New Developments in Multifamily Housing Finance National Association of Local Housing Finance Agencies 2012 Annual Educational Conference April 26, 2012 Matthew Bissonette Director

Bond Financed Projects Make a Comeback 1.Recent Developments and Trends 2.Challenges Still Facing Deals 3.How Are Deals Getting Done?  Bond Structure Review 4.Prospects For Improvement 2

Bonds Are Back 1.Recent Developments and Trends 2.Challenges Still Facing Deals 3.How Are Deals Getting Done?  Bond Structure Review 4.Prospects For Improvement 3

Capital Market Market Revival Bank Capital Ratios Have Improved / Leverage Reduced Capital Markets Have Stabilized Interest Rates are at Historically Low Levels CRA Mandate is as Significant as Ever Multifamily Sector Fundamentals Solid 9% LIHTC Yields are Very Low The Good News – Banks Interested in Lending and Investing in LIHTC Again 4

Floating Rates Very Low After Extreme Shock 5 “SIFMA Index” means, on any date, a rate determined on the basis of the seven-day high grade market index of tax-exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by the Securities Industry & Financial Markets Association (formerly the Bond Market Association) (“SIFMA”) or any Person acting in cooperation with or under the sponsorship of SIFMA and acceptable to the Trustee and effective from such date.

Tax Exempt Variable Rates – 52 Week Average is 6 “SIFMA Index” means, on any date, a rate determined on the basis of the seven-day high grade market index of tax-exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by the Securities Industry & Financial Markets Association (formerly the Bond Market Association) (“SIFMA”) or any Person acting in cooperation with or under the sponsorship of SIFMA and acceptable to the Trustee and effective from such date.

MMD Near Historic Lows 7

Recent Developments Costs of Multifamily Development and Acquisitions are High Financial Institutions Have Less Risk Appetite Than Pre-Crisis High Unemployment The Not-As-Good News 8

Recent Developments Coastal Regions & Major Metro Areas Are Very Active –Rent Differential –Availability of Soft Money –CRA Demand Other Parts of Country, Improving Outlook, but Many Challenges Keep Transaction Volume Low What About Bond and LIHTC Deals? - Significant Differences Across The Country 9

Still Facing Challenges 1.What’s Happened In a Year? 2.Biggest Challenges Facing Deals 3.How Are Deals Getting Done?  Bond Structure Review 4.Prospects For Improvement 10

Biggest Challenges Facing Bond/LIHTC Deals Lack of LIHTC Investor Interest in 4% LIHTC Remains Biggest Challenge Acquisition Prices Relatively High – Low Cap Rates –LIHTC Investor Bias Against Acq/Rehab Deals Limited Soft Money Sources for 4% LIHTC/Bond Deals Substantial Negative Arbitrage – Unless Private Placement Bottom Line: Still Difficult to Balance Sources and Uses Increase in Deal Flow – But Still Limited 11

Biggest Challenges Facing Bond/LIHTC Deals Development of properties that are considered higher risk are less desirable by investors and will struggle to find an investor –High rent – market rate component and commercial space –Acquisition/rehab light –Weak markets – not >10% differential in market/LIHTC rents –Markets with limited CRA investment focus Investor community lost appetite for high leverage and high losses (namely 4% properties) – losses used to be good Syndicators won’t close without investor lined up and committed. Can create timing and certainty of funding issues Limited Appetite For 4% Tax Credits 12

Where Are We Now? 1.What’s Happened In a Year? 2.Biggest Challenges Facing Deals 3.How Are Deals Getting Done?  Bond Structure Review 4.Prospects For Improvement 13

