NALHFA 2017 Annual Conference. Section 542 Risk Share Programs Overview

Transcription

1 NALHFA 2017 Annual Conference Section 542 Risk Share Programs Overview

2 Risk Share Program Overview Background: Section 542 of the Housing and Community Development Act of 1992 established the two pilot risk sharing programs: (c) Housing Finance Agency (HFA) Risk Sharing Program (b) Qualified Participating Entity (QPE) Risk Sharing Program 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 Unit allocations and reservation of credit subsidy are no longer in effect. 4/28/2017 2

3 542(c) HFA Risk Sharing Program Provides Credit enhancement to state and local housing finance agencies (HFA) bond and debt issuances through FHA mortgage insurance. The HFA and HUD share risk on a transaction level. Underwriting and asset management responsibilities are delegated to the HFA. HFA benefits: higher bond ratings resulting in lower borrowing costs and savings passed on to borrowers and tenants HUD benefits: reduced risk at the transaction level, increased affordable housing production and significantly reduced staff resources. 4/28/2017 3

4 Traditional FHA Programs vs. Risk Sharing The Risk Sharing program differs from FHA s traditional mortgage insurance programs in that in the Risk Share programs: FHA assumes only a portion of risk, rather than all; FHA delegates loan processing and asset management functions to the HFA FHA has more stringent eligibility standards for lender participation and sets larger reserve requirements that reduce counterparty risk 4/28/2017 4

5 The 542(c) Risk Share Program How the Program Works Qualified HFAs are authorized to underwrite, process, and service loans and to manage and dispose of properties. HFAs enter into Risk Sharing Agreements with HUD, the HFA contracts to reimburse HUD for a portion of loss on any claims. Over the life of the program no HFA has failed to meet its reimbursement obligation. 4/28/2017 5

6 542(c) Program Accomplishments UPB of HFA risk share portfolio is > $5 billion Top Producing HFAs ( ) HFA # of loans endorsed $ amount of endorsements MassHousing 283 $2.92 billion Rhode Island 111 $467 million California 109 $607 million Minnesota 100 $245 million Missouri 65 $238 million Colorado 109 $463 million Illinois 63 $384 million Kentucky 54 $ 53 million New Mexico 55 $154 million Oregon 37 $175 million New Hampshire 70 $244 million Maryland 45 $269 million 4/28/2017 6

7 HFA Approval Levels HFAs may be approved at the following risk level percentages: Level I 50/50 shared risk: HFA uses it own underwriting standards; or Level II 90/10 or 75/25 shared risk HFA uses underwriting standards, loan terms, and conditions approved by HUD, or HUD may require changes to HFAs standards as a condition for approval, or require HFA to use standards for HUD s FHA loan programs (223f or 221d4). In this case only the general framework of the program requirements are used. HUD forms are not required if the HFA has similar documents; or Combined levels of I & II HFA approved to use both levels. About 2/3 of the portfolio are Level I transactions and 1/3 are Level II. Claim rates do not vary significantly between Level I and Level II. 4/28/2017 7

8 542(c) Program Requirements The Risk Share Program is entirely affordable production. All projects insured under the Risk Sharing Program must qualify as affordable housing as defined in the Tax Credit 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 4/28/2017 8

9 Multifamily Regional/Satellite Office Key Processes 542(c) Firm Approval Letter Processing The HFA submits an application (Request for HUD-Retained Reviews) and other supporting documentation to the local HUD office for firm approval letter processing following format in Appendix 4 of Handbook Required Exhibits attached to the Request are: Form HUD Request for Release of Funds (RROF) HUD Form 2530 or evidence of APPS submission Form SF-424 Intergovernmental review, if applicable Location Map Legal Description of Property Evidence of zoning Sketch Plan of Site 4/28/2017 9

10 HUD-retained reviews Previous participation review (2530) Environmental review ER review is usually conducted by Responsible Entity (RE) (typically a state or city) selected by the HFA or the HFA may perform its own review provided it meets the definition of a Responsible Entity or the Responsible Entity delegates the function to the HFA. The HUD environmental office or appropriate staff can provide assistance in identifying the appropriate RE. Intergovernmental review- State Review Procedure or Clearinghouse approval. Subsidy Layering review May be delegated to the State Housing Credit Agency HFAs are often the Housing Credit Agency. Determination if project is in military impact area or proposed HUD projects in area Market comments related to potential impact on HUD projects in area. 4/28/

11 Functions delegated by HUD to HFA Affirmative Fair Housing Marketing Plan Economic and Market Study Labor Standards and Prevailing Wage Requirements (Davis-Bacon) 4/28/

12 Multifamily Hub/Program Center Key Processes 542(c) Firm Approval Letter processing The successful completion of the HUD-retained review results in the issuance of a firm approval letter. HUD has a limited role in issuing the firm. Since loan underwriting is delegated to the HFA, HUD review is not considered in underwriting decisions. The review should primarily focus on the HUD retained reviews The firm approval letter (or firm commitment letter) will expire 1 year if the project has not reached endorsement (initial endorsement) for insured advances; (final endorsement) for existing projects or construction start for insured upon completion. 4/28/

13 HFA Processing, Underwriting, & Construction The HFA must process the application, underwrite, and monitor the project during the construction period, among other things; Approve the development team, including the ownership structure. Determine the market for the project; Establish maximum insurable mortgage, review plans and specs; Approve insured advances; Cost Certification 4/28/

