Small Multifamily Development Strategies. Moderator: Jim Stretz Panelists: Tom Anderson, Carl Mastronardi, Diana Talios, and Tim Hoppin

Transcription

1 Small Multifamily Development Strategies Moderator: Jim Stretz Panelists: Tom Anderson, Carl Mastronardi, Diana Talios, and Tim Hoppin

2 2016 Annual Conference Beacon For Affordability 2016 Fannie Mae. Trademarks of Fannie Mae 2

3 The Big Picture 2016 Fannie Mae. Trademarks of Fannie Mae 3

4 2016 Fannie Mae. Trademarks of Fannie Mae 4

5 2016 Fannie Mae. Trademarks of Fannie Mae 5

6 2016 Fannie Mae. Trademarks of Fannie Mae 6

7 2016 Fannie Mae. Trademarks of Fannie Mae 7

8 2016 Fannie Mae. Trademarks of Fannie Mae 8

9 2016 Fannie Mae. Trademarks of Fannie Mae 9

10 2016 Fannie Mae. Trademarks of Fannie Mae 10

11 2016 Fannie Mae. Trademarks of Fannie Mae 11

12 2016 Fannie Mae. Trademarks of Fannie Mae 12

13 2016 Fannie Mae. Trademarks of Fannie Mae 13

14 Small, Green & Affordable Loans 2016 Fannie Mae. Trademarks of Fannie Mae 14

15 Small Loans 2016 Fannie Mae. Trademarks of Fannie Mae 15

16 2016 Fannie Mae. Trademarks of Fannie Mae 16

17 2016 Fannie Mae. Trademarks of Fannie Mae 17

18 2016 Fannie Mae. Trademarks of Fannie Mae 18

19 2016 Fannie Mae. Trademarks of Fannie Mae 19

20 2016 Fannie Mae. Trademarks of Fannie Mae 21

21 Green Financing 2016 Fannie Mae. Trademarks of Fannie Mae 22

22 2016 Fannie Mae. Trademarks of Fannie Mae 23

23 2016 Fannie Mae. Trademarks of Fannie Mae 24

24 2016 Fannie Mae. Trademarks of Fannie Mae 25

25 2016 Fannie Mae. Trademarks of Fannie Mae 26

26 2016 Fannie Mae. Trademarks of Fannie Mae 27

27 Affordable Housing (MAH) 2016 Fannie Mae. Trademarks of Fannie Mae 28

28 Affordable Parameters Fannie Mae definition 20% of units at 50% of Area Median Income 40% of units at 60% of Area Median Income 20% of units covered by a project-based Section 8 contract Less than 3 years of restrictions and no plan to maintain affordability requires utilization of market rate underwriting standards Other Attributes of Affordable Deals FHA risk sharing Bond Credit Enhancement Low Income Housing Tax Credits Inclusionary Zoning State/Local/Federal Subsidies that are conditioned on affordability 2016 Fannie Mae. Trademarks of Fannie Mae 29

29 2016 Fannie Mae. Trademarks of Fannie Mae 30

30 2016 Fannie Mae. Trademarks of Fannie Mae 31

31 2016 Fannie Mae. Trademarks of Fannie Mae 32

32 2016 Fannie Mae. Trademarks of Fannie Mae 33

33 2016 Fannie Mae. Trademarks of Fannie Mae 34

34 Section 542(b) FHA Risk Sharing Programs Small Buildings Risk Sharing Initiative National Association of Local Housing Finance Agencies April 15, 2016

35 Risk Sharing Program Overview Background: Section 542 of the Housing and Community Development Act of 1992 established the two pilot risk sharing programs: (b) Qualified Participating Entity (QPE) Risk Sharing Program: current participants are Freddie Mac and Fannie Mae (c) Housing Finance Agency (HFA) Risk Sharing Program: currently 35 HFAs participate. Section 235 of HUD s FY 2001 Appropriations Act, Public Law , converted the pilot program into a permanent multifamily insurance program. Unit allocations and reservation of credit subsidy are no longer in effect. 36

36 Traditional FHA Programs vs. Risk Sharing The Risk Sharing program differs from FHA s traditional mortgage insurance programs in that in the Risk Sharing programs: FHA assumes only a portion of risk, rather than all; FHA delegates loan processing and asset management functions to the lender (HFA or QPE); FHA has more stringent eligibility standards for lender participation and sets larger reserve requirements to reduce counterparty risk. 37

37 Section 542 Program Requirements All loans insured under the Risk Sharing Program must qualify as affordable housing as defined in the LIHTC Program: 20 percent or more of units occupied by families whose income is 50 percent or less of the area median income; or 40 percent (25 percent in New York City) or more of units are occupied by families whose income is 60 percent or less of the area median income. All loans insured under the Risk Sharing Program are required by statute to be in first lien position. 38

38 542(b) Small Buildings Risk Sharing Initiative (SBRS) OBJECTIVES: Increase the supply and preservation of affordable small properties. Small properties face significant obstacles accessing fixed rate, long term financing. Attract new lenders to this underserved segment of the market with inclusion of high capacity CDFIs, or non-profit, or public or quasi-public agencies (Mission-Based Lenders); Effective January 2016, FHA MAP lenders are eligible to apply. 39

39 542(b) Small Buildings Risk Sharing Initiative (SBRS) OBJECTIVES (continued): Support affordable housing while minimizing risk to FHA Insurance Fund (under MAP loans, FHA assumes 100% of claim/insurance risk; under Risk Sharing loans, FHA assumes 50% of the claim/insurance risk). Utilize existing Risk Sharing program platform that allows delegated processing, decision making, and closing procedures to enhance the delivery of affordable housing in local markets. 40

