Erica Kodiyan, Underwriting Branch Chief, 9/17/2018 West Region WMAC LIHTC + FHA Mortgage Insurance for Affordable Housing a public/private partnership Good afternoon, my name is Erica Kodiyan, I am an Uw BC and LIHTC lead in the west region. Thank you for sharing this time with me to discuss the success of FHA Mortgage Insurance and LIHTC. This private/public partnership is growing and developing. This is important because it is currently the primary platform for financing affordable housing. We are proud to focus our efforts on enabling FHA to support affordable housing. We were not sure that our changes and initiatives would capture interest in FHA programs through LIHTC…. But they have! Let’s look at some higher level numbers supporting this interest. September 20, 2018 San Francisco, CA Erica Kodiyan, Underwriting Branch Chief, LIHTC Lead, West Region

LIHTC – FHA Interest in LIHTC via FHA is growing 9/17/2018 LIHTC – FHA Interest in LIHTC via FHA is growing We have embraced this public/private partnership, with the help of: The MBA, HUD HQ’s staff , our Production Director, BC’s , UW’s and technical staff. Over the last 3 years our volume of LIHTC business has increased over 25 % from $3.1 B to $4.3 B…... and if our office is any gage, the volume is going to continue to increase 2019. We have been making changes at HUD: new partner systems, new UW model, new MAP guide revisions. Have you noticed? [ (4.3-3.1)/4.3= 27.9% ] 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL 9/17/2018 We have been changing….. Pre-2012 Piloted 223f LIHTC program FHA’s market share was small From 2000 to 2011, only 60 LIHTC endorsements per year Post-2012 2012 to 2016, over 150 LIHTC endorsements per year Continued piloting of the 223f LIHTC program Streamline the review process of LIHTC refinance deals (with or without Section 8) via Single Underwriter Model Allow for moderate rehabilitation of LIHTC deals (up to $40,000/unit) Allow the refinance of LIHTC projects with less than 3 years of operating history 2016 2016 to present, over 300 LIHTC endorsements per year 223(f) LIHTC processing incorporated into 2016 MAP Guide Chapter 14 and Appendices Post-2016 Two new pilots for 221d4 LIHTC programs, are forthcoming, Ch 14.20 Expedited processing Standard processing We have strived to make changes and initiatives that draw interest to FHA for affordable housing through the LIHTC platform…. and it is working! The volume of dollars and number of LIHTC units we have insured has increased significantly since 2012… we are proud of our work! 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

Committed to Affordable, Committed to LIHTC 9/17/2018 Committed to Affordable, Committed to LIHTC Lower MIP Rates Higher LTC/LTV Ratios Lower Vacancy Rates No Cost Certification if < 80% LTC / LTV Mortgageable Developer Fees (see Map Guide Appendix. 2) 20% Equity Pay-In Requirement Equity Installments thru Construction Period No tax credit escrowing requirements Straight-to-Firm Streamlined A&E/Cost Review No Subsidy Layering Review We are committed to affordable, we are committed to LIHTC....and we are committed to changing the way we process! Listed here are a few samples of some of the revisions we have made already…and we are not done yet! We lowered the MIP rates, we eliminated waivers for tax abatements that run with the land on 100% LIHTC deals; and we don’t require subsidy layering reviews. 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

Committed to Affordable, Committed to LIHTC 9/17/2018 Committed to Affordable, Committed to LIHTC 10% Assur. Of Completion Single Underwriter Model EBLs for up to 80% of Equity Requirements Lax RLC/NLC review requirements (> $20 million) LLCI/Passive Investor Certification only, no credit review for Investor (i.e. 99.99% LP and 0.01%GP) Developer Fee + Builder/GC Profit is o.k. (Developer Fee + BSPRA NOT OK) Private debt may be secured w/project (up to 100% of Total Project Costs) Concept Meeting optional TC Investor required reserves can be credited towards HUD’s required Amounts. (IOD and Working Capital) ……..and there are more changes we have made to help make LIHTC financing more inviting… including no credit review for passive investors; use of the SUW model. Working with our lenders we have made efforts to collaborate and….. it has made a difference! 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

