Transcript Multifamily Part III Training Deck

Multifamily New Issuance Bond Program (NIBP)
HFA Underwriting Process for
Private Placement Transactions
December 16, 2009
Agenda
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
NIBP Program Overview
HFA Underwriting Execution Overview



Multifamily Underwriting Guides
 GSE NIBP Term Sheet
Underwriting Process

Transaction Overview Form

General Underwriting Guidance

Conversion to Permanent Underwriting Guidance

Transaction Approval Memo (TAM)

Submission

Timing & Cost
Conclusion

Fannie Mae/ Freddie Mac Specific Underwriting Training
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MF NIBP Program Overview
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Multifamily bond mortgages issued under the NIBP must meet
one of the following requirements:

FHA or Ginnie Mae guarantee or risk-sharing
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Credit enhanced by the GSEs

Underwritten by GSEs pursuant to a new multifamily underwriting
standard to be developed by the GSEs in concert with NCSHA,
NALHFA, FHFA, and Treasury
Note: Exceptions are to be rare under this execution path; more customized loans can
go to other programs within the NIBP. For example, the GSE Lender Networks for a
GSE Credit Enhancement.
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HFA Underwriting Execution Overview
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
Underwrite to the relevant GSE’s Multifamily Underwriting
Guidelines

As amended by the GSE Term Sheet

Access via AllRegs
Relevant Multifamily Underwriting Guides:
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Freddie Mac Delegated Underwriting for Targeted Affordable
Housing Guide

Fannie Mae Delegated Underwriting and Servicing Guide
–
Fannie Mae will provide more targeted Chapter references
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GSE NIBP Term Sheet
Loan Amount
No minimum: $50MM maximum
Loan Terms: New
Construction or
Substantial Rehab
Total loan term: 30 years; 34 years maximum for Funded Forward. The term of the GSE credit
support will match the loan term
Funded Forward – 4 years variable indexed rate and interest only. A Construction Lender must take
100% of risk for construction and lease-up, and secure their guaranty with a AA-rated LOC.
Borrower will be required to replace the LOC if the issuing bank is downgraded below AA-/Aa3.
GSE’s and Treasury will not take construction and lease-up risk. Substantial Rehab will require
appropriate collateral support as determined by the GSEs
Loan Terms:
Immediate
Funding
Occupancy
Requirements
Permanent Loan – fixed-rate
Permanent Loan – fixed-rate
90% occupancy for 90 days
Length of
Amortization
Maximum 35 years
Minimum DSCR
1.15X Underwritten
1.10X with 100% Insurance coverage on principal and interest payments for life of loan from a
counterparty i) rated ‘AA’ or higher by S&P and Moody’s and ii) approved by the GSEs
Maximum LTV
85%
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GSE NIBP Term Sheet
Underwriting—
General
Underwriting
Project-based
Section 8 Income
Replacement
Reserves
Per the relevant Multifamily Underwriting Guide, as amended by this Term Sheet, of the GSE
managing the particular HFA. Waivers or exceptions to the Underwriting Guide will be permitted
in limited circumstances and must be approved by the credit departments of both GSEs.
1. Agree to accept annual appropriations risk
2. Underwrite the greater of LIHTC or Section 8 Income, but in no case can the Underwritten
income exceed Market Rents.
3. A Restabilization Reserve equal to six months of debt service will be required if the
Section 8 Contract does not extend beyond the term of the loan.
Minimum $250 per unit.
Require an updated PNA every 5-years and adjust the replacement reserves accordingly
Minimum
Economic
Vacancy Rate
Greater of market, actual or 5%
Subordinate
Financing
Prepayment
Premium
Soft debt does not impact DSCR or LTV
Hard Mandatory payment Subordinate Debt: Combined 1.05 DSCR and 95% LTV
Open to prepayment without premium at any time
Borrower
Recourse
Non-recourse, with carve outs including bankruptcy filing
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GSE/Contract Underwriting Process Overview
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Each HFA will underwrite its own transactions using the
Multifamily Underwriting Guide of their GSE Point of Contact as
modified by the GSE Term Sheet
The HFA must submit a Transaction Overview Form prior to full
underwriting
The GSEs will have jointly selected one or more “Qualified
Contract Underwriting Firms” (QCUF)
The HFA will submit its underwriting package to the QCUF
designated to the transaction by the GSEs
The QCUF will perform the following on behalf of the GSEs:
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Thorough review of the underwriting and third party reports
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Site visit of the property and its comparables
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Preparation a recommendation for the GSE Loan Committee
The GSE Loan Committee will unanimously approve or reject the
transaction
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Submission of the Transaction Overview
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HFA must submit a Transaction Overview Form to the GSE POC
for prescreening each deal

