Working with HUD as a Lender Matt Brett C.C. Huang 2019 Applegate & Thorne-Thomsen Developer Boot Camp, April 2, 2019

Audience participation is welcome! Presentation topics Pros and Cons of using HUD/FHA financing Timeline of a HUD/FHA deal Common HUD-LIHTC issues HUD background and best practices throughout Audience participation is welcome!

Getting to Know HUD What is the FHA?

Pros and Cons of using FHA Competitive interest rates (fixed) Non-recourse debt MIP discounts for affordable housing & green development

Pros and Cons of using FHA Longer processing than conventional financing (9-12 months) Less flexibility in deal structuring Davis-Bacon wages and Environmental Review

HUD/FHA Best Practice: Picking the Right FHA Lender Questions to ask when selecting FHA Lender Multifamily Accelerated Processing (MAP)/FHA- approved Lender List

How many regions are there for HUD’s Office of Multifamily Housing? Getting to Know HUD How many regions are there for HUD’s Office of Multifamily Housing?

What is the Section 232/LEAN program? Getting to Know HUD What is the Section 232/LEAN program?

Getting to Know HUD What is HUD OGC?

Timeline of a HUD/FHA deal Approx. 9-12 months FHA Lender and initial discussion w/HUD MAP Application (Pre-App) AEC and Underwriting/Production review Firm/Full Application Firm Commitment Closing

Timeline of a HUD/FHA deal Month 1: Concept meeting w/FHA lender Concept meeting w/HUD

Timeline of a HUD/FHA deal Months 2-3: Third-Party Reports Questionnaires

Timeline of a HUD/FHA deal Months 3-4: Pre-Application Review Submission of Pre-Application to HUD

Timeline of a HUD/FHA deal Months 4-6: HUD Review of Pre-Application Identify waiver requests Invitation to Proceed to Firm Application

Timeline of a HUD/FHA deal Months 6-7: Due Diligence for Firm App HUD AEC Review Finalize Appraisal

Timeline of a HUD/FHA deal Months 7-8: Finalize Appraisal Submit Firm Application to HUD

Timeline of a HUD/FHA deal Month 9: HUD issues Firm Commitment Start preparing Closing Package

Timeline of a HUD/FHA deal Month 10: Submit Closing Package

HUD/FHA Best Practice: Minimizing HUD comments and questions Submit waiver requests early, with application if known Review Firm Commitment for errors; submit amendment requests ASAP Make sure all secondary financing sources are included Package according to HUD closing checklist

Timeline of a HUD/FHA deal Month 11-12: Address HUD comments (Housing and Legal) Schedule Closing Send final closing documents to FHA lender counsel

Questions on HUD Timeline?

HUD/FHA Homework: Multifamily Materials HUDCLIPS MAP Guide Closing Guide OGC FAQs Section 232 Handbook ORCF Email Blasts

HUD Troubleshooting for LIHTC: Deferred Developer Fee Debt vs. Equity Treatment 75% Surplus Cash Limitation

HUD Troubleshooting for LIHTC: Equity Pay-In Schedule & Bridge Loans Initial installment requirements At least 20% May not be funded by other sources or bridge loan Equity Bridge Loan Typically limited to GP’s interest for security May not be secured against project

HUD Troubleshooting for LIHTC: Other Sources and Secondary Financing HUD wants subordination; control of form Tax Credit EUA/LURA/RA Secured government financing (state & local) Unsecured debt Collateral assignment of HAP contract

HUD Troubleshooting for LIHTC: Construction draws and requirements Harmonize lender riders to construction contract with HUD requirements Coordinate construction escrow requirements of funding sources Final endorsement can be later than you think due to cost certification

HUD Troubleshooting for LIHTC: Reserves Operating Deficit or Working Capital reserve as Special Condition – required at initial closing Letters of Credit

HUD/FHA Best Practice: Coordinate early w/other sources HUD-Required Provisions in LPA Equity, construction, & reserves requirements Repayments limited to surplus cash HUD subordination and forms for secondary financing documents

I have an FHA-insured senior loan – now what? HUD Account Executives Multifamily Office of Asset Management ORCF Loan Servicing

I have an FHA-insured senior loan – now what? Transfers Section 8 HAP Contract Renewals Prepayment

Comments or Questions? Matt Brett Thank you: C.C. Huang MBrett@att-law.com 312-491-4402 C.C. Huang CHuang@att-law.com 312-491-4462