2. Riverwalk Affordable Mortgage Program (RAMP) Loan Brochure

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1 2. Riverwalk Affordable Mortgage Program (RAMP) Loan Brochure Summary Description The RAMP loan is a secured, nonamortizing mortgage loan. No current interest or principal payments are required during the loan term. However, Contingent Interest is payable at the time of sale of the unit, prepayment of the loan, or refinancing in an amount limited to the Maximum Note Rate, as described below. RAMP loans are solely for the benefit of affiliates for the purchase of a condominium unit at Riverwalk Landing on Roosevelt Island. A RAMP loan is available to most affiliates ( Eligible Persons as more specifically defined below) currently living in NYU housing. Please note a RAMP loan cannot be combined with other NYU loan programs or commitments. RAMP borrowers must meet NYU s underwriting guidelines. Appointments for an affordability counseling session may be made by phoning the Faculty Housing Office at (212) Eligible Persons 1 Eligible Persons are New York University ( NYU ) employees and NYU retiree tenants currently renting in NYU-owned housing who do not have a pre-existing requirement to vacate such housing (including, without limitation, a lease that does not contain a renewal right exercisable solely by the tenant). Visitors, rent controlled tenants, rent stabilized tenants, post doctoral fellows, graduate students, faculty fellows, acting professors and subtenants are not deemed Eligible Persons and cannot participate in or obtain a RAMP loan. Medical faculty in dedicated NYU Medical School apartments are not eligible. The Eligible Person must occupy the Riverwalk Landing condominium as his/her principal residence. Loan Amount RAMP loans are for up to 30% of the purchase price of the condominium unit. If a borrower obtains financing from a conventional mortgage lender approved by NYU and that permits secondary financing, NYU will agree to subordinate its RAMP loan to such mortgage. 1 Eligibility will be determined by NYU in its sole discretion. Riverwalk Landing Condominiums on Roosevelt Island p. 1

2 Loan Term The RAMP loan is due the earlier of (i) the date of death of the survivor of the Eligible Person and his or her spouse or registered domestic partner (the Survivor ); (ii) the date when the unit or any interest therein is sold or assigned; (iii) the date on which the unit ceases to be the principal place of residence of the Eligible Person, or following the death of the Eligible Person, the date on which said unit ceases to be the principal place of residence of the Survivor; (iv) the date on which the Eligible Person shall cease for any reason whatsoever (including, but not limited to voluntary or involuntary termination) to be an Eligible Person (as hereinafter defined); (v) upon demand of NYU; or (vi) otherwise upon the occurrence of other circumstances set forth in the promissory note ( Note ), or the mortgage securing the Note. The date on which the RAMP loan is due is called the "Maturity Date". Interest Payments RAMP loans have no current interest payments; however, borrowers pay Contingent Interest on the Maturity Date (and on the date of any prepayment) in an amount equal to the lesser of (i) NYU's Share of Appreciation (defined below), or (ii) an amount of interest that would result in a return to NYU on the outstanding principal equal to the applicable Federal Rate in the month the loan is funded plus four percent (4.0%). See Table I for an example of this calculation. The Contingent Interest obligation will always be payable from a portion of the proceeds of the sale of the home. The amount of Contingent Interest paid depends on the purchase price of the condominium unit, the duration of the loan, the Maturity Date Fair Market Value (defined below), the improvements that have been made and other factors that affect the value of real property. Since these factors will vary for each condominium unit, the borrower will not know the final amount of interest he/she will pay over the life of the RAMP loan until the RAMP loan is fully discharged. Under certain defined circumstances, the amount due on the Maturity Date may be subject to adjustments, resulting in a reduction of the amount of Contingent Interest payable by the borrower. These adjustments will be available only if there has been appreciation in the Unit. NYU s Share of Appreciation is calculated by multiplying the fraction that is NYU s Share (defined below) by the adjusted appreciation. Absent adjustments in the above example, NYU s Share of Appreciation is $30,000. See Table 2 for an example of this calculation. The Maturity Date Fair Market Value is the actual sales price of the Unit or the appraisal value if there is no bona fide sale. Appreciation is the difference between the adjusted Maturity Date Fair Market Value and the original purchase price. For example, if the house price increases from $600,000 to $700,000, and there are no adjustments, appreciation is equal to $100,000. Riverwalk Landing Condominiums on Roosevelt Island p. 2

