Federal Financing Bank-HUD Financing September 26 th, 2015.

Federal Financing Bank-HUDFinancing

September 26th, 2015

FFB/HUD Program Update

• Overview of accomplishments since 2014 Conference

• Current Status and Next Steps• Modest Rehabilitation with Tax Exempt

Financing• NC/SR Term Sheet

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Current Status

– Risk Share Agreements transmitted to 12 HFAs– Processing Firm Commitments through Field

Offices– FFB Processing Documents with HFAs

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HFA “onboard” Procedures for participation

New Risk Share Agreement specific to FFB Program Commitments must be processed under this Agreement

• Commitment Letter and Endorsement Panel are standardized

• SOA codes specific to the FFB program

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Multifamily Hub/Program Center Key Processes – 542(c) FFB Firm Approval Letter Processing

• The FFB application process is identical to processing under the standard 542(c) Risk Sharing Program. Follow your normal procedures.

• The HFA submits an application (Request for HUD-Retained Reviews) and other supporting documentation to the local HUD office for firm approval letter processing following format in Appendix 4 of Handbook 4590.01. Mention in application that this is an FFB Transaction

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Multifamily Hub/Program Center Key Processes – 542(c) Firm Approval Letter processing

• Review is limited to key documents. Exhibits for review include Appendix A to the Risk Sharing Agreement, environmental review, subsidy layering and 2530’s.

• There are tight timeframes associated with the FFB closing which requires the note must be endorsed in 3 business days.

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FFB Process

• HUD and HFA execute the RSA• When the FFB receives a copy of the executed RSA the FFB will send

program form documents:

– Master Escrow and Custody Agreement (“MECA”)– Master Purchase and Sale Agreement (“MPSA”)– Mortgage Loan Description – Designation and Pricing Request – Rate Commitment Offer– Supplemental Escrow and Custody Agreement (“SECA”)– Participation Certificate (attached as an exhibit to the MECA)– Delivery Instructions, Requisition and Wiring Instructions– HFA Certification Regarding Program Documents

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Master Agreements

MPSA and MECA• Prior to execution please provide the FFB with black-lined

copies of both for review• Must be executed and submitted prior to first sale

transaction– With executed MPSA and MECA please provide a certification

that each original has no modification from the form except as reflected in the black-lined copy

– With executed MPSA and MECA, please provide forms of:• HFA Counsel’s Opinion• Custodian Counsel’s Opinion

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Pricing Submission• HFA delivers to HUD

– Firm Approval Letter– Designation and Pricing Request (DPR)

• HFA must know the month of Certificate Purchase (closing) along with first and last certificate payment dates

– Mortgage Loan Description (unexecuted)• Contains schedule 1-A but not 1-B

• HUD has 3 business days to approve and forward to FFB

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Rate Commitment• Once a correctly completed DPR is received the FFB

has 3 business days to offer a rate• HFA must accept the rate lock offer within 2 business

days– Rate lock is good for 60 days however you are

expected to close within the month indicated in your DPR

– The HFA may change the schedule 1-A during the initial 15 days of the rate lock, however the FFB retains the right to reprice should the schedule materially change

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Pass-Through Rates

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6/8/2015 6/28/2015 7/18/2015 8/7/2015 8/27/2015 9/16/2015 10/6/20151.000%

1.500%

2.000%

2.500%

3.000%

3.500%

4.000%

Adsivory - 35 YearAdvisory - 40 YearUST-10Y

MassHousing 2MassHousing 3

Average 105 bps

MassHousing 1

Sale Closing ActionsEight days out - HFA delivers to HUD-HQ the executed, original certifications of the HFA and the Mortgagor regarding lobbying and federal debt, in the form approved by HUD-HQ.Seven days out– HFA delivers to the regional HUD office the HFA’s complete Risk-Sharing submission for HUD

endorsement– The HFA delivers the following documents to the FFB, and concurrently delivers copies thereof to

the Custodian• HFA Certification Regarding Program Documents• Mortgage Loan Description and the final Schedule 1-A (executed by the HFA)• Delivery Instructions, dated as of the Certificate Closing Date and completed and executed by

the HFA• SECA • a black-lined copy, showing all changes from the form, of each of the HFA Certification

Regarding Program Documents, Mortgage Loan Description, Delivery Instructions, and SECA, together with the HFA’s certification that each black-lined document shows all changes from the approved form

• the HFA Counsel’s Opinion, in the form previously approved• Word version of the Mortgage Loan Description, Delivery Instructions and SECA

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Sale Closing Actions Cont.Seven days out – Cont.• Preferably the HFA also coordinates the delivery of the:

– Custodian Counsel’s Opinion– SECA executed by custodian– The Certificate fully completed and executed by the custodian

