hud fha affordable housing trends, updates, and selected...

38
HUD FHA Affordable Housing Trends, Updates, And Selected Underwriting Best Practices/Tips and Tricks HUD-WMAC Conference, September 8, 2016 Presented by: Larry Fergison Chief, SF Production Tech Specialist Branch

Upload: others

Post on 06-Oct-2020

1 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

HUD FHA Affordable Housing Trends,

Updates, And Selected Underwriting

Best Practices/Tips and Tricks

HUD-WMAC Conference, September 8, 2016

Presented by: Larry Fergison Chief, SF Production Tech Specialist Branch

Page 2: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Park Hill Village West, Denver - 221(d)(4) 4% LIHTC

Page 3: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

HUD FHA Affordable and LIHTC Key Principles

o Using FHA Insured Loans with Low Income Housing Tax Credit Program is Essential to Sustain FHA’s Affordable Production

o Affordable Housing is a Top Priority for Multifamily Housing, and San Francisco has a proven LIHTC track record on both FHA Insured and our Section 202-811 Capital Advance programs (e.g. proactively created a Toolkit with Stakeholder feedback and currently part of Design Council for Pilot d4 expansion)

o Our office works extra hard and creatively to facilitate preservation of our existing HUD Portfolio.

o We will work with State Allocators and levels of Gov’t to work through timing issues. Excellent relationships with State Agencies – CA HCD-HUD.

o HUD MF’s Continuous Improvement practices – including HQs support of field and HUD-Industry dialog -- are truly “Changing the Game”

o We are Mission Driven and Want More Affordable and LIHTC business. Let’s work together to accomplish our mutual goals.

3

Page 4: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Regional LIHTC Activity as a Percentage of Nationwide LIHTC Activity:

Last 3 Fiscal Years (FY14 – CURRENT)

4

*Percentages represent the total number of LIHTC/TE Bond projects that have been Initially Endorsed within the last three fiscal years

WEST 32%

$6.2B

SOUTHWEST 17%

$3.3B

SOUTHEAST 7%

$1.3B

MIDWEST 6%

$1.2B NORTHEAST 38% $7.6B

Page 5: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Basic FHA MF Firms Issued- LIHTC FY 16 YTD – US & West Region

• Total $ Volume (BillTotal $ Volume (Billons) • ons)

U.S. West # of Firm

Commitments

Issued

# of

Units

Total $

Volume

# of Firm

Commitments

Issued

# of

Units

Total $

Volume

225 33,554 $2.1 billion 15 1,675 $160 million

(100 – NC/SR; 125- Refi.) (5 – NC/SR; 10- Refi.)

Page 6: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Importance of HUD FHA’s LIHTC Program

Increasing Affordable Housing, Especially Tax Credit Projects, is a Fundamental HUD Goal

HUD’s production of FHA-insured loans for LIHTC projects more than doubled in 2014, and continued to grow in 2015: • At FY 2014 year end, HUD had closed over $1.756 Billion in LIHTC loans

during the year, more than doubling the FY 2013 number of $972 Million. (Committed ~$2.2 Billion in FY 2014).

• Despite a reduction in HUD’s overall production in 2015, the LIHTC production increased by 8% to $1.890 Billion.

• The Tax Credit Pilot Program is now being expanded to include 221(d)(4) loans: draft Housing Notice is under review.

HUD is committed to providing creative customer service and improved program design on FHA-Tax Credit projects

Note: Numbers used include NC/SR, 223(f) and A7 loans

Page 7: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Recent HUD FHA Program Changes Facilitate Affordable and LIHTC Projects

o New MIP rate reduction to .25%!!! (Applause…) o 221(d)(4) New Constr/Sub Rehab w 90 percent+ LIHTC, or 90 percent+Section 8 is

reduced from 45 to 25 bps

o New MAP Chapter 14 consolidates the previous Notices, FAQs,

and informal policy guidance into one Chapter (more on this) o Continuation of Pilot Program “mindset” now being applied to

Section 221d4 NC/SR. Risk-based underwriting and “Transformed” processing platform now across all 5 Regions.

