S61 Co op Mortgages: CMHC prepayment flexibility. WEBINAR

Transcription

1 S61 Co op Mortgages: CMHC prepayment flexibility. WEBINAR Presenter: Dave Howard July 9, CHF Canada s Refinancing Program Introductions CHF Canada: Who we are Section 61 Program Why Refinance? How the New Mortgage Works How to Apply? How do we get a lender? How CHF Canada helps How to get started Questions 1 1

2 Co operative Housing Federation of Canada Most of CHF Canada s members are housing co ops. There are 902 member housing co ops (outside of Quebec). CHF Canada has been the national voice of co op housing for 50 years. More than eight out of 10 housing co ops outside of Quebec are members of CHF Canada. CHF Canada is a co operative, owned and controlled by its members. It is governed by its Board of Directors, which currently has 16 directors: 10 representing the provinces and territories, one representing the aboriginal community and five directors elected at large. 2 Section 61 Program ( ) Program Objectives To provide modest, affordable housing appropriate to the needs of low and moderate income families and individuals To house mainly families whose incomes may be too high for public housing but who may struggle with high rents where they live. To encourage the integration of families and individuals of varying income Today there are 7,700 co op homes under the Section 61 program 3 2

3 Section 61 Program ( ) Program Features Unilateral federal program Income mixing Eight per cent mortgage loan from CMHC with 50 year term and amortization period 10 per cent capital grant from CMHC, and, in Ontario, the province, earned over time 4 Section 61 Program ( ) cont. Program Features Subsidy/surcharge system to ensure a mix of incomes (incomes verified at least once every 30 months) A minimum percentage of households, fixed by each operating agreement, must be subsidized. Rent supplements available for a proportion of units (typically 25 per cent) under separate federal/provincial cost shared rent supplement program (certain provinces only) 5 3

4 Why Refinance Now? As CMHC operating agreements and mortgages finish over the next years, across Canada, aging housing co operatives need new capital for repairs, renovations, modernization. Co ops need to invest in their buildings and properties. An injection of new capital into this housing stock is needed to insure ongoing viability. S61 mortgage rates of 8% are very high compared with todays commercial lending rates. CHF Canada negotiated with CMHC to allow prepayment of existing CMHC mortgage. 6 Why are S61 Interest Rates so high? 1980=15.75% 2017= 4.64% 2018= 5.14% 7 4

5 How a new mortgage works: In plain language The co op takes out a new mortgage, which o o o pays out existing mortgage high interest S61 mortgage pays for the needed repairs is extended for a longer period of time. 8 Example (Actual Co op) $28,000/month existing mortgage payment $1.8 million existing CMHC mortgage $4.5 million borrowed at 4.5% interest rate o o o $1.8 million pays out CMHC mortgage $2.7 million for repairs (covers 10 years of BCA identified repairs) 25 year amortization $27,192/ month new mortgage payment 9 5

6 Prepayment Flexibility for Co operatives To eliminate the high cost of prepayment, the government is providing $150 million to allow non profit and co op housing providers to prepay their mortgages held with CMHC without penalty. Waiving prepayment penalties will allow housing co ops to access private market loans at current interest rates, which will lower mortgage expenses and help to keep rents affordable Lower interest costs give housing providers the opportunity to finance repairs with private capital. 10 How Much Funding is Available? The Government is providing $150 million over four years: $50 million in $50 million in $25 million in $25 million in

7 Prepayment Flexibility for Co operatives and Non Profits A call for applications is completed each year of the initiative. CMHC is currently issuing a call for applications with the following timelines. The next call for application deadlines will be provided on October 1 for the 2019 budget year. 12 Section 61 Operating Agreement Operating agreements end once the mortgages are prepaid. The prepayment penalty will be waived, and any unearned capital contributions remaining on the mortgage will also be waived. CMHC Rent supplements for federally administered projects will continue to be calculated until the natural expiry of the rent supplement agreement. 13 7

8 Application Eligibility Requirements The following programs are eligible for prepayment: Section 26 (formerly 15.0) Loans Section 27 (formerly 15.1) Loans Section 61 (formerly 34.18) Loans CMHC will be assessing all applications on criteria such as: completing repairs to promote housing sustainability creating new affordable housing units maintaining/increasing their level of rent geared to income units 14 Key Documents A confirmation letter from the new lender to support the financing of the new loan (i.e. term sheet, commitment letter, etc.) is required. The letter should specify the loan amount, interest rate, loan term, loan amortization, and any conditions & terms associated with the loan If the coop is administered by a Province, you will also need a letter of approval from them A fully completed application form. 15 8

