Partnerships with Federal Home Loan Banks: Funding for Home Builders, Developers, Homebuyers, and Renters

Transcription

1 Partnerships with Federal Home Loan Banks: Funding for Home Builders, Developers, Homebuyers, and Renters

2 Meet Your Speakers Robert Dozier FHLBank Atlanta Jennifer Ernst FHLB Des Moines Arthur Fleming FHLBank Atlanta 2

3 NAHB Disclosure The material in this education session has not been reviewed, approved, or endorsed by the National Association of Home Builders (NAHB). The topics discussed and the materials provided herein are for informational purposes only, are not intended to be an exhaustive presentation of information on a particular subject, and should not be treated as such. The speaker or speakers are not acting on behalf of or at the direction of NAHB. NAHB specifically disclaims any liability, loss or risk, personal or otherwise, which may be incurred as a consequence, directly or indirectly, in the use or application of any of the materials presented in this or any other education session presented as part of the International Builders Show. 3

4 How builders and developers can work with Federal Home Loan Banks to finance affordable housing projects, create homeownership opportunities, and grow their businesses Today s Discussion Overview of the Federal Home Loan Banks Challenges Facing Builders and Developers A Solution: FHLBanks Affordable Housing Program FHLBank Atlanta FHLB Des Moines Next Steps 4

5 Overview of Federal Home Loan Banks (FHLBanks) 5

6 Overview of FHLBanks FHLBanks are cooperatives created by Congress in 1932 Eleven regional FHLBanks with over $1 trillion in total assets Provide wholesale funding to approximately 7,000 financial institutions 6

7 Provide products and services that help member financial institutions manage their asset-liability and liquidity programs Increase and expand the availability of funds for residential mortgage and community development lending nationwide 7

8 FHLBanks Core Products Letters of Credit Provide credit enhancement on bonds for residential and economic development Mortgage Partnership Finance (MPF ) Program and Mortgage Purchase Program (MPP) Empower small- to medium-size FHLBank members to originate more mortgages. Provide an alternative to Fannie Mae, Freddie Mac, and Ginnie Mae for the sale/securitization of mortgage loans Advances Provide FHLBank members lowcost financing for lending in their communities Affordable Housing Program (AHP) Provides real estate funding for the acquisition, development, construction, or rehabilitation of affordable housing Ownership or rental Single-family or multifamily 8

9 Challenges Facing Home Builders and Rental Developers 9

10 Homeownership Rates Continue to Decline The national homeownership rate dipped again for the 12 th consecutive year, notching down from 63.7 percent in 2015 to 63.4 percent in 2016, according to the Housing Vacancy Survey.* *Source: The State of the Nation s Housing 2017, Joint Center for Housing Studies of Harvard University, 10

11 Wide Variation in Home Purchase Affordability A median-income household would spend 18.2 percent of monthly income on home payments in a typical Midwestern metro, compared with 24.2 percent in Southern metros, 26.4 percent in New England metros, and 37.7 percent in Pacific division metros (including Alaska, California, Hawaii, Oregon, and Washington).* *Source: The State of the Nation s Housing 2017, Joint Center for Housing Studies of Harvard University, 11

12 Shortage of Low-Cost Rentals Even with multifamily construction at its highest level in two decades, additions to the rental supply have not kept pace with swelling demand. As a result, rents have climbed across the board.* *Source: The State of the Nation s Housing 2017, Joint Center for Housing Studies of Harvard University, 12

13 High Cost Burden for Low-Income Renters Source: Tax law likely to spur crisis in affordable housing, by Kate Berry, American Banker, January 3,

14 A Solution: FHLBanks Affordable Housing Program (AHP) 14

15 A Solution: Affordable Housing Program (AHP) Homeowner Assistance Down-payment grant funding To enhance home sales to first-time homebuyers and service sector employees Compatible with FHA and VA Rental Development Financing Equity Lower the debt service for rental apartment developments Reduction in unit rents enables leasing to a broader pool of tenants Enables conventional lending on higher loan-to-value transactions 15

16 AHP = Real Estate Finance Equity Equity-like funding, no interest accrues, and no expectation of repayment if compliance is upheld AHP funds are accessed only through FHLBank members Generally secured with a note and security instrument to ensure compliance 16

17 AHP at a Glance Earnings Community Dividend Since 1990, the FHLBanks have awarded approximately $5.4 billion in AHP funds, enabling more than 827,000 households to become homeowners or tenants 17

18 Scale and Impact of FHLBank System-wide AHP 827,000 rental and homeownership units created since 1990 $5.4 billion in AHP $4.4 Billion $953 Million 16,900 AHP Competitive projects 660,000 rental and homeownership units since ,000 AHP Homeowner Assistance Product units since 1995 Source: 2016 Low-income Housing and Community Development Activities of the Federal Home Loan Banks Report, Income-Housing-and-Comm-Dev-Activities-of-the-FHLBanks.pdf 18

19 How to Access AHP via FHLBank Members AHP Competitive Program $500,000 to $1.5 million for rental or ownership development projects Competitive application Each FHLBank has its own scoring criteria AHP Homeowner Assistance Products Down-payment, closing-cost, and principal-reduction grants for home purchase or home rehabilitation Generally, first come, first served Developer/builder driven New construction Rehabilitation Multifamily Single-family Mortgage driven Single-family products Down-payment assistance Closing-cost assistance First-time homebuyer 19

