New HUD Mortgage Insurance Premiums (MIP) Rental Assistance Demonstration (RAD) Lessons Learned

Transcription

1 New HUD Mortgage Insurance Premiums (MIP) Rental Assistance Demonstration (RAD) Lessons Learned National Council of Housing Market Analysts April 19, 2016

2 New HUD MIP New MIP highlights: Ø Directly reduces the debt burden, or increases proceeds, for new FHA- insured mortgages. Ø Effective April 1, 2016 Ø Existing Firm Commitments can be re- issued to take advantage of the new MIP rates. Ø Closed loans are unaffected. Ø Existing MIP rates will apply to projects which do not meet the defined criteria.

3 New HUD MIP Green/Energy Efficient Projects, including Affordable & Market Rate Projects: Ø.25% MIP, reduced from.45%-.70% Ø Must be certified to one of several HUD Approved Green building standards Ø Must ultimately achieve and maintain an Energy Star score of 75 or better using EPA's Portfolio Manager (annual reporting after completion). Properties under 20 units are exempt from the Portfolio Manager scoring requirement

4 New HUD MIP Broadly Affordable Projects Ø.25% MIP, reduced from.45% Ø Broadly Affordable is defined as either: a) 90% or more Section 8, Project Based contract (15 years or more remaining), or b) 90% or more LIHTC/restricted and rents at least 10% below market (15 years or more remaining)

5 New HUD MIP Affordable Projects (neither Green nor Broad) Ø.35% MIP, reduced from.45% Ø Owners must accept Section 8 Vouchers Ø Affordable includes: a) Inclusionary zoning projects with at least 10% of units at 80% AMI or less for at least 30 years, or b) 10%- 90% Section 8, Project Based contract (15 years or more remaining), or c) 10%- 100% LIHTC/restricted (15 years or more remaining) [no requirement for below- market rents]

6 New HUD MIP HUD Approved Green Standards v Enterprise Green Communities Criteria v U.S. Green Building Council's LEED- H, LEED- H Midrise, LEED- NC, or LEED for Existing Buildings: Operations & Maintenance v ENERGY STAR certification v EarthCraft House; EarthCraft Multifamily v Earth Advantage New Homes v Greenpoint Rated New Home; Greenpoint Rated Existing Home (Whole House or Whole Building label) v National Green Building Standard (NGBS) v Passive Building Certification or EnerPHit Retrofits certification from the Passive House Institute US (PHIUS), International Passive House Association, or the Passive House Institute v Living Building Challenge Certification from the International Living Future Institute v Other industry- recognized green building standards, in the sole discretion of HUD's Office of Multifamily Production.

7 185,000 units 75,000 units 57,966 88,982 28,952 $1.92B $66,317/unit

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12 RAD and HUD Mortgage Insurance Why does RAD work with Mortgage Insurance? Ø Section 8 HAP for 40 years: Two 20- year contracts Ø OCAF rent adjustments Ø Seller take- back mortgages Ø Ground or ground/building lease, up- front payments Ø Tax credits: short- term bonds and 4% credits Ø $35,000- $100,000/unit of rehab Ø Interim Income

13 RAD and HUD Mortgage Insurance Underwriting Criteria Ø 1.11 DSC if 90%+ Section 8; 1.15 DSC if not Ø 97% - 95% Occupancy Ø Syndicators are often the limiting factor on loan, will only go to 1.15 or 1.20 DSC Ø Low Interest rates & Mortgage Insurance Premium Today s rate on 221d4: 3.70% +.25% MIP Today s rate on 223f: 3.20% +.25% MIP

14 RAD and HUD Mortgage Insurance RAD Processing at HUD Ø Dedicated HUD staff in Ft. Worth, Chicago, and Atlanta (no longer Seattle). Ø Still some work sharing, so find out who all the HUD team members are ASAP Ø Communication is a challenge

15 Sample Budget d4 Rehab & 4% LIHTC Baltimore City 40- year old building 15- stories Elderly & NED 99% Section 8 130% LIHTC Basis boost Ground Lease RE Tax Abatement Uses 350 Units $/Unit Total Hard Costs 96,000 33,600,000 Contingency & FF&E 10,500 3,675,000 Architect 2, ,000 Construction Period Interest 4,100 1,435,000 Other Soft Costs 11,800 4,130,000 Acquisition 72,000 25,200,000 Total HUD Mortgageable Costs 196,900 68,915,000 Developer's Fee 7,143 2,500,000 Add'l Non-mortgageable Costs 14,000 4,900,000 Working Capital Escrow (refundable) 1, ,200 Total Project Costs 219,615 76,865,200 Sources $/Unit Total FHA Mortgage 78,600 27,510,000 LIHTC Proceeds 72,000 25,200,000 Seller Note 68,857 24,100,000 Deferred Developer's Fee ,200 Total Construction Sources 219,615 76,865,200

16 RAD and HUD Mortgage Insurance HUD Hot Buttons Ø Functional Obsolescence: built in the 1950 s Ø Scattered Sites: each parcel must have 5 units Ø Fair Housing: accessibility and MPS for elderly Ø Occupancy Regime: Elderly and NEDs Ø Environmental Issues: UST, flood plain, lead, asbestos Ø Additional Testing: terra cotta sewer lines, etc. Ø All RAD deals pay Davis- Bacon wages (223f and 221d4)

17 RAD and HUD Mortgage Insurance HUD Hot Buttons Ø Elderly: Section 231 vs Section 8 Ø Ground and Building Leases: Waive Paragraph B; limited indemnifications Ø As is Value at market rents and expenses used for Replacement Cost Mortgage Ø Purchase Price (could be greater than as is value) used for Seller take- back and LIHTC basis Ø Seller take- back at compound interest to be in LIHTC basis; OK for public debt

18 RAD and HUD Mortgage Insurance HUD Hot Buttons Ø Any project receiving RAD units is a RAD project; must meet site and neighborhood standards Ø AHP loans acceptable if same term as HUD mortgage and sign subordination agreement; can close after HUD closing Ø PILOT; runs with HA is OK but need legal opinion Ø Release of the DOT, timing issues