of issuance of the bonds.

3. To be eligible as an authorized investment:

a. the Board must specifically authorize guaranteed investment contracts as an eligible investment in the order, ordinance or resolution authorizing the issuance of the bonds;

b. the Corporation must receive bids form at least three separate providers with no material financial interest in the bonds from which the proceeds were received;

c. the Corporation must purchase the highest yielding guaranteed investment contract for which a qualifying bid is received;

d. the price of the guaranteed investment contract must take into account the reasonably expected drawdown schedule for the bond proceeds to be invested; and

e. the provider must certify the administrative costs reasonable expected to be paid to third parties in connection with the guaranteed investment contract.

H. Investment Pools

1. Investment pools are authorized under this Policy if the Board authorizes investment in the particular pool. An investment pool must invest the funds it reserves from entities in authorized investments permitted by the Act.

2. To be eligible to receive funds from and invest funds on behalf of the Corporation, an investment pool must furnish to the Corporation an offering circular or other similar disclosure instrument that contains at a minimum the following information:

a. the types of investments in which money is allowed to be invested;

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b. the maximum average dollar-weighted maturity allowed, based on the stated maturity date, of the pool;

c. the maximum stated maturity date any investment security within the portfolio has;

d. the objectives of the pool;

e. the size of the pool;

f. the names of the members of the advisory board of the pool and the dates their terms expire;

g. the custodian bank that will safekeep the pool’s assets;

h. whether the intent of the pool is to maintain a net asset value of one dollar and the risk of market price fluctuation;

i. whether the only source of payment is the assets of the pool at market value or whether there is a secondary source of payment, such as insurance or guarantees, and a description of the secondary source of payment;

j. the name and address of the independent auditor of the pool;

k. the requirements to be satisfied for an entity to deposit funds in and withdraw funds from the pool and any deadlines or other operating policies required for the entity to invest funds in an withdraw funds from the pool; and

l. the performance history of the pool, including yield, average dollar-weighted maturities, and expense ratios.

3. To maintain eligibility to receive funds from and invest funds on behalf of the Corporation, an investment pool must furnish to the Corporation:

a. investment transaction confirmations; and

b. a monthly report that contains, at a minimum, the following information:

i. the types and percentage breakdown of securities in which the pool is invested;

ii. the current average dollar-weighted maturity, based on the stated maturity date, of the pool, which must not be greater than 270 days;

iii. the current percentage of the pool’s portfolio in investments that have stated maturities of more than one year;

iv. the book value versus the market value of the pool’s portfolio, using amortized cost valuation;

v. the size of the pool;

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vi. the number of participants in the pool;

vii. the custodian bank that is safekeeping the assets of the pool;

viii. a listing of daily transaction activity of the Corporation;

ix. the yield and expense ratio of the pool;

x. the portfolio managers of the pool; and

xi. any changes or addenda to the offering circular.

4. The Corporation by contract may delegate to an investment pool the authority to hold legal title as custodian of investments purchased with its funds.

5. In this Section VIII(H), “yield” shall be calculated in accordance with regulations governing the registration of open-end management investment companies under the investment Company Act of 1940, as promulgated from time to time by the federal Securities and Exchange Commission.

6. To be eligible to receive funds from and invest funds on behalf of the Corporation, a public funds investment pool created to function as a money market mutual fund must mark its portfolio to market daily, and, to the extent reasonably possible, stabilize at a $1 net asset value. If the ratio of the market value of the portfolio divided by the book value of the portfolio is less than 0.995 or greater than 1.005, portfolio holdings shall be sold as necessary to maintain the ratio between 0.995 and 1.005.

7. To be eligible to receive funds from and invest funds on behalf of the Corporation, a public funds investment pool must have an advisory board composed:

a. equally of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise the pool, for a public funds investment pool created under Chapter 791 of the Texas Government Code and managed by a state agency; or

b. of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise the pool, for other investment pools.

8. To maintain eligibility to receive funds from and invest funds on behalf of the Corporation, an investment pool must be continuously rated no lower than AAA or AAA-m or at an equivalent rating by at least one nationally recognized rating service.