7

Page 8: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Affordable LIHTC-Financed

Housing and HUD FHA Multifamily: Focus on the New MAP Chapter 14

(Thanks Laura Stutzman of Denver)

TT

Page 9: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

2016 MAP Guide Chapter 14 - “Low Income Housing Tax Credit (LIHTC) and Other Tax

Credit Program Guidance”

• Incorporates changes from Ted Toon and Ben Metcalf memos from 2014/2015, and feedback from Industry, HUD staff, and other Stakeholders (over 4,000 comments)

• Allows Equity Bridge Loans to be obligations by FHA Mortgagor Entity (with limits on recourse against project)

• Relaxed “Pari Passu” funding requirements

9

Page 10: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

2016 MAP Guide – LIHTC Changes/Clarifications

• 55+ exemption. Only available for existing projects (> 3 years) which do NOT have Project-based Section 8 (or other legacy deep-subsidy) age-restricted definitions.

• Initial LIHTC Equity Pay-In requirement: 20% of Total Equity. This amount may not be funded by a Bridge Loan.

• Subsequent Pay-Ins may be funded by an Equity Bridge Loan and are based on Net Equity.

10

Page 11: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

New FHA Tax Credit Equity Pay-In Requirements

11

• Required for all LIHTC Transactions • Does not apply to equity derived from New Market or Historic Tax Credits.

• Added as a Special Condition to Firm Commitment for all TC Projects • Waivers of the first 20% equity pay-in will not be considered. (“skin in game”)

• In addition, bridge loans and other sources, such as publicly funded loans or grants, may not be used to fund the first 20% equity pay-in amount.

• Waivers of subsequent equity pay-in amounts will generally not be approved either.

Page 12: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

New FHA Tax Credit Equity Pay-In Schedule

12

Page 13: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

New FHA Tax Credit Equity Pay-In Requirements

13

• 1st Minimum Installment is measured in Total Equity (20% of Total Equity) • 2nd and 3rd Installments are measured in Net Equity (100% of Net Equity) • Net Equity

• A portion of Total Equity usually does not fund construction or otherwise provide income-producing assets that initially enhance FHA’s guarantor position, and

• FHA’s mission is not served by over-capitalizing a project with high-cost equity either

earlier than is needed, or in amounts that provide minimal additional risk mitigation.

Page 14: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

New FHA Tax Credit Equity Pay-In Requirements

14

A. Definition of “Net Equity”. The term “Net Equity” is equal to Total Equity less

1) Deferred Developer Fees that are documented in a note and paid from project surplus cash, not equity,

2) “Delayed” Developer Fees for amounts due after the completion of repairs or construction, but not included in the Deferred Developer Fee Note and

3) Predetermined reserve amounts to be held by the investor for project uses after the time of the final pay in noted in the schedule above.

• Reserve allowed for this calculation may include only amounts that are required in the project’s Partnership Agreement or LLC Operating Agreement. These include

• Lease Up Fees and Escrow, • Operating and Debt Service Reserves, • Section 8 HAP Contract Transition Reserves, • Replacement Reserves, and State Agency Administrative Fees or Escrows.

Page 15: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

New Tax Credit Wheelbarrow

• This might seem complicated, but HUD has developed a new tool – the Wheelbarrow – to make it a LOT easier for ALL of us to comply with this.

• The New TC Wheelbarrow Excel file and PDF of the training PPT for the new wheelbarrow are available on HUD's public website on the Tax Credit Pilot page here (still want your feedback on this):

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/map/maphome/taxcredit

15

Page 16: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

THE LIHTC PILOT:

PAST AND PRESENT

16

Page 17: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Original S. 223f Tax Credit Pilot Program Features

LIHTC Pilot Program Provided Opportunity to Increase Production and Test New Application Processing Methods. • Implemented in 2012 • Section 223(f) Loans only • Designated Senior Underwriters (Mgt., now SrUW) • Designated Pilot Hubs • Streamlined Application Exhibits • Increased Repairs to $40,000 per unit w/out D-B • 120-day processing from intake to HUD endorsement • Now a standard processing method reflected in MAP (any

ideas on how to speed up commit to endorsement?)

17

Page 18: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

18

Cottonwood Place, Fremont, CA Eden Housing

98 Units of Section 202 Cap Advance Elderly Housing with 4% LIHTCs, and Sr. Center

Page 19: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

THE New 221d4 LIHTC PILOT’S FUTURE: Is it

already here?

