Let’s Play Ball!

Batting Order

1. Headquarters Batter Up! Office of Asset Management and Portfolio Oversight

(OAMPO) Organizational Chart

2. Outfield Asset Management Servicing Contract Digitizing Our Records

3. Game Summary Portfolio Snapshot Insured Portfolio Rating Insured Delinquencies

4. Rookies LQMD → Enhanced Counterparty Analysis Civil Money Penalties (CMP)

5. Three Strikes Limited Denial of Participation (LDP) Section 230

6. Umpire Chief Underwriter Delegation Approval Pilot Financials in the hands of the lenders

7. Infield Rating Lenders Lender to Lender Transfers

8. Strike Zone Multifamily Delinquency and Default Reporting System

(MDDR)

9. Team work makes the dream work! Liaison Model Overview

10. Pitch Out Increasing Lender Responsibilities

11. Spring Training Active Partners Performance System (APPS) Owner Ratings Handbook 4350.1 Rewrite

12. Playbook Section 8(bb) Notice Aggregated Asset Management PBCA Awards Section 8 Policy Renewal Guide 202 PRAC

13. Inside Baseball Questions and Answers

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Field Asset Management and Program Administration DivisionDirector

Office of Asset Management and Portfolio Oversight (OAMPO)

OAMPO Deputy Director

Multifamily Asset and Counterparty Oversight DivisionDirector

Business Relationships and Support Contracts DivisionDirector

Property Disposition DivisionDirector

Headquarters: Batter Up!

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Assisted Housing Oversight DivisionDirector

Outfield

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Asset Management Servicing Contractor

Transformation Wave Support:• We are working with Alpine to ease the logistical challenges

of offices going through the Transformation and moving to the new Account Executive model.

Timing:• The distribution of assets to the Contractor will be handled

by Headquarters.• The Contractor is already servicing several hundred assets

out of the Fort Worth Hub and the Kansas City Satellite.

Outfield

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Digitizing Our RecordsStandard Work:

• Combined effort to update our retention & disposition schedules for the 1st time in 30+ years

• Program Centers & Hubs will organize files based on defined lists and priorities.

Scanning:

• The scanning contractor finished in Fort Worth and has moved on to Chicago.

• The timing is not directly linked to Transformation Waves We are sliding into home on this initiative!

Impact:

• This effort will ease the transition of project information from one location to another.

Game Summary—Portfolio Snapshot (as of June 5, 2014)

Rating SummaryInsured Non-Insured Total

Projects $ UPB Percent Projects Percent Projects Percent

Troubled (1-5) 504 $3.6

Billion 4.8% 848 4.6% 1,352 4.7%

Potentially Troubled

(6-7)2,761 $22.5

Billion 26.4% 4,631 25.1% 7,392 25.6%

Not Troubled

(8-10)7,183 $41

Billion 68.8% 12,939 70.2% 20,122 69.7%

Total 10,448 $67.1 Billion 18,418* 28,866

Portfolio Summary

Type # of properties Dollars/Units

Insured UPB: $67,138,671,229

Total assets: 10,448

221d4 1,353 $14.5 billion

223a7 3,652 $18.8 billion

223f 3,540 $24.6 billion

542b/ 542c 1,319 $6.8 billion

Other 632 $2.2 billion

Non-Insured Portfolio:1,163,099 units

Total Assets: 18,479

Assisted Only 9,178 723,906 units

Assisted with CA/DL 7,851 256,847 units

Other 1,450 182,346 units

Western Region

Southwest Region

Midwest Region

Northeast Region

Southeast Region

1,919 assets

2,133 assets

1,603 assets

2,672 assets

2,214 assets

2,629 assets

3,414 assets

3,476 assets

3,577 assets

5,382 assets

Number of Non-Insured/ Insured Properties by Region

Non-Insured Properties Insured Properties

$17.3 billion UPB

$13.7 billion UPB

$12.3 billion UPB

$11.7 billion UPB

$12.1 billion UPB

Insured Delinquencies

Projects Amount %UPB

DQ3 – 90 day 14 $152,388.307 0.23%

DQ2 – 60 day 3 $10,450,548 0.01%

Total 17 $163,838,854 0.24%

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Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14

8.9% 8.0% 8.1% 6.8% 6.9% 8.7% 7.7% 7.9% 7.8% 6.2% 6.0% 5.6% 7.0% 5.0% 4.9% 4.7%

17.5% 19.2% 19.5% 20.6% 20.6% 20.9% 21.3% 21.5% 21.7% 22.4% 22.9% 25.4% 25.0% 26.4% 25.8% 25.6%

72.4% 71.9% 72.1% 72.5% 72.5% 70.3% 69.0% 68.5% 68.8% 69.3% 69.3% 68.1% 67.0% 68.7% 69.3% 69.7%

Ratings Migration Analysis

Not Troubled (8-10)

Potentially Troubled (6-7)

Troubled (1-5)

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Game Summary—Insured Portfolio Rating (as of June 5, 2014)

• Migration analysis of ratings will allow us to examine how our portfolio is performing over time and assist in predicting and avoiding claims.