X. UNAUTHORIZED INVESTMENTS.

The following are not authorized investments:

A. Interest Only Obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal (IO);

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B. Principal Only Obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest (PO); and

C. Collateralized mortgage obligations that have a stated final maturity date of greater than 10 years.

D. Inverse Floating Collateralized mortgage obligations, the interest rate of which is determined by an index that adjusts opposite to the changes in a market index (Inverses).

XI. DIVERSIFICATION

The Corporation will diversify its unrestricted investments by security type and institution. With the exception of U.S. Treasury securities, no more than 50% of the Corporation’s total unrestricted investment portfolio will be invested in a single security type or single issuer.

General diversification parameters will include: Max % of Portfolio US Obligations 80% Obligations of US Agencies 70% Certificates of Deposit 25% By Institution 10% Repurchase Agreements 30%

Money Market Mutual Funds 25% Commercial Paper 30% By Issuer 10% Local Government Stable Net Asset Value Pools 75%

XII. EFFECT OF LOSS OF REQUIRED RATING

An investment that requires a minimum rating under this Policy does not qualify as an authorized investment during the period the investment does not meet or exceed the minimum rating. The Corporation shall take prudent measures that are consistent with its Policy to evaluate possible liquidation of an investment that does not meet or exceed the minimum rating as market conditions dictate. (2256.021) However, the Corporation is not required to liquidate investments that were authorized at the time of purchase. (2256.017)

XIII. COLLATERALIZATION

Collateralization will be required on all time and demand accounts above FDIC insurance levels and on repurchase agreements. In order to anticipate market changes and provide a level of security for all funds, the collateralization margin level will be 102%.

A. For time and demand deposits the following securities are authorized as pledged collateral:

1. Obligations of the United States or its agencies and instrumentalities including mortgage backed securities meeting the bank test;

2. Direct obligations of the State of Texas or its agencies and instrumentalities;

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3. Other obligations, the principal and interest of which are unconditionally guaranteed or insured by or backed by the full faith and credit of Texas or the United Sates or their respective agencies and instrumentalities; and

4. Obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent.

B. For repurchase agreements, the following securities are authorized are authorized as collateral owned under the transaction:

1. Obligations of the US Government, its agencies and instrumentalities including mortgage backed securities.

C. Collateral shall always be safekept by an independent third party with whom the Corporation has a current custodial agreement executed under the terms of FIRREA (time and demand deposits). A clearly marked evidence of pledge or ownership must be supplied to the Corporation and retained. The Corporation shall grant the right of collateral substitution, subject to receiving prior approval from the Investment Officer.

D. It shall be the contractual liability of the counter-party pledging or selling the securities to monitor and maintain the appropriate 102% margin at all times.

XIV. SAFEKEEPING AND CUSTODY

All securities owned by the Corporation will be held by an independent third party custodian approved by the Corporation and under a current custody agreement.

Delivery versus Payment

All security transactions will be executed on a Delivery vs. Payment (DVP) basis. This ensures that securities are deposited prior to the release of funds. Securities will be held by an independent third-party custodian and evidenced by safekeeping receipts.

XV. INTERNAL CONTROLS

A. Internal Controls

The Investment Officer is responsible for establishing and maintaining internal controls to ensure that the assets of the Corporation are protected from loss, theft, or misuse. The internal controls shall address the following points:

5. Control of collusion.

6. Separation of transaction authority from accounting and record keeping.

7. Custodial safekeeping.

8. Clear delegation of authority to subordinate staff members.

9. Written confirmation of all transactions.

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In developing controls, the concept of reasonable assurance recognizes that:

1. The cost of control should not exceed the benefits likely to be derived; and

2. The valuation of costs and benefits requires estimates and judgments by management.

B. Compliance Audit

At least once every two years, the Corporation, shall arrange for a compliance audit of management controls on investments and adherence to this Policy and the Act.

1. The Compliance audit shall be performed by the Corporation’s internal auditor or by a private auditor.

2. The results of the audit performed under this section shall be presented to the Corporation’s Board.

3. The Corporation shall report the results of the audit performed under this section to the Office of the State Auditor not later than January 1 of each even-numbered year. The report shall be prepared in a manner as prescribed by the Office of the State Auditor.