14 Program Monitoring Program monitoring is performed at two levels: 1. Local HUB/Program Centers 2. Headquarters Headquarters and local offices will jointly determine the need to perform monitoring reviews. Monitoring of the HFA is performed on a remote and on-site basis primarily consisting of post-endorsement compliance reviews in accordance with the HFA own or approved procedures as well as compliance with HUD regulations and guidelines. HFAs are not required to adhere to MAP or HUD asset management guidelines. Reviews are based on HFA compliance with the underwriting standards submitted with their original application for participation in the 542 (c ) program. 4/28/

15 Local HUD Office Remote Monitoring Responsibilities (cont d) The local HUD Office reviews project files on a post-endorsement basis to detect patterns in processing that must be bought to the attention of HFA; The local HUD Office is responsible for monitoring all management, servicing, and disposition functions of the HFA. HFA submits physical inspections reports to local office. Development Staff Responsibilities: Review of HFA activities from origination through closing compliance with own or HUD approved procedures, i.e., market determinations, construction administration, insurance of advances, cost certifications, etc. Asset Management Staff Responsibilities: staff will make determinations that the HFA is complying with its own project management, loan servicing, and property disposition, monitoring the performance of owner, performing annual physical inspections, etc. 4/28/

16 Headquarters Monitoring Responsibilities Headquarters remotely monitor HFAs for continued eligibility to participate in the program. Headquarters may participate in on-site monitoring reviews. Items to be monitored: HFAs annual audited financial statement Maintenance of top-tier and A rating on general obligation bonds Maintenance of dedicated account, if required Annual certification of no changes to HFA Semi-annual report Default ratio MIP collections Claims process 4/28/

17 Project Management & Servicing The HFA is responsible for providing loan servicing and loan management. HFA will use their own standards The HFA must provide oversight management of the project owner and management agent HFA must perform annual physical inspections of the projects Analyze project annual audited financial statements 4/28/

18 Claim Payment Headquarters solely manages the claim process. The HFA is responsible for preparation and filing of the claim or partial payment of claim. The HFA files the claim directly with HQ Claims Branch. Upon filing of the claim the HFA issues a debenture to HUD for the full amount of the claim. The HFA has five years to foreclose on the property and determine the amount of the loss. During this period interest is paid to HUD at the Treasury debenture rate established when the debenture was issued. Once the loss is determined the HFA and the HUD claims branch settle up based on the risk sharing percentage 4/28/

19 FFB Initiatives: 542(c) HFA Federal Financing Bank (FFB) Risk Sharing Program HUD and the US Treasury s FFB created the FFB Risk Sharing Program to facilitate the expansion of rental housing. The FFB is an inter-agency partnership between HUD, and FFB. The objective is to offer a execution for HFAs that benchmark Ginnie Mae rates. HFAs participating in the FFB program are required to sign a separate Risk Sharing Agreement with modified template for firm approval letters and note endorsement panels. SOA Code Loan Terms, Brief Description of Each 542(c) FFB Risk Sharing Variation Upfront & Annual MIP YHF 542(C) HFA Risk Sharing FFB Existing 0.25% YHC 542(c) HFA Risk Sharing FFB NC/SR 0.25% 4/28/

20 FFB Volume and Status of Program Financing Agreement (PFA) 10/23/14: Program Financing Agreement (PFA) $1 billion through 9/30/15 6/1/15: A&R PFA $1.5 billion through 9/30/16 3/1/16: 1 st Amendment to A&R PFA $2.5 billion through 9/30/19 4/28/

21 Waivers and Final Rule Status Typical Waivers still require HQ approval (Indemnity Agreement) (Cash Out) (Higher of S8 or Market Rents) (17 year Balloon) Proposed Final Rule incorporates changes eliminating requirement for waivers Currently gathering responses to public comments 4/28/

22 FHA s Office of Single Family Housing 2017 National Association of Local Housing Finance Agencies (NALHFA) Annual Conference Department of Housing and Urban Development: Federal Policy Roundtable San Francisco, CA April 27, 2017 Bob Mulderig Acting Deputy Assistant Secretary, Office of Single Family Housing, FHA

23 FHA Forward Loan Counts FHA s Office of Single Family Housing FHA Forward Endorsements by Fiscal Year/Loan Type 1,400,000 1,200,000 1,000, , , , , Fiscal Year Purchase Fully Underwritten Streamline Fiscal Year Endorsement Fully Underwritten Purchase Streamline Total , , ,059 1,184, , , ,843 1,344, , , , , , , ,811 1,116, , , ,631 1,258,055 Source: FHA Office of Risk Management 23

24 FHA s Office of Single Family Housing 70,000 All FHA Home Equity Conversion Mortgage Loans 60,000 50,000 40,000 30,000 20,000 10, Source: FHA Home Mortgage Insurance Division 24

25 FHA Forward Loan Counts (Excluding Streamline) FHA s Office of Single Family Housing FHA Minority Borrowers, Share of FHA Endorsements* 1,400,000 1,200,000 1,000, , , , , Fiscal Year Minority Borrower Counts *Streamline Refinance Fiscal Year Endorsement FHA Endorsements (Excluding Streamline) Minority Borrowers Share Minority Borrowers , , % , , % , , % , , % ,047, , % Source: FHA Office of Risk Management 25

26 FHA Forward Purchase Endorsement Counts FHA s Office of Single Family Housing FHA First-Time Homebuyers, Share of FHA Purchase Endorsements 1,400,000 1,200,000 1,000, , , , , Fiscal Year First Time Homebuyer Fiscal Year Endorsement All Purchase Loans First Time Homebuyer First Time Homebuyer Percentage , , % , , % , , % , , % , , % Source: FHA Office of Risk Management 26