• The Fiscal Year 2014 MAP Goal is to reduce the Troubled and Potentially Troubled by 25 percent over the next three years.

Insured Portfolio Rating Takeaways:• Most Troubled properties are rated a 5

due to a DEC referral or DSCR issue

• Average REAC scores for Troubled properties do not show a consistent quality problem. Seattle is low, but had a very small number compared to other Hubs.

• June calls will focus on loans where owner contributions are necessary

Average REAC score for Troubled Properties by Hub

SeattleDenver

New YorkChicagoBoston

San FranciscoJacksonville

PhiladelphiaLos Angeles

DetroitBaltimore

AtlantaGreensboroFort WorthKansas CityColumbus

Minneapolis

69.0074.7974.9275.30

76.1776.53

78.6279.14

79.9583.10

84.0784.2384.5084.54

86.9288.5088.63

11.8%

21.6%

310.1%

410.5%

576.0%

Insured Troubled Ratings504 projects

National Average –

81.2

• Delinquent Insured Loans DQ2 & DQ3:

Delinquency Takeaways:• Delinquent UPB is holding

relatively steady with the rating plan fully implemented

• Delinquent UPB has decreased from 0.68% in March 2013 to 0.24% in May 2014.

Month DQ2 DQ3 Delinquent Loans Delinquent UPB % Total UPB

May 14 15 29 $341,868,806 0.57%June 13 15 28 $340,563,324 0.57%July 16 13 29 $303,932,173 0.50%August 14 15 29 $299,839,184 0.49%September 10 18 28 $263,595,316 0.42%October 13 18 31 $262,582,915 0.42%November 8 18 26 $230,662,100 0.36%December 10 15 25 $201,587,066 0.31%January 2014 11 13 24 $316,037,260 0.49%February 6 14 20 $172,215,419 0.27%March 0 12 12 $128,430,564 0.20%April 7 13 20 $211,351,794 0.32%May 3 14 17 $163,838,854 0.24%

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GSE 60+ Day Multifamily Delinquency Rate as of March 31, 2014:• Freddie Mac: 0.04%

• Fannie Mae: 0.10%

• FHA MF (May 2014): 0.24%

Potentially Troubled was a small DQ2 that has since corrected.We have met with the Office of Evaluation about creating a Multifamily Risk of Delinquency tool that would more accurately track potential delinquencies.

May Delinquencies by MROC Score

DQ3 DQ2 Total

Red 7 2 9

Yellow 3 0 3

Green 4 1 5

Total: 14 3 17

May Delinquencies by Rating

Rating March

TROUBLED1-2 8

3-5 8

POTENTIALLY TROUBLED 6-7 1

NOT TROUBLED 8-10 0

Game Summary—Insured Delinquencies (as of May 28, 2014)

Lender Quality and Monitoring Division (LQMD):– LQMD was officially brought over to the Office of Asset

Management in January. – Weekly LQMD staff meetings are held with a Manager

participating.– LQMD is an active participant in the Multifamily and Health

Care Credit Risk Committee Meeting.• Activities:

– Revising Project/Loan Review Template– Revising Lender Review Template

• Initiatives:– Delegated Underwriter Approval

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Rookies

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RookiesCivil Money Penalties (CMP) Pilot for Owners/Properties with Failing REAC Scores:

Owners of FHA Multifamily Properties will have CMPs assessed if they are found to provide substandard living conditions to their tenants. This is a joint collaboration between Multifamily Asset Management, DEC, and REAC.

Owners who receive either under 30 REAC physical inspection scores or under 45 REAC physical inspection scores with other problems and are identified by the DEC are eligible candidates (threshold subject to change when Pilot becomes Program).

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Limited Denial of Participation (LDP) Housing Notice 2014-5 was issued on March 25, providing guidance for extended

use of Limited Denial of Participation for borrowers who have caused a claim against the FHA insurance fund

Issued “based on the best interests of the Federal Government” to reduce risk LDP’s exclude individuals or entities from new business with the Department for a

period of 12 months LDP’s can be issued by Hub or Program Center Directors as needed:

Issue Show Cause letter outlining reasons for a possible LDP

Recipient responds within 30 days

HUB/PC Directors determine whether LDP should be issued

Three Strikes!

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Section 230 of the Consolidated Appropriations Act, 2014• This language codified the process for initiating and processing a Compliance,

Disposition, and Enforcement (CDE) Plan.

• Sets forth the established path and eligible enforcement remedies.

• HQ staff is working with DEC, REAC, and OGC to assess the impact this will have on CDE plans and enforcement initiatives.

