NALHFA Annual Conference

San Francisco, CA May 20, 2011

New Developments in Multifamily Finance HUD/FHA Activities

Topics

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Multifamily Insured Programs Endorsements FY2000 to 2010 Endorsements FY11 to date Recent National Initiatives/changes Targeted National Initiatives/changes San Fran MF Hub Initiatives/activities Going forward with FHA Multifamily 2

HUD Production Overview

Production includes:

1. Insured Production

– Insuring mortgages for construction, purchase, – refinance, and rehabilitation of multifamily properties Financing affordable housing in conjunction with the low-income housing tax credit program

2. 202/811 Capital Advances

– Providing Capital Advances (conditional grants) for the construction or rehabilitation of housing for low-income seniors and people with disabilities along with project rental assistance subsidies to keep the housing affordable.

This presentation will focus on insured production, although many 202/811s are now using LIHTCs and mixed financing.

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FHA Multifamily Mortgage Insurance

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HUD Multifamily provides loan guarantees to lenders.

  HUD insures loans and pays the lender in the event of a default.

Insurance provided for both subsidized and market-rate rental housing.

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Program benefits include:

 Favorable loan-to-value ratios.

   Non-recourse mortgages (i.e. only the assets of the project secure the loan, not individual assets of the project owners or investors).

 Favorable fixed interest rates resulting from FHA credit enhancement.

No need for separate construction loan.

 Longer-than-conventional mortgage terms.

Equity takeout allowed for refis when LTV < 80% value 4

Primary FHA Programs

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Section 223f refi and purchase of existing “minor” repairs Section 223a7 refi of existing FHA insured Section 221d4-

new and sub rehab

Section 231-

NC/SR of elderly (= >62 yrs)

Section 232-

Health Care (B&C, ALF, SNF)

Section 242c-

Risk sharing w/ HFAs 5

FHA (Basic and Risk Sharing) Endorsements 2000-2010

$13,8 $3,8 $4,8 $6,5 $7,4 $7,6 $5,6 $5,1 $4,2 $3,7 $5,4

2000 2001 2002 2003 2004 2005

In Billions

2006 2007 2008 2009 2010

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FHA (Basic and RS) endorsements FY2011 compared to FY2010

FY2010 = 10/1/09 - 9/30/10 FY2011 = 10/1/10 – 4/30/11 (year to date) 58% of yr FY # loans #units/beds ‘10 ‘11YRTD 1,343 961 208,429 140,828 FYYTD as % of prior FYTD 132.7% 125.9% FYTD as a % of all prior FY 71.6% 67.6% $ (billion) $13.877

$9.062

124.3% 65.3% 7

Some Recent Underwriting Changes

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Establish Hub and National Loan Committee (Notice H 2010-13, 7/19/10)

Streamline LIHTC processing (*ML 2009-18, ML 2010-26 re: AE docs)

3 year waiver rule on 223f (ML 2010-30, ML 2011-13) Risk Mitigation (Notice H 2010-11, ML 2010-21)

*ML= Mortgagee Letter 8

Mortgagee Letter 2010-21 Risk Mitigation

• • Changes in underwriting requirements Changes in DSCR/LTV/LTC Examples:

221d4

past: 1.11 DSCR, 90%LTC now: 1.11 to 1.20 DSCR, 90% to 83% LTC

223f

past: 1.11 to 1.176 DSCR, 90% to 85% LTV now: 1.11 to 1.20 DSCR, 90% to 83.3% LTV Still allows equity take out at 80% LTV 9

ML 2010-21, some underwriting changes

• • • • • • • • • • Expand mortgage credit reviews Evaluate total REO Reduce max. occupancy (ex: 93% vs. 95%) exceptions for affordable properties Market study independent of appraisal Underwriter site inspection required 2-stage processing, split application fee Absorption period reduced to 18 months (vs. 24) Change in construction contract retention (reduce and earlier release) Change in working capital escrow (4%) Change in sub rehab contingency (15% vs. 10%) 10

San Francisco MF Hub

• The San Francisco Multifamily Hub covers territory in four states, encompassing more than 300,000 square miles, and serving a population of more than 24 million people.*

Staff Breakout by Office

San Francisco Office Sacramento Field Office Phoenix Field Office Las Vegas Field Office Honolulu Field Office * From 2010 U.S. Census www.census.gov

• Our jurisdiction includes Northern California, Arizona, Nevada and Hawaii. In addition to the San Francisco Hub office, there are Program Centers in Phoenix and Honolulu, and additional staff in Las Vegas and Sacramento.