3 NYU s Share is a fraction, the numerator of which is the outstanding principal under the Note, and the denominator of which is the original purchase price paid for the unit. For example, if the appraised fair market value of the unit equals the purchase price of $600,000, and the RAMP loan amount is $180,000, NYU's share is 30%. An exception to the above is if the unit is sold or assigned within one year of purchase. If the Riverwalk condominium unit is sold or assigned within one year of purchase, in addition to repaying the RAMP loan principal, the borrower will owe any and all Appreciation of the condominium unit. Conditions of the Loan 1. Minimum Down Payment Requirement: The minimum down payment required to purchase a unit at Riverwalk Landing is 10% of the purchase price. The down payment cannot be borrowed. Thus, including the RAMP loan, up to 90% of the purchase price can be financed. For example, for a unit with a purchase price of $500,000, up to $450,000 can be financed by both a conventional lender and NYU s RAMP loan program. 2. Other Financing: If you obtain primary financing from a conventional mortgage lender (a First Mortgage ), your First Mortgage: a) cannot be interest only; b) cannot negatively amortize; c) cannot have a term of more than thirty years; d) cannot have a balloon feature; e) if it is an adjustable rate mortgage (ARM), the transaction will be underwritten by NYU using the monthly payment required on the thirteenth month; and f) must be from one of the two NYU approved lenders for Riverwalk Landing. 3. Security Instruments: The RAMP loan will be secured by your unit. This will be memorialized in several documents that you will be required to sign at closing, including, without limitation, a mortgage, and an assignment of leases and rents. These documents will then be recorded or filed as appropriate. 4. Insurance: NYU must be named as a loss payee/mortgagee on the condominium s hazard insurance policy. In addition, while not required, NYU recommends you obtain a personal insurance policy covering the interior of the unit, personal property, and personal liability is recommended before closing. Riverwalk Landing Condominiums on Roosevelt Island p. 3

4 Funds Needed at Closing Borrowers should expect to pay certain costs related to the RAMP loan at or before the closing on their units, which usually include fees for loan processing, the credit report, appraisal, title insurance, and prepaid hazard insurance, among other things. Your attorney will help you calculate the total amount of these costs and when and to whom they must be paid. Appraisal at Payoff An appraisal is required whenever all or part of the RAMP loan is to be repaid in accordance with it terms unless there is a bona fide sale. This requirement is triggered even for partial prepayments or refinancing. The appraisal will be ordered by NYU, although it is paid for by the borrower. For purposes of determining Contingent Interest due, NYU shall not be required to use an appraisal ordered by another lender or the borrower. The appraisal process is described fully in the RAMP Note. Repayment Of Principal On the Maturity Date, the original principal amount of the RAMP loan and Contingent Interest are absolutely due and payable. These sums are not contingent upon the sale price or fair market value of the unit or any other factor. Adjustments To Maturity Date Fair Market Value At Payoff When the RAMP loan is repaid, a borrower may request that he or she receive credit for improvements made to the unit, which is called the Adjustment Improvement. The Adjustment Improvement must be consistent with any applicable zoning and building codes and all required building permits must have been obtained. To qualify for the Adjustment Improvement credit, the borrower must submit a statement from an independent Certified Public Accountant (CPA) setting forth the date, description, and actual cost of the improvements; and a statement that, in the CPA s opinion, those items constitute capital improvements for federal income tax purposes and that the costs can properly be added to the homeowner s cost basis in the unit for purposes of calculating capital gains. The actual cost of the improvements as certified by the CPA will be subtracted from the Maturity Date Fair Market Value for purposes of calculating NYU s Share of Appreciation. No adjustment of actual cost will be made to account for inflation or labor performed by the borrower. See Table 2 for an example of this calculation. Riverwalk Landing Condominiums on Roosevelt Island p. 4

5 The borrower will be responsible for payment of all transfer fees and other state and local taxes when the unit is sold, and these fees and taxes will not be taken into account when determining the Maturity Date Fair Market Value. TAX ASPECTS OF THE RAMP LOAN RAMP loans have zero percent current interest. NYU is deemed, for income tax purposes, to have paid the borrower additional compensation which is then returned to NYU as mortgage interest. For borrowers who itemize their tax deductions, these two items generally offset each other for income, but not for FICA (Social Security) tax purposes. Compensation/interest will be imputed on the outstanding loan principal at the long term Applicable Federal Rate which is based on U.S.Treasury Bill rates. This deemed compensation/interest will be reported as taxable income each year on Form W-2 and is subject to FICA tax withholding. The amount will also be reported to you on an IRS Form 1098 statement of mortgage interest paid by you. Various aspects of the RAMP loan raise tax issues that a borrower should discuss with his or her tax adviser. NYU makes no representations as to the tax consequences, if any, which may result from the structure of the RAMP loan transaction. Partial Prepayments Of Principal And Contingent Interest A borrower may elect to make one or more partial prepayments of principal and Contingent Interest during the term of the RAMP loan. However, the borrower will not receive a refund of any Contingent Interest paid as part of a prepayment even if the unit subsequently declines in value (thereby resulting in a lower Contingent Interest obligation at the Maturity Date). The minimum amount of a partial prepayment is Fifty Thousand Dollars ($50,000.00). The borrower must notify NYU in writing that he/she is making a partial prepayment and the amount of the prepayment. Thirty days notice of a prepayment must be provided to NYU. The unit will then be appraised in accordance with the terms in the Note. The prepayment amount is applied to both principal and outstanding Contingent Interest as follows: the amount of principal reduction equals the original principal (adjusted for any prior prepayments) multiplied by a fraction, the numerator of which is the prepayment amount and the denominator of which is the total amount of principal and Contingent Interest outstanding. The remaining amount of the prepayment is applied to reduce the outstanding Contingent Interest. Following the prepayment, the outstanding principal balance of the RAMP loan will have been reduced. See Table 3 for an example of this calculation. Riverwalk Landing Condominiums on Roosevelt Island p. 5