20 Examples from FHLBank Atlanta and FHLB Des Moines 20

21 FHLBank Atlanta Homeowner Assistance Products First-time Homebuyer Product $5,000 Foreclosure Recovery Product $15,000 Community Partners Product $7,500 Veterans Purchase Product $7,500 Returning Veterans Purchase Product $10,000 Structured Partnership Products 21

22 FHLB Des Moines 2018 Homeowner Assistance Products Home$tart $5,000 Home$tart Plus $10,000 Native American Homeownership Initiative $10,000 22

23 Connecting Homebuyers, Builders, and AHP Equity 23

24 Homeowner Assistance Case Studies Home$tart Plus Product Returning Veterans Purchase Product Home Sales Price $120,000 Home Sales Price $160,000 Without AHP: Member First Mortgage $115,800 Homebuyer Contribution 4,200 Seller Contribution $3,000 Closing Costs $3,000 Without AHP: Member First Mortgage $160,000 Homebuyer Contribution $0 State Housing Grant $4,800 Closing Costs $4,800 Member LTV without AHP (First Mortgage/Sales Price) 96.5% Member LTV without AHP (First Mortgage/Sales Price) 100.0% With AHP: Member First Mortgage $105,800 Homebuyer Contribution $4,200 Seller Contribution $3,000 Closing Costs $3,000 AHP (4:1 match to homebuyer contribution) Member LTV with AHP (First Mortgage/Sales Price) $10, % With AHP: Member First Mortgage $145,000 Homebuyer Contribution $0 State Housing Grant $4,800 Closing Costs $4,800 AHP (No matching is required for AHP Veterans Products) Member LTV with AHP (First Mortgage/Sales Price) $15, % 24

25 FHLBank Atlanta and FHLB Des Moines Homeowner Assistance Scale and Impact Since

26 FHLBank Atlanta and FHLB Des Moines Competitive Rental Project Funding Low-Income Housing Tax Credit (LIHTC) Non-LIHTC Multifamily Mixed-use Supportive Housing Rental Transaction Types Reduces Project Debt Service Which thereby permits a reduction in project rents to enable affordability Use of Funds Woods at Yorktown Yorktown, VA AHP Investment: $354,000 Total Development Cost: $7,203,459 Acquisition Rehabilitation New construction and/or Permanent funding Hallmark at Mobile Mobile, AL AHP Investment: $870,000 Total Development Cost: $12,460,125 26

27 Rental Housing Development Case Study Rental, New Construction Elderly/Affordable Housing Birmingham, AL, 56 units Total Sources AHP FHLBank Member Other Sources Acquisition $450,000 $450,000 Construction $5,931,457 $560,000 $656,000 $4,715,457 Soft Costs $947,162 $947,162 Other Costs $1,353,400 $1,353,400 Total Development Budget $8,682,019 $560,000 $656,000 $7,466,019 Total Member Debt First Mortgage $656,000 Member Loan-to-Value (LTV)/Cost 7.6% AHP Competitive $560,000 Total Member Debt if AHP Converted to Debt $1,216,000 Member LTV/Cost if AHP Converted to Debt 14.0% DCR 1.41 DCR if AHP Converted to Debt (7.0% for 15 years)

28 Rental Housing Development Case Study Rental, New Construction Family Rental Project Lake Worth, FL, 55 units Total Sources AHP First Mortgage Other Sources* Acquisition $990,000 $990,000 Construction $7,248,687 $492,945 $2,143,684 $4,612,058 Soft Costs $2,137,494 $41,150 $2,096,344 Other Costs $3,124,470 $665,166 $2,459,304 Total Development Budget $13,500,651 $492,945 $2,850,000 $10,157,706 Borrowing the Amount of AHP from the First Mortgage Lender Total First Mortgage $3,332,945 AHP $0 Member Loan-to-Value (LTV)/cost 24.7% DCR 0.90 Making Lending Possible and Projects Feasible Using AHP Funds Total Member First Mortgage $2,850,000 AHP $482,945 Member Loan-to-Value (LTV)/cost 21.1% DCR 1.15 *Other sources include subordinate and soft debt and equity 28

29 Connecting with Our Members 29

30 Connecting with an FHLBank Atlanta Member Find A Member on the Bank s website includes member business (loan officer/lender) contacts for both single-family home purchase and rental housing development Helps connect developers with FHLBank Atlanta members 206 Member Business Contacts Messages below sent to members via Find A Member: I am interested in becoming a homeowner. I am a veteran and need additional information as to what I need to do to qualify. Please contact me as soon as possible Hello, I see your bank is a member of FHLBank Atlanta. I am interested in a first time homebuyers or REO GRANT from FHLBank Atlanta. May I please have a current list of your REO PROPERTIES? Please contact me by with a property list. I would like to purchase something in the next 1-3 months. Search Options 30

31 Connecting with an FHLB Des Moines Member Membership Directory on the Bank s website includes member business (loan officer/lender) contacts for both single-family home purchase and rental housing development Helps connect developers with FHLB Des Moines members 31

32 Key Takeaways FHLBanks provide equity-like funding that can lower your costs and increase access to customers With roughly $5.4 billion in AHP funding provided since 1990, FHLBanks have the scale to meaningfully impact your business 32

33 THANK YOU! Robert Dozier FHLBank Atlanta Jennifer Ernst FHLB Des Moines Arthur Fleming FHLBank Atlanta