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San Fran Multifamily Portfolio Overview*

Properties Total Units $ Amount*** Asset Management

Subsidized Unsubsidized (Insured Only)

Production Pipeline

202/811 Insured

1,427

1,150 277

129

56 73

122,799

81,386** 41,413

13,804

1,662 12,142

$4,236,752,584

$2,116,257,714 $2,120,494,870

$1,724,687,106

$235,906,606 $1,488,780,500 “Production Pipeline” refers to all projects that have not yet reached final closing/ endorsement *All data from HUD MPRD REMS_DMART database 09.30.2010

**Total units represents all units in a subsidized building, including assisted and non-assisted units *** Dollar Amount represents original loan or grant amounts.

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San Fran Hub Initiative: Preservation

• • • Since Jan. 1, 2008, the Hub has increased the total number of 20-year HAP contracts in our Project-Based Section 8 portfolio from 151 to 295, a 95% increase. 33 percent of those contracts are also HUD-insured, representing approximately $200,000,000 in outstanding mortgage insurance, greatly

reducing the likelihood of financial defaults

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This long-term affordability strategy

maintains affordability of property

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Banneker Homes, San Francisco, CA

Sponsored by Hampstead Development Group, Inc.

Family community of 108 units built in 1967.

$11 million renovation complete in 2007.

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FHA Multifamily Mortgage Insurance: Creating Jobs and Affordable Housing in Arizona The Ridge at Clear Creek, Flagstaff, Arizona

• HUD 221 project – New Construction mortgage •

insured for $35,660,000

21 buildings comprising 306 Units – 245 market rate and 61 affordable units (tenants earn up to 80% of area median income)

Creating Local Jobs:

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The Ridge at Clear Creek, FHA-Insured by RED Mortgage Capital, LLC, under construction May 2010 (Jake Bacon/Arizona Daily Sun)

One of the largest construction projects in northern Arizona • Employs hundreds of construction workers from a dozen different • construction companies 83 percent of the labor pool is from northern Arizona, with most of the subcontractors from Flagstaff. From “Good Jobs, Affordable Rents,” Arizona Daily Sun, May 16, 2010. 14

Financing the Rehabilitation of Affordable Housing with Low-Income Housing Tax Credits Crescent Manor, San Francisco, CA

• • • Historic 94-room San Francisco property built in 1913, occupied by low-income tenants No tenant pays more than 30% of their income and most residents are retired seniors Upgrades will be completed in such a way that

tenants will not need to move out of the building

Historic Hotel Senate (aka Crescent Manor), Tenderloin Neighborhood, San Francisco, CA

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Working with Tax Credits to Preserve Historic Buildings and Improve Neighborhoods

$15 million purchase and renovation financed with a combination of low-income

housing tax credits and HUD financing

The property is located in a historically troubled neighborhood, facing issues with homelessness, crime and poverty.

From “Historic Hotel Senate will be Renovated,” San Francisco Chronicle, December 13, 2010 15

Building Energy-Efficient, Green Multifamily Properties in Arizona Tanque Verde Valley Casitas Tucson, AZ

221(d)(4)-Insured new development built in 2010 with many green and energy-saving amenities

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Energy-Saving Amenities Include: Energy Star Appliances

Gray Bottom Solar Heated Pool Photovoltaic Community Solar Panels

Electric Car Charger

Low-E Energy Saving Windows and Velux Sun Tunnels

Tanque Verde Valley Casitas

Tucson, AZ Water-saving features, such as High Efficiency Water Heater, Low Flow Fixtures, Low Water Use Plants and Rain Water Harvesting 16

Some Recent San Fran Activity

• • • • • Arc-Light, 221d4, in construction 94 units, $33MM, new construction inside historical shell, SOMA 333 Harrison, 221d4, firm issued 326 units, $70MM, market with affordable, adjacent to Bay Bridge and One Rincon Unity Homes, 221d4 Sub rehab, firm issued 94 units, $14.4MM, existing S8, limited equity co-op, Bayview/Hunters’ Pt.

227 Golden Gate, 221d4, prelim 88 units, $13.4MM

10 th & Market, 221d4, prelim 754 units, $213MM, market with affordable, near City Hall 17

Using HUD/FHA mortgage insurance

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To review program requirements

Google: “HUD MAP Guide” “HUD Multifamily Programs” Anticipate new Guide to be issued 6/11

To find a lender

Google: “HUD MAP lenders” “HUD multifamily data” (includes lender activity) • HUD’s website: www.hud.gov

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18 MF Hubs nationwide Google “HUD Multifamily Hubs” to find contact info

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For More Information

Questions? Please Contact:

Tom Azumbrado

Director, San Francisco Multifamily Hub

(415) 489-6604 [email protected]

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