4. The Corporation shall also report to the Office of the State Auditor other information the state auditor determines necessary to assess compliance with laws and policies applicable to the Corporation’s investment.

C. Wire Transfers

All wire transfers will be transacted under a written agreement. This agreement shall delineate controls, security provisions, and responsibilities of each party.

XVI. REPORTING

A. Quarterly Reports

At least quarterly, the Investment Officer shall prepare and present to the Board an investment report, including a summary that provides a clear picture of the status of the current investment portfolio and transactions made over the last quarter. This investment report will be prepared in a manner, which will allow the Board to ascertain whether investment activities during the reporting period have conformed to the Policy. The report must:

a. Describe in detail the investment position on the date of the report;

b. Be prepared jointly by all Investment Officers;

c. Be signed by each Investment Officer;

d. Be prepared in compliance with Generally Accepted Accounting Principles (GAAP) for each fund that states:

i. The stated maturity date and call or reset date of each security;

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ii. The book value and market value of each security at the beginning and end of the reporting period by type and market sector;

iii. Additions and changes in market value during the period;

iv. Fully accrued interest and total earnings for the reporting period;

v. State the fund or pooled group for which each individual investment was acquired; and

e. State the compliance of the investment portfolio as it relates to the investment strategy expressed in this Policy and the Act.

B. Audit Report

An independent auditor shall formally review the investment reports prepared by the Investment Officer under this Policy at least annually and that auditor shall report the result of the review to the Board.

C. Performance Standards

The investment portfolio will be managed in accordance with the parameters specified within this Policy and the cash flow analysis. The maximum dollar weighted average maturity of the portfolio is six months. In order to measure performance and the level of risk in the portfolio, a benchmark of the six-month Treasury Bill for the comparable period will be reported quarterly.

D. Market Value

The Investment Officer will obtain market prices used to calculate market value from independent, recognized published sources or from other qualified professionals.

E. The Investment Officer shall present to the Board a report on changes to the Act no later than 180 days after the last regular session of the legislature.

XVII. POLICY ADOPTION

The Investment Policy shall be reviewed and adopted by resolution of the Board at least annually. The Board must approve and adopt any amendments made thereto. The Board shall adopt by written resolution a statement that it has reviewed the investment policies and strategies and note any changes made.

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Attachment A

CERTIFICATION OF RECEIPT AND REVIEW OF TEXAS STATE AFFORDABLE HOUSING INVESTMENT POLICY

As a qualified representative of the Firm ___________________________ (name of “Firm”).

I, and the broker covering the account, acknowledge that we have received and reviewed the Corporation’s Investment Policy dated ____________.

We acknowledge that the Firm has implemented reasonable procedures and controls in an effort to preclude investment transactions conducted between the Firm and the Corporation that are not authorized by the Corporation’s Investment Policy, except to the extent that this authorization is dependent on an analysis of the Corporation’s entire portfolio or requires an interpretation of subjective investment standards.

Dated this __________ day of ____________________, _______. Signature: ________________________________ Name: _______________________________________ Title: _______________________________________

Texas State Affordable Housing Corporation Authorized Broker/Dealer List

March 2006

The authorized broker/dealer list for Texas State Affordable Housing Corporation is shown below. Each of these firms, and the individual covering the account, will be sent the current Investment Policy. In accordance with the Public Funds Investment Act (TX Gov’t Code 2256.005(k)) before any broker/dealer transacts business with the Corporation it will have had to certify in writing to a review of the Policy and have certified that procedures are in place to assure compliance with that Policy. The Corporation's Policy establishes specific criteria for the brokers and requires that the list of broke/dealers be approved annually by the Board. Attachment A of the Policy is the certification form used for this purpose. Patterson & Associates maintains the brokerage compliance files for the Corporation. When any material changes are made to the Investment Policy the new Policy is sent out for re- certification. Bank of America

Citigroup-Smith Barney Lehman Brothers

Merrill Lynch Mizuho Securities Morgan Stanley Wells Fargo

Tab 6

Presentation, Discussion, and Possible Approval relating to the Designation of General Counsel/Lender Counsel/Issuer Counsel, Single

Family/Multifamily Bond Counsel and Financial Advisor for the Corporation.

Discussion