FHA Processing HUD’s Internal Partners 9/17/2018 FHA Processing HUD’s Internal Partners OGC DBLS EMAD CPD AM AFHMP Closing reviews, legal compliance, etc. Labor wage determinations Market analysis Environmental compliance via HERO, permanent relocation reviews Section 8 contract renewals, rent increases, preservation exhibits, R4R compliance and review, etc Review and compliance thru FHEO Although we have implemented major changes to our MAP Guide and SUW model, there are still areas of FHA processing that we can’t overlook…..and often these areas are not within our sphere of influence. Our internal partners can have a big impact on our processing times, delaying firm commitments and closing dates! No matter how fast we can process a deal, if these partners aren’t brought in early on, there can be significant delays in application processing, firm commitments and closing timelines. Our LIHTC UW’s are your key to accessing these critical HUD partners. 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

West Region HUD LIHTC UW’s 9/17/2018 West Region HUD LIHTC UW’s Laura Stutzman- Denver Heather Shea – Denver Danny Gallant- San Francisco Julie Carter-San Francisco Tiger Hudson- San Francisco- In Training ________________________________________ Expanding our LIHTC team is a priority So who are the LIHTC UW’s? I have listed our team here. I hope you get a chance to meet them in person at this conference. Our LIHTC UW’s are in high demand. Not everyone in our Denver and San Francisco office processes LIHTC deals yet. We have several specialists who work on only new LIHTC (4 or 9%) and some who process both existing LIHTC, market rate and preservation deals. We hope to expand our group of LIHTC UW’s to accommodate the increasing demand for FHA/LIHTC deals that we are experiencing. 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

HUD/MBA LIHTC Initiatives: Working together 9/17/2018 HUD/MBA LIHTC Initiatives: Working together GP’s Pledge of Ownership Interest/ EBLs Waiver for Latent Defects on LIHTC Heavy 223f’s New LIHTC Wheelbarrow 2.0 New LIHTC Pilots 221d4 Training Equity Bridge Loan Repayment Terms/ Pay In Schedule Revisions and Updates to Chapter 14 MAP Guide Income Averaging We continue to partner and collaborate with the MBA, completing important policy initiatives to allow you (lenders) to do more LIHTC and affordable deals. We have already completed the LIHTC wheelbarrow ver 2.0, we enables a deferred development fee rider for surplus cash notes, we open the door to pledge of GP interest for existing bridge loans, we waived the working capital requirements for tenant-in-place Sub Rehab. But there is more to try and more to roll out. We are looking into income averaging, and generating more revisions to the LIHTC Ch 14 Map Guide and appendix! But our next big steps we hope will be the 221d4 pilot programs! 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

Getting Ready: Section 221(d)(4)/220 LIHTC Pilot Programs 9/17/2018 Getting Ready: Section 221(d)(4)/220 LIHTC Pilot Programs We are on the verge of something exciting and we think we are close to rolling out the 221d4 pilot programs. There are two tracks in the proposed 221d4 pilot program. Expedited and standard. In SF, we are currently trying a pilot to the pilot expedited program. It is going well, it feel new and clunckie setting a precedent. But mainly it feels good getting experience processing in this new way. 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL This Photo by Unknown Author is licensed under CC BY-NC-ND

D4 Pilot Processing Expectations 9/17/2018 D4 Pilot Processing Expectations Goals: Faster processing Streamline and maintain current MF policies, authority or requirements Promote LIHTC affordable housing nationally, thru D4’s Increase FHA LIHTC D4 construction activity Codify lessons learned into next MAP Guide and HUD insurance programs. How: Rely on lenders more Reduce administrative requirements. Maintain a conservative risk position. When: Pilot will run for 3 years Implementation: Two Tracks Expedited Approval- 30 day. Standard Pilot Approval processing – 60 day. Let me share with you some of the expectations of the d4 pilot Goal: Faster processing How: Rely on the lender for more, earlier When: pilot will run for 3 years, once it commences We believe, that as the primary vehicle for the production of new affordable housing nationally, the (d)(4) LIHTC program should have a larger portion of the FHA insured market. After extensive outreach, both internally and externally, and review of best practices, we have a streamlined d4 program which reduces administrative requirements, and engages lenders more directly in our processing, while maintains a conservative risk position. 4. Desired Outcomes: HUD will evaluate what needs to be improved with staff and lenders once the pilot starts. Lessons learned will be incorporated into the next MAP Guide and permanent mortgage insurance programs, just like we did in the 223f pilot program. 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

