NCHMA Spring Meeting -1.5 Exploring Fannie Mae & Freddie Mac Executions & Underwriting

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1 NCHMA Spring Meeting -1.5 Exploring Fannie Mae & Freddie Mac Executions & Underwriting Shaun K. Smith, Senior Director, Targeted Affordable Housing April 19, 2016

2 What is the Duty to Serve? The Housing and Economic Recovery Act of 2008 established for Fannie Mae and Freddie Mac a duty to serve very low-, low-, and moderate-income families in three specified underserved markets: Each year, FHFA is required to evaluate and rate each Enterprise s performance in each underserved market and report the results to Congress. Freddie Mac 2

3 TAH Annual Volume Product Overview 2015: $2,530,030,294 Firm: Fixed Rate CME Floating Rate CME Fixed Rate PE Bridge Bonds TEL $439,041,750 $447,370,347 $149,264,000 $25,075,000 $906,881,000 $263,707,197 Freddie Mac 3

4 TAH Annual Volume Product Overview 2016 YTD (4/5/16): $778,199,000 Fixed Rate CME Floating Rate CME Fixed Rate PE Bridge Bonds TEL Forward RL TELs $90,590,000 $114,464,000 $38,549,000 $0 $102,790,000 $223,188,000 $208,618,000 Freddie Mac 4

5 Direct Purchase Tax-Exempt Loan Significant cost savings compared to traditional publically offered bond credit enhancements with less documentation resulting in a more efficient execution Garden, mid-rise or high-rise multifamily properties with 4% LIHTC with 90% occupancy for 90 days Fixed Rate Floating Rate Minimum DCR 1.15x 1.20x; with interest rate hedge Maximum LTV 90% of market value 85% of market value; with interest rate hedge Loan Term Up to 18 years Up to 10 years Construction Loan Up to 36 months Up to 36 months Freddie Mac 5

6 Side-by-Side Comparison: Tax-Exempt Bond Placement and Direct Purchase of Tax-Exempt Loan Bond Purchaser Tax-Exempt Bond Placement Tax Exempt Bonds (payable solely from Note ) $ Purchase Price (pursuant to Bond Purchase Agreement ) Loan to (pursuant to Loan Agreement ) Government Entity as Issuer $ Note Funding Lender Direct Purchase of Tax-Exempt Loan Government Lender Note (payable solely from Note ) (Governed by Funding Loan Agreement ) $ Funding Loan to City as Governmental Lender Loan to (pursuant to Loan Agreement ) Governmental Lender $ Note Freddie Mac 6

7 Bond Products Comparison Chart Tax-Exempt Loan Credit Enhancement for Direct Placement Bonds Cash Loan with Short Term Bonds Bond Credit Enhancement with 4% LIHTC Bond Credit Enhancement with Other Affordability Components More efficient, more cost effective alternative to publically offered taxexempt bond credit enhancement Private placement loan product with fewer documents and participants Min DCR Max. 90% LTV Terms up to 18 years 35 years Minimum 10 years prepayment protection More efficient, more cost effective alternative to publically offered taxexempt bond credit enhancement Private placement bond product with fewer documents and participants Min DCR Max. 90% LTV Terms up to 15 years 35 years Minimum 7 years prepayment protection Cash loan, secured by the property, that provides collateral for tax-exempt bonds with 4% LIHTC Bonds paid off when units placed in service. Cash loan remains in place. Cash loan coupled with privately placement bonds. Min DCR Max. 90% LTV Terms up to 18 years 35 years Yield maintenance followed by defeasance Traditional, publicly offered bond credit enhancement Public bond offering with multiple participants Min DCR Max. 90% LTV Terms up to 35 years 35 years Fee Maintenance is required New or replacement credit facility for taxexempt housing bonds Public offering or private placement bond executions. Min DCR* Max. 85% LTV* Terms up to 30 years 30 years Fee Maintenance is required *Higher leverage may be in Tier 1 and Tier 2 Markets. Freddie Mac 7

8 Bridge to Resyndication Terms Minimum DCR 1.15x Maximum LTV Maximum 85% Cash Equity Required: 15% (if owned < 3 years) Loan Term 24 months, one 6-month extension with approval Benchmarks Bond Inducement Resolution. 4% LIHTC allocation. Final plans, budget and specifications for rehabilitation. LIHTC investor commitment. Commitments for all other sources necessary to close the LIHTC resyndication. Freddie Mac 8