ARCH PORTFOLIO & PROGRAM RECOMMENDATIONS JULIE BRUNNER, HOUSING - PowerPoint PPT Presentation

ARCH PORTFOLIO & PROGRAM RECOMMENDATIONS JULIE BRUNNER, HOUSING CONSULTANT APRIL 20,2020

INTRODUCTION and AGENDA  JULIE BRUNNER, HOUSING CONSULTANT  TODAY’S AGENDA  ARCH FEES  PRICING + RESALE FORMULA CHANGES  EXPIRING UNITS

Fees

RECOMMENDATION ADOPT the following PROGRAM FEES ◼ Application Fee = $100 ◼ Resale Fee = 1% Seller Paid Fee ◼ Amend Covenants w/o Fee Language (~100) ◼ Explore RE Brokerage Services

STEWARDSHIP OBJECTIVES  Long term success  Program guidelines and set up for success  Screening and orienting buyers  Overseeing resales  Monitoring + compliance  Support homeowners success

COST OF STEWARDSHIP  Current staffing levels = 0.03 FTE/Transaction  Basic program administration  Compliance monitoring  Recommend at least add’l 1 FTE = 0.04 FTE/Transaction  Increased buyer support/orientation  Foreclosure interventions  Intervention in units that are expiring/lost affordability

COMMON FEES  Fees to support stewardship  Monthly Fees ◼ New buyers ◼ Collect monthly  Buyer fees ◼ Application fees ◼ One time fees at closing ◼ No impact on ongoing affordability  Resale Fees ◼ Seller paid fees ◼ RE Commissions

COMMON FEES  Fees to support stewardship  Monthly Fees = $50 - $100/MONTH ◼ New buyers ◼ Collect monthly  Buyer fees ◼ Application fees ◼ One time fees at closing ◼ No impact on ongoing affordability  Resale Fees ◼ Seller paid fees ◼ RE Commissions

COMMON FEES  Fees to support stewardship  Monthly Fees ◼ New buyers ◼ Collect monthly  Buyer fees ◼ Application fees = $50 - $250 ◼ One time fees at closing ◼ No impact on ongoing affordability  Resale Fees ◼ Seller paid fees ◼ RE Commissions

COMMON FEES  Fees to support stewardship  Monthly Fees ◼ New buyers ◼ Collect monthly  Buyer fees ◼ Application fees ◼ One time fees at closing ◼ No impact on ongoing affordability  Resale Fees ◼ Seller paid fees = 1% – 6% ◼ RE Commissions = Up to 6%

POTENTIAL REVENUE THE NUMBERS ◼ APPLICATION FEE =$100 X 60 to120 = $6K – $12K ◼ RESALE FEE =1% Seller Paid Fee =$45 - $183K ◼ Low Estimate based on 2011 sales ◼ High Estimate based on 2019 sales ◼ Average Sale Price = $394,000 ◼ Average Fee = $3,940 ◼ TOTAL Revenue = $51,000 - $196,000

RECOMMENDATION ADOPT the following PROGRAM FEES ◼ Application Fee = $100 ◼ Resale Fee = 1% Seller Paid Fee ◼ Amend Covenants w/o Fee Language (~100) ◼ Explore RE Brokerage Services

PROGRAM ADJUSTMENTS ❑ RESALE FORMULA ❑ INITIAL PRICING

RECOMMENDATION: FORMULA: ADOPT THE HUD FORMULA FOR ALL UNITS  No existing homeowners are impacted  Use HUD for all new units Switch to HUD for future buyers of current units PRICING: Change The Interest Rate Assumption: Interest rate = Greater of current rate + 1% or 5.5%

RESALE FORMULAS  WHAT MAKES A GOOD FORMULA? ◼ Maintains affordability (PASS) ◼ Seller equity/wealth creation ◼ KEEP IT SIMPLE!!!!

RESALE FORMULAS  WHAT MAKES A GOOD FORMULA? ◼ Maintains affordability (PASS) ◼ Seller equity/wealth creation ◼ KEEP IT SIMPLE!!!!

CURRENT FORMULA COMPARISON 300 250 200 78 230 150 FAIL PASS 100 75 50 0 REI REI/HUD FIXED HUD HALF OTHER (281) (231) RATE (33) REI/HUD (5) (131) (12)

INITIAL PRICING  Initial pricing determines all future affordability  ARCH pricing is part of the challenge  Leaves no room for increases in interest rates  Even with conservative resale formulas poor pricing policies can lead to unaffordable housing

INITIAL PRICING  Initial pricing determines all future affordability  ARCH pricing is part of the challenge  Leaves no room for increases in interest rates  Even with conservative resale formulas poor pricing policies can lead to unaffordable housing

HUD RESALE FORMULA $450,000 $400,000 $350,000 $300,000 Price Median Income $250,000 can Afford Price 90% AMI Can $200,000 Afford $150,000 HUD AMI Formula $100,000 (Current Pricing) $50,000 $0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

HUD FORMULA – Increasing Interest $350,000 $300,000 $250,000 Price Median Income can Afford $200,000 Price 90% AMI Can Afford $150,000 HUD AMI Formula (Current Pricing) $100,000 $50,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

HUD FORMULA WITH REVISED PRICING $350,000 $300,000 $250,000 HUD AMI Formula $200,000 (Current Pricing) HUD AMI Formula $150,000 (Revised Pricing) $100,000 $50,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

REVISED PRICING $350,000 $300,000 $250,000 Price 90% AMI Can Afford $200,000 HUD AMI Formula (Current Pricing) $150,000 HUD AMI Formula (Revised Pricing) $100,000 $50,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

SELLER RETURN – 80% AMI INITIAL PURCHASE = 2020 Market Value = $560,960 Affordable Price = $300,000 (80% AMI) Down Payment (10%) = $30,000 RESALE = 2028 Formula Price (HUD) = $375,300 Closing Costs (6%) = -$22,500 ARCH Fee = -$3,750 Payoff = -$227,700 Cash at Closing = $121,350 Seller’s Return = $91,350 (304%) Average Annual Return = (38%)

RECOMMENDATION: FORMULA ADOPT THE HUD FORMULA FOR ALL UNITS  No existing homeowners are impacted  Use HUD for all new units  Switch to HUD for future buyers of current units ✓ Existing ARCH Formula ✓ Easy/inexpensive to implement ✓ 100% Pass Rate = maintains affordability ✓ Seller return is reasonable

RECOMMENDATION: PRICING CHANGE The Interest Rate Assumption: Interest rate = Greater of current rate + 1% or 5.5%

Expiring Units

Expiring Covenants (2023 - 2025) 21% of the portfolio  120% AMI = 80/135  100% AMI= 51/255  80% AMI = 12/289  <80% AMI=0/14  Total Portfolio = 143/693

RECOMMENDATION EXPIRING UNITS - AT RESALE  Amend covenants at resale to extend term

SUMMARY RECOMMENDATIONS  Adopt and implement fees  Adopt HUD resale formula moving forward  Revise pricing to increase interest rate  Re-record covenant at resale to extend term FUTURE MEETING ▪ Strategies to address units that have lost affordability