• Currently drafting a Housing Notice on Section 230 that will outline necessary guidelines and any changes from previous policy.

• The Housing Notice will be released in the coming months.

Three Strikes!

UmpireChief Underwriter Delegation Approval Pilot:• Multifamily Counterparty Oversight currently

approves all new MAP underwriter requests as well as continuation of underwriter approval in the event an underwriter moves to a new lender.

• The concept is to delegate underwriter approval to chief underwriters that meet certain criteria, holding the lender and chief underwriter accountable and responsible for ensuring their underwriters meet requirements.

• Oversight will be provided through the annual review of the lender, the quality control plan and the certification by the lender and chief underwriter regarding compliance.

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UmpireFinancials in the hands of the lenders:

• Post 2011 Regulatory Agreements require owners to provide lenders audited financial statements

• Pre-2011 there is no requirement in the loan documents for owners to provide information

• To date HUD has taken the approach that sharing financial information is subject to privacy rules

• OGC is again reviewing the privacy issue

• On a parallel track, we are asking REAC the feasibility of sharing financial information via HUD systems.

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InfieldRating Lenders: Compiled the ratings criteria and methodologies utilized by the three major rating

agencies (Fitch, Moody’s and Standard and Poor’s) for banks and mortgage servicers

Compiled the ratings definitions and elements used by the FDIC for the CAMELS rating

Developing the template for the Lender Review process that will incorporate the following elements:o Organizational assessment

Business model Key management personnel

o Financial condition and performance of the lendero Portfolio performance

Individual asset rating Delinquency and default

o Servicing performance

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Infield

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Lender to Lender Transfers:• When servicing of a troubled asset is

transferred from one servicer to another, HUD would like the opportunity to consent to these transfers given the troubled nature of the asset.

• This will work concurrently with HUD’s efforts to compare watch lists and troubled assets with servicers and ensure the portfolio is managed to mitigate risk.

Strike ZoneMultifamily Delinquency and Default

Reporting System (MDDR)

• Servicers have had the ability to enter their watchlist loans into MDDR since February 28, 2014.

• So far no issues have been experienced in entering data. In fact few questions have been received on the process.

• Training sessions have been offered, but the system is very intuitive.• Lenders have been concerned about how HUD will use this

information.

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Team Work Makes The Dream Work!Liaison Model Overview

Background: • Lengthy processing times, inconsistency, and missing

information are often associated with Multifamily. During this time of change and improvement, it is vital that Multifamily address these concerns, to ensure continued growth.

• Advocacy organizations and owners often reach out to the DAS, Commissioner and Secretary to express their feedback directly regarding what is working/not working for them. With the DAS’/Commissioner's/Secretary’s schedule stretched tight, identifying alternate contacts for key stakeholders will streamline the Department’s ability to respond to concerns and resolve problems as they arise.

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Proposal: • Shift to a customer based approach for all aspects of

Multifamily business (FHA Insurance, Assisted properties, Policy partners, etc.).

• Stakeholders with liaisons will be as follows:• The FHA MF lenders with the largest portfolios. • The top [thirteen] identified stakeholder groups

that will include umbrella organizations, trade associations and advocacy groups.

• The top [three] [owners] in our assisted portfolio, which have the most assisted 202 and 811 properties under their management.

• The program has launched and you may be hearing from your liaison soon.

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Liaison Model Overview

Increasing Lender Responsibilities:– Non-Critical Repair Escrows—Mortgagee Letter 2013-13

• Continue to receive applications.– Reserve for Replacement Releases

• Mortgagee Letter and Housing Notice are in draft stages.• Intend to have a similar structure to the Non-Critical Repair Escrows.• OGC gave the green light to allow the lenders to voluntarily assume

responsibility for releases on retroactive and prospective deals.– Considering other possible tasks the lenders might assume voluntarily:

• Partial Releases of Security• Modified TPAs

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Pitch Out

Active Partners Performance System (APPS) OAMPO’s Team:– We are training hard—learning from our competition

(Fannie and Freddie) and studying game tape (existing regulations and the APPS system) to completely revamp the APPS system and the 2530 Regulations.

– We have lofty gold medal goals including:• Revise CFR Part 200 Subpart H to require 2530 to

mirror industry borrower vetting standards (looking at the “decisionmakers” only).

• Revise APPS to mirror the new single family Lender Electronic Assessment Portal (LEAP).

– We need to identify the right teammates and make improvements all around to reach our goals and take home the gold.

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Spring Training

Owner Ratings:– A rating system will be developed to rate borrowers and

assisted housing owners.

– Coordinated with the revamp of the APPS system and the 2530 regulations.

– Will facilitate risk mitigation by preventing continued business with “bad borrowers.”