Eligibility Requirements for Both Tracks 9/17/2018 Eligibility Requirements for Both Tracks Experienced Borrower Teams Clear 2530s in APPS Limited environmental risk factors Evidence of LIHTC commitment $25 million is Maximum Loan Amount Pose limited risk (low Loan to Cost, few environmental issues) Fast turn-around (excludes complex deals such as RAD) Subject to concept meeting & loan committee reviews Let me share some of the eligibility requirements for the 221d4 pilot candidates. $25 Million loan max Experienced borrowers Clear 2530’s No REC or envir risks Low loan to cost Evidence of LIHTC allocation commitment No complicated deals like hybrids with both 4 and 9% LIHTC or RAD Require concept meeting and Require internal HUD loan committee review 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

Expedited Pilot Approval Processing Highlights Eligible Deal Types: 9% LIHTC New Construction at 65% Loan To Cost Max. w/ rents 10% below market 4% or 9% LIHTC Sub Rehab. w/ Sec. 8 at 75% Loan To Cost Max. Goal: Close within 90 calendar days (30 day review + 60 days to close) Lender Role: Loan underwriting and conclusions, construction monitoring, release of escrow funds will be performed by the lender Limited HUD Review: HUD will perform a limited review of the lender’s underwriting and will enforce statutory and regulatory requirements (i.e. environmental reviews, 2530s, Fair Housing Act compliance). Let me share some of major highlights of each d4 pilot track Expedited Pilot Goal: 30 day processing to FC Eligible project types: 9% New construction ; 65% loan to cost max; rents 10% below market 4 or 9% sub rehab; with section 8, 75% loan to cost max; rents 10% below market Lender role: Delegated full underwriting and risk conclusions; delegated construction monitoring and release of escrow funds. HUD Role: Limited review by HUD; enforce statutory and regulatory requirements: Enviro, 2530’s; FHEO etc. 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

Standard Pilot Approval Highlights 9/17/2018 Standard Pilot Approval Highlights Eligible Deal Type: 4% or 9% re-syndication LIHTC sub. rehab. without Section 8 at 75% maximum Loan to Cost w/ rents 10% below market Goal: Close within 120 calendar days (60 day review + 60 days to close) Lender Role: HUD will review and approve the Lender’s underwriting conclusions & ensure compliance with statutory and regulatory requirements Limited HUD Review: Lender will be allowed additional authority during the construction phase (approve most change orders and escrow releases) The Standard d4 Pilot goal is 60 day processing to FC Eligible project types: 4 or 9% re-syndication sub rehab without section 8; 75% loan to cost max; rents 10% below market Lender role: HUD reviews and approves lender underwriting and risk conclusions; additional authority during construction around change orders and escrow releases. HUD’s role: Limited review, enforce statutory and regulatory requirements: Enviro, 2530’s; FHEO etc. We are already processing pretty close to this timeline now, once we get the project into active processing. 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

221d4 LIHTC Pilot More Upfront, Earlier 9/17/2018 221d4 LIHTC Pilot More Upfront, Earlier Mitigated HERO’s with Environmental Assessments Mitigated CNA e-tool submissions Written scope of work Approved rent increases Mitigated secondary financing and instruments Approved waiver(s) URA review & relocation plan Approved 2530 via APPS (not paper) So what else makes the d4 pilots different? To enable quicker processing for these D4 pilots, we need to get more upfront. The d4 pilots will require items earlier and we will rely more on the lender. HUD will require information much earlier, before accepting firm application into processing. We think these pilots are exciting and we are hopeful we can roll out these 221d4 pilot programs soon! In conclusion, the public/private partnership between LIHTC + FHA mortgage insurance is growing and we think it can grow stronger. We are proud to focus our efforts on the FHA +LIHTC pilot programs to help finance affordable housing. 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

HUD Resources www.HUD.gov 9/17/2018 HUD Resources www.HUD.gov 2016 MAP Guide 2015 Closing Guide 07/05/16 MAP Guide 2016 Implementation & Clarifications Memo MAP Guide 2016- Q&A 2016 MAP Guide- FAQs on Affordable Transactions CFR/Vol. 81, No. 62/Thurs. March 31, 2016 Notice 2016-15, dated 10/20/16, Processing Guide for Prev. Partic. Rev. RAD Notice 2012-20 EBL Memo . Thank you. Do you have any questions for me or the HUD west region staff? 9/20/18 PRE-DECISIONAL, PROPRIETARY, and CONFIDENTIAL

HUD Active Links https://www.hud.gov/program_offices/housing/mfh/map/maphome/taxcredit https://www.hud.gov/program_offices/housing/mfh https://www.hud.gov/sites/documents/APRVLEND.PDF https://www.hud.gov/program_offices/housing/mfh/hsgmfbus/abouthubspcs https://www.hud.gov/program_offices/housing/mfh/progdesc the end