• HUD-HQ delivers the executed Secretary’s Certificate

Three days out• FFB confirms the Purchase Price, Mortgage Reserve Amount,

Interests Reserve Sub-account, and Mortgage Reserve Account• FFB concurs with the Schedule 1-A and provides the Schedule 1-B

for the current transaction

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Sale Closing Actions Cont.Two days out• HUD Regional Office issues the Risk Sharing endorsement• The HFA delivers to the FFB (and Custodian) a copy of the

Promissory Note, with the Risk-Sharing endorsement, together with a certification, that the copy is true, correct and complete

Last Business Day Before Closing• FFB executes and delivers

– the SECA– The Delivery Instructions– the Mortgage Loan Description (with both schedules)– Copy of the Certificate with schedule 1-B

• HFA delivers to Custodian or arranges for delivery the Costs of Delivery and Reserve Amounts

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Certificate Closing Date

• HFA will notify the FFB if it determines that events have occurred or circumstances have arisen that would invalidate the opinion statements or otherwise prevent the sale transaction from being validly closed

• FFB delivers the full Purchase Price to the Custodian• Custodian confirms the consummation of the Sale

Transaction, by email, to the HFA, the FFB and HUD-HQ

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Non-Substantial Rehabilitation Utilizing Tax Credits

• Current Risk Share waivers allow for Modest Rehabilitation scope of work which cannot either 1) exceed costs in the $32,000 to $40,000 range which varies by state OR 2) replacement of two or more building systems. “Replacement” is when cost of replacement work exceeds 50% of replacing the entire building system.

• The existing Risk Share Agreements allow HFAs to close the acquisition or the refinancing loan and escrow funds in a Rehabilitation Escrow Account

• The FFB Agreements allow this type of transaction under the existing agreements

• MassHousing is processing a transaction with this structure using Tax Exempt Bonds to secure 4% Credits

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Woodridge Apartments

• Location – North Andover Massachusetts• Units – 230 - 100% Affordable, Section 8 • Total Development Costs- $49,600,000• Proposed Mortgage - $34,500,000• Rehabilitation Budget – $8,900,000 ($39,000/unit)• Tax Exempt Note - $24,406,003 (50%+ of Qualified

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Non-Substantial Rehabilitation Utilizing Tax Exempt Proceeds and Tax Credits

Anticipated Structure Subject to Change

BorrowerHFA

Lender

Bond Purchaser FFB PurchaserBond Fund Collateral Fund

Trustee~2 Year Bonds1

BondProceeds

Fund Draw Request

2

3

Bond Payoff(after Project is

placed in service)

7

5a

Bond Proceeds

FFB Proce

eds

Participatio

n Sale

4Lender Funds

HUD Insured Mortgage Loan Other Sources (TC

Equity , Subsidy Etc)5b

Modest Rehab Waiver Requirements• Moderate Rehabilitation – Up to $40,500/unit but less than 2 building systems

• $15,000 per unit times High Cost Factor -2.7% but may annually• Building Systems Definition:

‒ For purposes of determining program eligibility, there are five (5) building systems:

1) Structural frame, including foundations, loaded bearing walls, floor frame, and roof frame;

2) Building envelope, including exterior moisture and weatherproof membranes, roofing, cladding, siding, windows and exterior doors and openings;

3) Mechanical, including heating, ventilating and air conditioning equipment and related fuel supply or exhaust items, as well as specialized mechanical apparatus such as elevators and escalators;

4) Electrical, including all electrical appliances (not mechanical) and lighting fixtures, electrical supply lines and panels, breakers, warning systems and telecommunications and related equipment; and

5) Plumbing, including all potable water, grey water, and sanitary waste lines, valves, pumps, controls, and fixtures.

• Scope of Work for CNA to Include Finding Regarding Building Systems

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HUD/FFB MULTIFAMILY RISK SHARING PROGRAMNC/SR TERM SHEET

Summary- Financing Options• Tax-Exempt Construction Financing-HFA finances acquisition and

construction with tax-exempt bonds and other sources. HFA may also use subordinate financing from tax-exempt bonds and other sources. Other sources may include FFB escrowed proceeds which are secured on a first lien basis. Use of FFB escrowed proceeds will trigger Insured Advances and Davis Bacon wages. The Tax-Exempt Construction Financing option is targeted to 4% Credit, and tax-exempt 501(c)(3) transactions.

• Taxable Construction Financing- FFB escrowed proceeds, secured on a first lien basis, are used to finance acquisition and construction. Other taxable sources may be used on a subordinate basis. Use of FFB escrowed proceeds will trigger Insured Advances and Davis Bacon wages. This option is targeted to 9% Credit and taxable transactions.

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Program Structure• HFA will make a mortgage loan to provide acquisition and construction/permanent

financing to a qualified residential development.• The promissory note will carry an Initial Endorsement evidencing HUD’s insurance

under the HUD/FFB Risk Sharing program (the “Initial Endorsement”).• The HFA may issue tax-exempt bonds or other obligations to finance acquisition

and construction.• As part of the closing, FFB will acquire a 100% undivided participation interest in

the HFAs permanent loan, evidenced by a Participation Certificate (the “Certificate”). The Certificate purchase price will be equal to the principal amount of the loan subject to the Initial Endorsement, plus accrued interest (if any).