– Expected completion—>2015

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Spring Training

HB 4350.1 Rewrite – Status and Next Steps• Status

– On February 1, 2013, the Office of Asset Management kicked off the Re-write of Handbook 4350.1. Drafts of 40 of the 42 chapters have been submitted and are in various stages of completion.

– Drafters of each chapter are meeting in Summits to review comments received from reviewers and prepare the next draft of their chapters. Several Summits have been held. Additional summits will be held as needed.

– Comments from industry partners will be considered and next drafts prepared for the Departmental Clearance process.

• Next Steps– The Office is considering enlisting the service of a contractor to

perform basic copyediting services and to assure consistency in voice, tone and readability throughout the chapters.

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Spring Training

Section 8(bb)• Section 8(bb) provides the Department with a tool

for preserving Section 8 budget authority. • Under Section 8(bb), if a project-based Section 8

contract is terminated or expires and is not renewed, HUD is required to transfer any remaining budget authority to another contract (either new or existing).

• A Housing Notice outlining the requirements for a Section 8(bb) transfer should be released within the next few months.

• Please continue to submit viable transactions for approval in the interim.

• Please encourage utilization of the Section 8(bb) tool by Owners that are considering an opt-out.

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Playbook

Aggregated Asset Management Pilot• A tool for owners to manage at the portfolio level and

realize operational savings.• The goal is for owners to share operational savings with

HUD through reduced Section 8 HAP contract outlays. • A Housing Notice will be released in the coming months

describing how an owner can become involved in the pilot to manage many assets as one portfolio.

– This will not require financing under one mortgage or combining contracts (although like contracts can be combined).

• We will also release a federal register notice on managing a portfolio of assets under one mortgage.

– Soliciting comments and ideas on how to facilitate this type of consolidation from both internal and external stakeholders.

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Playbook

PBCA Awards • Update on PBCA Funding:

– No expected delays in funding. Contact Lorri Farrell, Acting Director of Funding Oversight Department, with problems.

• Update on Contract Extension:– Contract period for both ACCs (11 and 42 states) extended through December 31, 2014.

– The PBCA Annual Contract Year for Reporting purposes ends Sept. 30, 2014 and PBCAs should submit those reports to HACAO, per ACC timetable.

• PBCA Assignment and Withdrawals:– HACAO provided the CAOMs with the Assignment/Withdrawal information, as per exhibits of the ACC Reports.

– CAOMs are working with the Field Office PM’s to correct the property data information.

– Contact Lorraine Satterwhite with any questions on Assignment/Withdrawals .

• Update on ACC Required Exhibit C FTE Certification:– HACAO reviewed the Exhibit C FTE Certs for PBCA Contract year Oct 1, 2012 - Sept. 30, 2013 and contacted CAOMs to correct and resubmit data for

payment. HUD has paid All Performance and Customer Service, except for a few states that will be paid on next month’s voucher.

• Update on the Quarterly Risk Assignment for PBCA Reporting:– The CAOMs will provide 3rd quarter Quality Risk Assessment Reports, per the 11 states ACCs. The completed reports are due back to HUD by July 30.

• Section 8 Fillable Forms for PBCA use :– A RHIIP listserv posting #315 was posted June 6:

• Multifamily Housing Section 8 Renewal Forms were updated by OMB and posted to HUDCLIPs.

• HUD is upgrading fillable forms which will be posted. Until that time, please use the new forms that are currently posted

• Rent Comparability Study Review Checklist:– HACAO Desk Officers and HUD Field CAOM staff participated in a Rent Comparability Study Review Checklist Training on June 4.

– An industry wide training will be provided - tentatively on July 9, 2014.

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Playbook

Section 8 Policy Renewal Guide• The Section 8 Renewal Policy Guide provides

owners and the Department with guidance on how to renew Section 8 HAP contracts.

• February 2014: the Department issued the draft revised Guide for public comment.

• May 14, 2014: The comment period ended and the Department received 129 pages of comments.

• Currently, staff is reviewing the comments.• Late September: The anticipated date for

releasing the final version of the Guide.

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Playbook

202 PRAC• For more than 50 years, the Section 202

program has expanded the supply of affordable supportive housing for very low-income elderly.

• The FY14 Budget included legislative language to provide HUD with needed flexibility to support a demonstration that includes a rental assistance only option.

– Develop design for a demonstration of a housing plus services model intended to support aging in place.

– Rental assistance only serves more households at less expense:

• $20 million would make 3,400 units available (190 units under traditional capital advance).

• PRAC model pays for both construction cost and operating subsidy.

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Playbook

INSIDE BASEBALL Thank you for your time

We are open to all questions. Please contact Mark B. Van Kirk, Director

Phone: ( 202 ) 708-3730 Ext. 2855

Email: Mark.B.VanKirk@hud.gov

We take great pride in our work, but not too proud to make changes for the better!