40 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Overview Lenders share risk 50/50 with HUD. Eligible properties are 5 or more rental dwelling units. Fixed Rate Loans: up to 40 years fully amortizing; or 15 year (minimum) balloon amortized over no less than 30 years. Loan amounts are limited to $3 million or, $5 million in High Cost Areas annually designated by HUD. Note High Cost Areas for SBRS differ from traditional FHA programs. See FAQs on program website. 41

41 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Overview (continued) Lender s first year in the program: limited to 20 loans or $50 million in closed loans. SBRS is a preservation initiative: new construction is not permitted. Rehabilitation and refinance only. Loans may be insured upon completion or insured advances. MIP will be published in the Federal Register. Currently 12.5bps due to FHA. All Risk Share program loans qualify as Broadly Affordable in the MIP Notice effective 4/1/16. 42

42 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Overview (continued) SBRS lenders may access (but are not required to use) Federal Financing Bank (FFB) financing as source of capital. SBRS lenders will have one or both Risk Sharing Agreements (RSAs) with HUD: a traditional non-ffb RSA, and/or a RSA specific to loans committed and closed/funded through FFB. Onboarding process with FFB: Master program documents (Master Purchase and Sale, and Master Escrow and Custody Agreements executed. Pricing targeted to be comparable to a Ginnie execution. FFB pricing is for each individual loan. Certificate rates for fully amortizing 35 and 40 year terms in the 542(c) program have averaged approximately 102 bps over 10 year Treasuries. Implementation targeted for summer

43 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Overview (continued): Lenders (QPEs) use their own underwriting standards, loan terms and conditions; asset management and servicing policies as disclosed and approved by HUD in its application to the Risk Sharing Program. Project applications for firm approval are processed in HUD s Regional/Satellite office in the geographical area where the property is located. 44

44 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Overview (continued): Asset management and loan servicing is the responsibility of the lender. In the event of a claim, HUD pays 100% of the unpaid principal balance upfront. The lender issues a 5-year debenture to HUD, and has up to 5 years to reach final settlement and share 50/50 in the profit or loss with HUD. Compliance with Davis Bacon is not required for 542b. 45

45 542(b) Small Buildings Risk Sharing Initiative (SBRS) Program Overview (continued): Key differences from traditional FHA: Risk Sharing loans are not permitted to be assigned to another lender. Delegated nature of the program: HUD s review is limited: Previous participation of principals (2530s) Environmental review under 24 CFR part 50 Intergovernmental review (if applicable for jurisdiction and if loan is insured advances ) Subsidy Layering Review Lender closes loan after HUD s Firm Approval (commitment) letter, then submits closing package with Note for endorsement to HUD s local office. 46

46 542(b) Small Buildings Risk Sharing Initiative (SBRS) Application Requirements Two stage process: Pre-Qualification & Final Application Pre-Qualification stage: Applicant must meet organizational requirements for: Mission Based Lenders - Certified as a CDFI by the CDFI Fund, or Non-profit, quasi public, or public agency; or Private Lenders FHA MAP lenders in good standing with HUD All applicants must have lending experience in affordable multifamily housing: 20 loans in past 2 years, or 20% of all loans (measured in $); All applicants will certify compliance with Fair Housing and Civil Rights requirements. 47

47 542(b) Small Buildings Risk Sharing Initiative (SBRS) Application Requirements (continued) Pre-Qualification Stage (continued) Financial Capacity Standards Minimum $7.5MM net worth and a net asset ratio of 20%; OR Minimum net worth $7.5MM and a CAMELS composite rating of 1 or 2, or equivalent nationally recognized rating system (i.e., AERIS/CARS)* *If the lender cannot meet these requirements, a dedicated reserve must be established with initial amount of $500,000. Positive Net Income from best 3 of past 5 years; Minimum loan loss reserve ratio of 30% for loans and leases 90 days or more delinquent; Minimum Operating Liquidity of 1.0 for most recent 4 quarters, and 1 or both of the 2 preceding years; Pre-Qualification applications : submit hard copy of Pre-Qualification Worksheet and certifications; Pre-Qualification lender applications reviewed in approximately 30 days. 48

48 542(b) Small Buildings Risk Sharing Initiative (SBRS) Application Requirements (continued) Final Application Stage: Must be submitted (hard copy) no later than 90 days after lender is notified of pre-qualification approval. Applications will include: Narrative with organizational history, mission, multifamily affordable lending experience, description of its multifamily lending activities; Required exhibits: Manual describes lenders investment, business and financial practices; Certifications Audited financial statements for last 3 fiscal years Sample Debenture form Portfolio List Counsel List Applicant Staff List Refer to Application Requirements for complete details. 49

49 542(b) Small Buildings Risk Sharing Initiative (SBRS) Application Requirements (continued) NOTE: If applicant is not a MAP lender: Final Application must include evidence of submission of a complete FHA lender application as a FHA Non-supervised Mortgagee. This application is submitted online, and is separate from the SBRS approval process. Details in Handbook , Rev-2. ministration/hudclips. An FHA Lender Approval Application, Form A, can be downloaded from HUD s website at: a.pdf. Note: New lender applicants must have been approved as a FHA Nonsupervised Mortgagee in order to receive final SBRS approval. 50

50 542(b) Small Buildings Risk Sharing Initiative (SBRS) Links to the SBRS program documents: using/mfh/progdesc/progsec542b SBRS Application Requirements SBRS Initiative Pre-Application Worksheet SBRS Program Details FHA Small Building Risk Share Initiative Final Notice SBRS Frequently Asked Questions (FAQs) 51

51 542(b) Small Buildings Risk Sharing Initiative (SBRS) Questions? 52