Federal Financing Bank Participation Risk Sharing with Federal Financing Bank Participation Beth M. Elliott NCSHA Annual Conference & Showplace Miami, September 27, 2016

Changing HFA Multi-Family Lending Environment Risk Sharing History Traditional Risk Sharing has been a powerful tool for HFAs since the program’s inception MassHousing originated $2.3 billion using Risk Sharing from 1994 through 2015. 30,868 units 91% affordable Current Market Conditions Tax Exemption = Competitive Pricing Disadvantage Low Interest Rates = Nominal Investment Income Many Competitive Multifamily Products Soft Money Shrinking, Volume Cap Becoming Scarce

FHA Programs Comparison Chart MAP Programs FHA MAP Insurance Programs (Typically Private, For-Profit Lenders) Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity New Construction or Substantial Rehab Lending Program 223(f) 223(f) Tax Credit Pilot 221(d)(4) FHA Risk % 99% Rehab Per Unit Up to $17,500/Unit Up to $40,000/unit Over $40,000/unit Davis Bacon Applies? No Yes Affordability Required? None None (but LIHTC does) Equity Takeout Permitted?  Yes Closing Process HUD MAP Underwriting/ Closing Process HUD Pilot Underwriting/ Closing Process HUD MAP Underwriting/ Closing process Best Execution Taxable (GNMA) Tax-Exempt (GNMA) Either Current Est. Rate 3.10% 3.10% + COI 3.85%

FHA Programs Comparison Chart Traditional HFA Risk-Sharing HFA Traditional Risk Sharing Program  Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity New Construction or Substantial Rehab Lending Program HFA Risk Share FHA Risk % 50-90% Rehab Per Unit <15% of value ≥15% of value Davis-Bacon Applies? No Yes Affordability Required? 20%@50% of AMI or 40%@60% of AMI Equity Takeout Permitted? Waiver Required Closing Process HFA Underwriting, Limited HUD Review HFA Underwriting, Limited HUD Review Best Execution Taxable Tax-Exempt Current Est. Rate 4.62% 4.02% + COI

FHA Programs Comparison Chart HFA FFB Risk Sharing Program   Deal Type Light or No Rehab Moderate Rehab with Tax Credit Equity New Construction or Substantial Rehab Lending Program HUD/FFB Risk Share FHA Risk % 50% Rehab Per Unit $30,000-$40,000 >$30,000-$40,000 Davis-Bacon Applies? No Yes Affordability Required? 20%@50% of AMI or 40%@60% of AMI Equity Takeout Permitted Waiver Required Closing Process HFA Underwriting, Limited HUD Review HFA Underwriting, Limited HUD Review Best Execution Participation Participation + Short-Term Tax-Exempt N/A Current Estimated Rate 3.71% 3.71% + COI

FFB Risk Share Differences from Traditional Risk-Sharing HUD Insurance Only 90/10, 75/25 or 50/50 Refinance Portfolio Transactions Only Equity Take Out through PPP Waiver (HUD sign-off on CNA) Requires 20 year use restriction Substantial Rehabilitation limit of 15% of Appraised Value No Prepayment Restrictions No Custodial Accounts Insured Construction Advances Available FFB / Risk Sharing HUD Insurance with FFB Funding 50/50 Only Refinance Any Transaction Equity Take-Out under New Waiver Substantial Rehabilitation limit up to $40,500+/unit, but cannot do 2+ building systems 10-Year Prepayment Lockout No Partial Claims Allowed on Default Custodial Accounts Construction Period Execution not yet available

FFB Risk Share Parties Involved HFA Local HUD HUD HQ FFB Custodian Bank

FFB Risk Share Processing Application to HUD Firm Approval Issued Interest Rate Locked with FFB Close Into Escrow Record & Fund (Loan & Participation)

FFB Risk Share Rate Lock Process Local HUD Issues FAL HFA Submits Rate Lock Submission to HUD HQ HUD HQ Approves (3 business days) FFB Issues Rate Commitment Offer (3 business days) HFA Agrees to RCO & Rate is Locked ( 2 business days)

FFB Risk Share Rate Lock Process Significant Rate Lock Considerations 8 Business Days to Process Rate Lock Max = 60 Days Must Commit to Closing Month Cannot Re-Lock for 90 Days if Miss Deadline

FFB Risk Share Simultaneous Closing & Funding 11 Days Before Funding HFA Notifies Custodian 9 Days… HFA Submits Draft Participation Documents to Custodian 8 Days… Close in escrow with Borrower; send certificates to HUD HQ 7 Days… Send Endorsement Package to HUD Local, w/ Notice to FFB 3 Days… FFB Confirms Various Business Terms 2 Days… HUD Local Issues Endorsement 1 Day… FFB Circulates Executed Participation Docs HFA Records Day 0 FFB Funds to HFA HFA Funds to Borrower

FFB Risk Share Comparison with Proposed Regulations HUD’s Proposed Risk Sharing Regulations Incorporate Many Key Changes Instituted under the FFB Waiver Equity Take-Out Requires 20-year use restriction Substantial Rehabilitation limit up to $40,500+/unit, but cannot do 2+ building systems

FFB Risk Share Comparison with Proposed Regulations Questions?