• The Certificate purchase price will be fully disbursed at Closing and held in an escrow maintained by the custodian (the “Escrow Fund”).

• The HFA has the option to use insured advances under Section 542 (c) for any draws from the Escrow Fund to fund construction.

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Program Structure-Con’t• When the loan utilizes insured construction advances, the sum of the insured

advances disbursed from the Escrow Fund plus remaining cash in the Escrow Fund must always equal the amount of the Certificate.

• For 4% LIHTC projects and any other projects utilizing tax exempt obligations as a funding source, the HFA will issue short term tax-exempt bonds or other obligations to finance a construction loan in an amount sufficient to satisfy the“50% test,” . The HFA may also supply subordinate financing.

• For 9% LIHTC projects and any other projects utilizing taxable obligations as a funding source, the HFA may also provide subordinate financing, based on its underwriting of the transaction.

• The HFA may apply funds from any such subordinate loan(s) to pay eligible costs and/or to replace proceeds from other funding initially used for eligible project costs (in compliance with any applicable requirements of the Internal Revenue Code), all as approved by the HFA.

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Program Structure-Con’tMortgage Reserve FundThe HFA and/or the project owner will fund a Mortgage Reserve Account in an amount equal to two months’ interest payment, computed at the certificate rate on the entire permanent loan, half of which amount will be held in an Interest Reserve Subaccount. At conversion to permanent financing after completion of construction, the Mortgage Reserve Account will be increased to equal two months’ debt service payment (and the Interest Reserve Subaccount amount will be increased to equal one month’s pass-through payment). Permanent Loan Conversion

Upon conversion to permanent financing, HUD will issue a final endorsement evidencing its insurance of the loan under the FFB Risk Sharing program (the “Final Endorsement”). Loan Increase at ConversionIn the event that there were additional, unforeseen costs during construction and the HFA has determined the project could support additional debt, the HFA would have the option to request an amendment to the firm approval letter to increase the insured loan, and to request that FFB acquire a participation interest in the additional loan proceeds.

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Term of CertificatesUp to 40 years (equal to the term of the permanent loan) plus the term of the Escrow Period, this may be up to 24 months. FFB at its sole discretion may extend the escrow period, or require that amortization commence even though the project is not yet ready to convert to permanent financing. If FFB agrees to extend the Escrow Period, FFB and the HFA will agree on terms for any extension fee. If FFB requires the payment of loan principal prior to the issuance by HUD of its Final Endorsement, then the loan principal subject to Final Endorsement must be adjusted accordingly.

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Rate Setting Methodology• Certificate rates for new construction and substantial rehabilitation developments

will be set using the same methodology as currently used for acquisition financings taking into account differences in term and prepayment options.

• The Certificate rate during the Escrow Period will be set at the permanent rate (i.e., the same interest rate will apply during the Escrow Period, including any extension period allowed by FFB, and the permanent loan term).

HUD Insurance Guarantee• The construction/permanent mortgage note backing the Certificate purchased by

FFB will contain an Initial Endorsement for mortgage insurance by HUD. Proceeds from the construction/permanent loan advanced during construction will be insured advances. The insured construction/ permanent mortgage will be a first lien on the rental development during the Escrow Period.

• The construction/permanent mortgage note backing the Certificate purchased by FFB will contain a Final Endorsement for mortgage insurance by HUD. The insured mortgage will be a first lien on the rental development from and after conversion to permanent financing.

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Construction Period Claims• An event of default on the insured permanent mortgage during the Escrow Period

that was not immediately cured by the HFA or the project owner would result in the filing of a claim for insured advances plus accrued interest by the custodian or the HFA. The payment would include the remaining funds in the escrow account plus the claim payment from the insured advances and would be bifurcated as provided the Master Escrow and Custody Agreement.

• HUD would be obligated to guarantee to FFB the full payment of its advance to the Custodian including any unpaid interest. HUD will consider requiring an indemnification from the HFA for repayment of any payments from HUD to FFB not included in the insured advances claim and the funds received from the Custodian.

Post-Conversion Claims• An event of default on the insured permanent mortgage that was not immediately

cured by the HFA or the project owner would result in a claim being filed with HUD by the HFA. FFB would be paid its portion of the Initial Claim Payment by HUD with any back interest payable from the Interest Reserve Subaccount. This is the process followed in the current acquisition/refinance program.

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Timeline for NC/SR

Action Timeline

Finalize Business Issues 10/10

Revise Documents 10/31

Complete Initial Transaction 12/31

Rollout to other HFA participants 2/1

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Federal Financing Bank-HUD Financing September 26 th, 2015.

Documents

Transcript of Federal Financing Bank-HUD Financing September 26 th, 2015.