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
Park Hill Village West, Denver - 221(d)(4) 4% LIHTC
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
Regional LIHTC Activity as a Percentage of Nationwide LIHTC Activity: Last 3 Fiscal Years (FY14 – CURRENT) MIDWEST WEST 6% NORTHEAST 32% $1.2B 38% $6.2B $7.6B SOUTHWEST SOUTHEAST 17% 7% $3.3B $1.3B *Percentages represent the total number of LIHTC/TE Bond projects that have been Initially Endorsed within the last three fiscal years 4
Basic FHA MF Firms Issued- LIHTC FY 16 YTD – US & West Region • Total $ Volume (BillTotal $ Volume (Billons) West U.S. • ons) # o # of F Firm # of of Total al $ $ # of F # o Firm # of of Total al $ $ ments Units Vo Volume ments Units Vo Volume Commi mmitme Commi mmitme Issued Issued 225 225 33, 33,554 554 $2. 2.1 b 1 billion 15 15 1, 1,675 675 $160 m 160 million on (100 100 – NC/SR; SR; 125- Re Refi fi.) .) (5 – NC/SR; SR; 10- Re Refi fi.) .)
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
Recent HUD FHA Program Changes Facilitate Affordable and LIHTC Projects o New MIP rate reduction to .25%!!! (Applause…) 221(d)(4) New Constr/Sub Rehab w 90 percent+ LIHTC, or 90 percent+Section 8 is o 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
Affordable LIHTC-Financed Housing and HUD FHA Multifamily: Focus on the New MAP Chapter 14 (Thanks Laura Stutzman of Denver) TT
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
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
New FHA Tax Credit Equity Pay-In Requirements • 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. 11
New FHA Tax Credit Equity Pay-In Schedule 12
New FHA Tax Credit Equity Pay-In Requirements • 1 st Minimum Installment is measured in Total Equity ( 20% of Total Equity ) 2 nd and 3 rd 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. 13
New FHA Tax Credit Equity Pay-In Requirements 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. 14
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/ho using/mfh/map/maphome/taxcredit 15
THE LIHTC PILOT: PAST AND PRESENT 16
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
Cottonwood Place, Fremont, CA Eden Housing 98 Units of Section 202 Cap Advance Elderly Housing with 4% LIHTCs, and Sr. Center 18
THE New 221d4 LIHTC PILOT’S FUTURE: Is it already here? 19
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
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
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