9 The Application Form 16 The Application Form The form will ask you to fill out: Profile information (address, phone, contact person, etc) CMHC loan information (maturity, monthly payments, etc) New lender (name, contact, amount, interest rate, term, etc) Reason for prepayment: (write a paragraph describing your situation) Schedule of Repairs: (Type of work by priority, start date, cost) 17 9

10 Things You Need to Have in Place 1. A Lender committed to refinancing your co op 2. A recent Building Condition Assessment 3. A Capital or Asset Management Plan supported by a Building Condition Assessment 4. An application filled in completely 5. Application submitted by September 30, A detailed, fully costed repair schedule that outlines how and when the renovations will be done 18 Getting a Lender to Work with You 19 10

11 Getting a Lender to Work with You 20 Getting a Lender to Work with You 21 11

12 Getting a Lender to Work with You 22 How CHF Canada Supports the Co op 1. Helps finalize key capital needs/costs 2. Provides expert financial advice that calibrates: Borrowing for capital repairs/renovations Total borrowing (mortgage payout plus capital renewal from borrowing) Amount of monthly payment Ongoing repair/replacement needs and reserve contribution 23 12

13 How CHF Canada Supports the Co op 3. Prepares application to Credit Union 4. Reviews Credit Union s offer with co op and negotiates any changes to: Interest rate Conditions 5. Handles the paperwork with co op, CMHC, and Credit Union 24 How CHF Canada Supports the Co op 6. Handles all CMHC approval processes and application process. 7. Organizes mortgage support agreement between co op, Credit Union and CHF Canada for loan monitoring 8. Provides annual report to Credit Union, based on co op s annual information return 9. Provides assistance if the co op experiences financial difficulty during the life of the mortgage 25 13

14 Asset Management Planning BCA & RFF Technical investigation and reports (HSC partnership) Asset management plans: o Review of BCA, medium term capital planning, lending analysis, preliminary scope development for renovations. o Analysis of operating budgets, reserves and housing charges Support to co operatives through loan implementation Technical services procurement (HSC partnership) Scope development, tendering documents & procurement Project management 26 CHF Canada s Role Financial Expertise and Analysis: hand holding the co op through the application process and approvals from CMHC Attend Board and Members Meetings: Ensures the entire co op understands everything. Develop the Asset Management Plan: provides the co op with a plan to refinance and manage their asset into the future. Mortgage Support Agreement: provide oversight over the mortgage throughout the life of the loan Other Services: BCA and technical report procurement, project management, etc

15 Next Steps Co op contacts CHF Canada representative to confirm interest in working the re financing program to assist in the application. Co op provides 3 years Financial Statements and a Building Condition Assessment (BCA) to CHF Canada. If needed, order a BCA update. Asset Management Services develops with the co op a long term asset plan. CHF Canada meet with Co op Board to review findings, answer questions and determine how best to proceed. 28 Next Steps If refinancing recommended, Board arranges General Membership meeting. If proceeding, CHF Canada and Consultants provide required information to Credit Union and assists with their review issuing a term sheet. Once term sheet approved by board, application is made to CMHC to prepay the S61 mortgage CHF Canada present findings to membership, Board provides recommendation, membership votes and a Resolution to proceed, or not, is obtained

16 Next Steps Prior to funding of the new mortgage, CHF Canada, the Credit Union lender, and the Co op execute the tri partite Agreement. At this point with all the Third Party reports completed and legal work for the new mortgage also completed, then funds are advanced and the CMHC mortgage is repaid. Additional monies will be advanced on a monthly basis as work progresses. On going capital works continue until completion with regular inspections/monitoring by Project Monitor/Engineer. 30 What your co op has to budget in terms of costs About 0.5% lenders fees CHF Canada fee (sliding scale) Updating BCA Asset Management Plan Property appraisal/environment Studies Legal costs of deal closing and registering mortgage 31 16

17 Some Results so far.. 30 co ops funded successfully to date (approx. $90 million in new loans) 19 co ops are in the process to fund in the near future Average loan: $3.0 million (smallest = $350K, largest = $9.0 million) Average new spending per unit: $52,000 By 2017, 13 credit unions are offering new mortgages (across Canada) 32 Our Lending Partners Alterna Savings Credit Union Atlantic Desjardins League Savings and Mortgage Libro Credit Union Kawartha Credit Union Kindred Credit Union Meridian Credit Union Motor City Credit Union Your Neighbourhood Credit Union Servus Credit Union Sudbury Credit Union Your Credit Union 33 17

18 Any questions? 34 To Get Started Call or Dave Howard at CHF Canada s Ontario Region Office Phone: , ext. 239 Toll free: Cell: dhoward@chfcanada.coop 35 18