† Note: The interest rates and other data set forth in this analysis are estimates only. All markets today – for bonds, tax credits, caps, GICs and other products – are often thin and volatile. These interest rates, fees and other variables can vary dramatically depending on state, timing, market conditions and other factors, and the other variables may vary significantly depending on project, developer and other factors. Developers should check with their investment banker or financial advisor before conducting a detailed assessment of any of these structures or programs. Six Principal Tax Exempt Multifamily Housing Bond Structures † Active Programs 1.18-Yr Fixed Rate Freddie/(Fannie) 2.Bank Private Placement 3.Long Term Fixed Rate FHA/GNMA Limited Availability 1.Variable Rate Freddie Capped (probably unavailable on tax credit deals) 14

Tax Exempt Multifamily Housing Bond Structures – Active Programs Underwriting 18-Year Bond Interest Rate*3.75% Credit Enhancement1.25 Servicing0.20 Liquidity Fee0.0 Remarketing Agent0.0 Issuer0.13 Trustee0.03 Total Fee Stack1.61 All-In Mortgage Rate 5.36% Upfront Fees (est.) Lender Origination1.0% Construction Lender Origination1.0 Bond Costs of Issuance % * Estimated 18-Year Fixed Rate AAA, TE Non-AMT Bond as of 4/23/12; 30 or 35-year loan amortization; 1.15 DSCR; 85% LTV 1.Freddie Mac 18-year Fixed Rate Structure 15

Tax Exempt Multifamily Housing Bond Structures – Active Programs Underwriting 18-Year Bond Interest Rate* (Perm Loan) 5.25%- 6.25% Credit Enhancement0.0 Issuer0.13 Trustee0.03 Total Fee Stack0.16 All-In Mortgage Rate % Construction Period Interest Rate (Drawdown Bond) SIFMA % % Upfront Fees (est.) Loan Origination1.0% - 1.5% Bond Costs of Issuance1.5% 2.5% - 3.0% * Estimated 18-Year Fixed Rate AAA, TE Non-AMT Bond as of 4/23/12; 30 or 35-year loan amortization; 1.15 DSCR; 85% LTV High CRA Areas, seeing Bond Interest Rate as low as 4.65%, but normal more around 5.00% 2.Bank Private Placement – Floating to Fixed 16

Upfront Fees (est.)** Lender Origination1.0% HUD App.0.3 Bond Costs of Issuance % Underwriting Bond Interest Rate*4.30% Remarketing Agent0.0 Issuer0.13 Trustee0.03 Bond Fee Stack0.16 Stated Rate on GNMA4.46% GNMA Guaranty/Servicing Fee0.25 Stated Mortgage Rate on GNMA(s)4.71% FHA Mortgage Insurance Premium0.45 Effective Actual Borrowing Rate5.16% * Estimated 40-Year TE;Non-AMT Fixed Rate as of 4/23/12; 40-year loan amort.; 1.11 DSCR; 95%+ Loan-to-Cost ** Does not include all FHA related fees and certain loan-side warehousing and extension fees. Tax Exempt Multifamily Housing Bond Structures – Active Programs 3.FHA/GNMA 42-year Fixed Rate Bond Financing Structure 17

Evolution on Bond/LIHTC Financing Terms Mid 2007 Typical Fixed Rate Terms 18 Yr. Fixed Bond Rate (incl. enhancement) Issuer Fee Trustee All-In Borrowing Rate Amortization DSCR LIHTC Pricing 5.65% % 35 years 1.15X $ % % 35 years 1.20X $ % % 35 years 1.15X $0.75 Fall 2008 Fall 2010 Fall % % 35 years X $ % % 35 years 1.15X $1.00 Today 18

Signs of Life 1.What’s Happened In a Year? 2.Biggest Challenges Facing Deals 3.How Are Deals Getting Done?  Bond Structure Review 4.Prospects For Improvement 19

Affordable Housing Prospects As Yields on 9% LIHTC Have Plummeted, More Investor Interest in 4% LIHTC Lots of PAB Cap Historically Low Rates New Sources of Subsidy/Programs –$25B National Mortgage Settlement –HUD 223(f) LIHTC Pilot Program 20

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