19

Page 20: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Ongoing Pilot Program Development Efforts

o Integration of Pilot with RAD o Development of new Pilot Section 221(d)(4)

Program, in order to: • Continue to Increase Pilot Production • Facilitate expedited processing of New

Construction and Substantial Rehabs • Continue to test and refine HUD processing

methods o HUD Transformation and MAP Guide changes are

now setting the stage to achieve our mutual production goals

20

Page 21: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Likely (d)(4) Processing Fundamentals • Concept Meetings Required • Single Designated Underwriter with Assistance from

Architect, plus Assistance from Valuation and Other Tech Staff Only “As Needed”

• Use of Simplified MAP Checklists for (d)(4)s and Elimination of Redundant or Unnecessary Documents

• Abridged Loan Committee Template for HUD Underwriter Use (Narrative)

• Commitment to Expedited, High Priority 221(d)(4) Processing In Field Offices

• Dedicated HQ Staff in Production and Asset Management • Transformation is already accomplishing some of this

21

Page 22: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Rental Assistance Demonstration

Page 23: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

The Problem – Public housing at risk due to deferred capital repairs caused by a long

history of underfunding of the program – 10,000-15,000 public housing units lost each year – Current needs exceed $25.6B across the portfolio (+$23k per unit) – Section 9 platform (PHA) creates barriers to accessing private capital

– Multifamily “legacy” assisted housing properties also at risk

A Tool to Start the Solution – RAD created in FY12 Appropriations, expanded in FY2015 – Preserves at-risk public housing and at-risk legacy properties by targeting

the risk issues through conversion to long-term Section 8 Housing Assistance Payment (HAP) contracts

23

Background on RAD

Page 24: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

• RAD has continued to grow, proving that it IS a powerful housing preservation tool

• At this point, 34,000 units have converted assistance through RAD, leveraging $2.4B in additional investments!

• Demand for program remains high, with 11,000 units waiting.. • Current pipeline: 858 Transactions – 97,142 Units • Future Notice on Relocation/Fair Housing in the works – will clarify weighty

issues such as how to evaluate whether “tear down” is appropriate, communication with residents, and ensuring residents are being protected

• Much will NOT be new rules, but rather making more transparent those rules already in place.

• More info on RAD website: check back in the next few months!

24

RAD Updates

Page 25: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

RAD Program Structure

Program rules set forth in PIH Notice 2012-32 Rev 2

25

Public Housing Mod Rehab (including SRO) Rent Supp & RAP

RAD for Public Housing “1st Component” 185,000 Unit Cap

PBRA PBV

RAD for Legacy Assisted Housing “2nd Component”

No-Cap

PBV PBRA

Page 26: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Public Housing Investment & Financing

• 17% New Construction

• 55% use

LIHTCs • 17% use

FHA Financing

Closed Transactions by Level of Investment

Closed Transactions by Financing Type

Page 27: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Public Housing Conversions by Year To Date:

314 Transactions 33,905 Units

Current Pipeline: 858 Transactions

97,142 Units

Page 28: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Legacy Conversions – RS/RAP Status 18,572 Units Converted • 154 closed transactions • 40 active transactions • 52 remaining

properties in Rent Supp/RAP portfolio

• 27 in NY, NJ and MA; the rest in IL, MD, MI, PA & VA

• 25 properties (48%) expire in 2016

• 16 properties (31%) expire in 2017

• 11 properties (21%) expire after that

Page 29: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

RAD FY 17 Budget Requests (Pointing to the Future)

• Eliminate the cap on the public housing units that can convert at no cost

• Allow Section 202 Project Rental Assistance Contracts (PRACs) to convert under 2nd Component at no cost

• $50 million for incremental subsidy for public housing and Section 202 PRAC conversions for properties with significant capital needs and high preservation value

• Require protection of a tenant’s right to continued occupancy in legacy conversions; and

• Explicitly permit non-profit control of tax credit partnership and non-profit ownership in the event of foreclosure, bankruptcy, or default.