Do NOT wait until submitting the Underwriting Package to the QCUF
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The GSE POC will coordinate approval with both GSEs
Transaction Overview Form includes:
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Brief Transaction Overview
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Waivers / Exceptions
– Underwriting waivers (if requested) must be approved by both GSEs
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Applicant Information
– Borrowers, General Partners/Key Principals/Guarantors and Limited Partners
with >25% ownership interest will need to pass an Applicant Experience
Check by both GSEs
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Transaction Overview Form
HFA:
GSE Underwriter:
Estimated Closing Date:
Loan Amount:
Product / Program: LIHTC, HAP, etc
Property Name:
Property
Address:
Yr Built:
No. of Units:
Execution Type:
Loan Purpose:
OVERVIEW
Market:
Borrower / Sponsor:
Property
Credit Exceptions (if applicable)
Strengths
Weaknesses/Risks
TO BE COMPLETED BY GSE's ONLY:
Recommend:
Comments:
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Transaction Overview Form
HFA:
GSE Underwriter:
Estimated Closing Date:
0
0
0
APPLICANT INFORMATION
Borrower (if formed)
Name
TIN
Entity Type
i.e. SAE, SPE, etc.
Key Individuals:
Name
SS #
For example, General Partners of a GP or LP*, the designated
member manager of an LLC, or the individuals who have
control of a corporation
Other Individuals:
Name
SS #
Anyone with a 25% or greater economic ownership of the
Borrower.**
*Add additional individuals as needed.
**For example, if the General Partner of a Limited Partnership is an entity, than the individual who are
the General Partners of that entity should be listed.
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Points of Contact

Fannie Mae

Tabare Borbon
– [email protected]
– (201) 300-6733

Freddie Mac

Clayton Davis
– [email protected]
– (703) 714-2837
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Contract Underwriting Firm - TBD

Contact for general underwriting questions
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General GSE Underwriting Guidance
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Funded Impounds
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Taxes, Insurance and Replacement Reserves
Required Third Party Reports include (stabilized/forward):
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Appraisal/Market Study
 Physical Needs Assessment (“PNA”)/ Plan Cost Review
 Environmental Report
 Other Third Party Reports, per relevant Multifamily Underwriting Guide
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Property valuation, per relevant Multifamily Underwriting Guide
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DCR and LTV calculation
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Income and Expense: Line-by-Line Analysis
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Conversion to Permanent Underwriting Guidance
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Conversion to Permanent/Release of Construction Period LOC
must be approved by the GSE Loan Committee
Each GSE will provide guidance on calculating the maximum
permanent loan amount

Fannie Mae: Construction Phase Financing Agreement (not in the DUS
Guide)
Freddie Mac – Construction Phase Financing Agreement for the
specific transaction and generally in the TAH Delegated Guide
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Transaction Approval Memo (TAM)
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Standardized Form for each GSE
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Freddie Mac: Investment Brief (Loan Submission Template)
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Fannie Mae: Underwriter’s Narrative
During underwriting, the HFA is expected to analyze all
reasonably identifiable strengths and weaknesses of the proposed
transaction
All factors that could impact the transaction during the term or at
maturity of the Mortgage Loan must be reflected appropriately and
mitigated in the ultimate underwriting conclusions and approved
Mortgage Loan structure.
Among other things, the HFA must address:

Borrower’s, Key Principals’ and Principals’ financial capacity and experience
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Property’s financial performance and trends
Property’s current physical condition and expected condition over the term of
the Mortgage
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Property market’s performance and trends
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Transaction Approval Memo (TAM)
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Required Information:
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An analysis of all material strengths and weaknesses with mitigations
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An affirmation that the proposed Mortgage Loan transaction complies
with all relevant laws (including compliance with OFAC requirements)
The underwriting conclusions and the Chief Underwriter’s (or your
HFA’s equivalent) approval of the proposed Mortgage Loan transaction
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All other information required by the applicable Guide
GSE-specific underwriting spreadsheets must be attached
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Submission to the Qualified Contract
Underwriting Firms (QCUFs)
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HFA Underwriting File Submission List (to be provided by
each GSE)
Electronic Submission
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QCUF will deliver the underwriting package to the appropriate GSE
via the GSE’s document delivery system
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Timing and Cost
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Estimated approval time once submitted to QCUF
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15-20 business days
Cost
The QCUF fee to re-underwrite the transaction will be
passed on to the Issuer/Developer.
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Conclusion

Fannie Mae/ Freddie Mac Specific Underwriting Training

Questions?
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