6 Table 1. Annual Maximum Contingent Interest Calculation Year Maximum AMPL Note Rate Maximum Rate x Principal Current Interest 0.0% Maximum Cumulative Contingent Interest Contingent Principal Interest 1 $180,000 x 7.00% = $12,600 - $0 = $12,600 $12,600 2 $180,000 x 7.00% = $12,600 - $0 = $12,600 $25,200 3 $180,000 x 7.00% = $12,600 - $0 = $12,600 $37,800 4 $180,000 x 7.00% = $12,600 - $0 = $12,600 $50,400 5 $180,000 x 7.00% = $12,600 - $0 = $12,600 $63,000 6 $180,000 x 7.00% = $12,600 - $0 = $12,600 $75,600 7 $180,000 x 7.00% = $12,600 - $0 = $12,600 $88,200 8 $180,000 x 7.00% = $12,600 - $0 = $12,600 $100,800 9 $180,000 x 7.00% = $12,600 - $0 = $12,600 $113, $180,000 x 7.00% = $12,600 - $0 = $12,600 $126,000 Riverwalk Landing Condominiums on Roosevelt Island p. 6

7 Table 2. Principal And Contingent Interest Due At Payoff In Year 10 Annual Riverwalk Landing Price Appreciation Rate 0.0% 5.0% 9.5% Maximum Annual Interest Rate 8.79% 8.79% 8.79% Purchase Assumptions Purchase Price $600,000 $600,000 $600,000 RAMP Principal $180,000 $180,000 $180,000 NYU's Share 30% 30% 30% Adjustments to Due Date Fair Market Value Due Date Fair Market Value $600,000 $977,337 $1,486,937 Adjustment Improvements (25,000) (25,000) (25,000) Adjusted Due Date Fair Market Value $575,000 $952,337 $1,461,937 Appreciation Adjusted Due Date Fair Market Value $575,000 $952,337 $1,461,937 Purchase Price (600,000) (600,000) (600,000) Total Adjusted Appreciation $0 $352,337 $861,937 NYU's Share of Appreciation a. 30% x Adjusted Appreciation $0 $105,701 $258,581 b. Maximum Contingent Interest $126,000 $126,000 $126,000 Payoff Amount: Contingent Interest +Principal Contingent Interest Due (lesser of a or b above) $0 $105,701 $126,000 RAMP Principal $180,000 $180,000 $180,000 Total Due $180,000 $285,701 $306,000 Riverwalk Landing Condominiums on Roosevelt Island p. 7

8 Table 3. Example If Partial Prepayment of $50,000 Made At The End Of Year 3 Purchase Price $600,000 RAMP Principal $180,000 NYU s Share at Purchase 30% Prepayment Calculation Contingent Interest Due, end of Year 3 $37,800 Plus RAMP Principal $180,000 Equals Total Principal + Contingent Interest $217,800 Partial Prepayment $50,000 Divided by Total Principal + Contingent Interest $217,800 Equals the Fraction 22.96% RAMP Principal $180,000 Times the Fraction 22.96% Equals Amount of Principal Reduction $41,328 Total Prepayment $50,000 Less Amount of Principal Reduction ($41,328) Equals Amount of Contingent Interest Paid $8,672 New Principal and NYU s Share Calculation Beginning Principal Balance $180,000 Less Amount of Principal Reduction ($41,328) Equals New Principal Balance $138,672 New Principal Balance $138,672 Divided by Purchase Price $600,000 Equals New NYU s Share 23.1% Riverwalk Landing Condominiums on Roosevelt Island p. 8