Page 30: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Low-Income Housing Tax Credits and HUD Multifamily:

General Underwriting Best Practices/Tips and Tricks

HUD Multifamily West Region Larry Fergison

Page 31: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Long Lead-Time Items: • Vet at Concept Stage or earlier • Scope of work/design, though we are flex on 100% drawings • Environmental Resolution/development of plan, Historic

Preservation, Cultural/Agricultural Resources, etc. (early submission *may* be permitted if deal is likely to proceed)

• Complex Legal and Intergovernmental Issues, including Subordinate Debt “layers”, ground leases, as well as existing AND proposed Financing Restrictions/Requirements/RAD timing and setting realistic expectations among all parties

• Asset Mgt approvals (e.g. prepays and 20-yr HAP apprvls) • Terry? Lender perspective…

31

Page 32: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Firm Commitment Application and General Best Practices/Tips and Tricks:

Most applications are complete and well put together ( ), and ALL have a great deal of time and effort put into them. But our shop has encountered some issues that have delayed HUD commitment issuance or otherwise impacted customer service. We offer these suggestions:

Narrative (Key Document): • Give HUD a LOUD and CLEAR heads-up of hard deadlines. Also put in cover letter. • Provide a clear “roadmap” when necessary to support underwriting. Narrative

should be complete enough so that HUD can underwrite based on narrative. • Narrative by lender should focus on risk, and provide its own UW analysis, and

minimize “cut and paste” from 3rd party reports. • Clearly identify all waivers needed, and include a draft HUD-2 as a starting point

for HUD staff. (Also, discuss at Concept).

32

Page 33: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Firm Commitment Application and General Best Practices/Tips and Tricks: (continued)

• Due Diligence: 3rd party reports s/b accurate and critically reviewed by lender, with modifications made, as appropriate/necessary

• Solid relocation plan, if applicable. Residents perspective. GC/Subs/CPD • Make sure S&U balance and provide cash-flow waterfalls, when helpful Hot Issue: Variances in Past Operating History vs. Proposed Underwriting • Stress test to show worst case if increased rents not achieved • Mitigate risks to protect existing tenants (Op Service Reserve, relocation

assistance, and/or phased timing of rent increases) • Mind the multiple layers of financing… Identify early on. • Lender’s view on pressures faced by MAP Lenders to prepare the “Perfect”

Application?

33

Page 34: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

FHA and Tax Credits Avoid Processing Delays (From HUD Staff)

• Tax Credit Reservation Letter - Make sure that at the time of application that there is at least a reservation letter from the appropriate allocation agencies for the issuance of the tax exempt bonds and future tax credits. Although we can accept the application prior to the actual allocation and award of the tax credits, we need to be confident that the tax credits will be awarded, so that we can close the deal

• 223(f) TC Pilot - Make sure that the scope of repairs is well defined and that

the amount of repairs are not pushing near the $40K/unit limit. Particularly in cases with ACM or mold remediation, there needs to be adequate contingencies to make sure that those unforeseen remediation issues don't push the budget beyond the $40K/unit limit. In projects with the potential for these unforeseen issues to balloon up in coasts, it is best to create an overall scope of work that is well below the maximum $40K/unit.

34

Page 35: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

FHA and Tax Credits Avoid Processing Delays (Continued)

• Existing Agreements/ Use Restrictions - Make sure that existing Regulatory Agreements do not conflict with the timing and deal structure of the project. There may be existing affordability requirements in place that create conflicts with the new tax credit affordability requirements. Local and State Sub Agreements and others can require more time…

• Borrower/ Management Agent Experience – Strongly urged to make sure that the

proposed management company and ownership, have HUD and LIHTC experience. • TC Rents at Least 10% Below Market - Make sure that the tax credit rents are at

least 10% below market rents. This is not that complicated on deals without Section 8 units or local agency rental subsidies. However, when these are in the mix, it is important to make sure that the overall rent structure meets the affordable category for MIP calculation purposes.

Last, but not least… • Davis-Bacon Split wage decisions • Lawyers – Early reviews of certain documents to facilitate smooth HUD-Ache Free

Closings… (Terry)

35

Page 36: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

Resources

LIHTC Pilot website:http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/map/maphome/taxcredit

MAP Guide 2016 REV-2, Chapter 14

RAD website: hud.gov/rad

RAD FHA Underwriting Notice (H 2012-20)

36 Multifamily West Region

Page 37: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

2300 Welton, Denver - 221(d)(4) With 4% LIHTC (Note on Pix)

Page 38: HUD FHA Affordable Housing Trends, Updates, And Selected …westernmortgageeadvisorycouncil.org/wp-content/uploads/2017/09/... · Recent HUD FHA Program Changes Facilitate Affordable

For more information:

• Contact: Larry Fergison

Chief, Technical Specialist Branch San Francisco Multifamily Production 415-489-6618 [email protected]