Mortgage Credit Panel Discussion 2015 Midwest Lenders Conference Chicago, Illinois * October , 2015 Moderator: Rick Sherman, Berkadia Panelists:Tom Bernaciak, HUD - Headquarters Steve Ott, HUD - Chicago Brett Neely, Great Lakes Financial

2 Revised Definitions – 2015 MAP Guide  Principal – Individuals or entities that exercise operational and/or financial control over a project. There are two types of Principals:  Active Principal – responsible for execution of all activities for the benefit of the project, regardless of the extent of ownership interest  Passive Principal – has limited or no decision making power or control, but has an ownership interest of >25% (10% for corporations) Midwest Lenders– Mortgage Credit Discussion Panel

3 Common Attributes of a Principal  Maintains significant decision making authority  May have significant ownership interest  Involves active participation in directing the affairs of the entity  Positive past experience in developing or owning comparable properties Midwest Lenders– Mortgage Credit Discussion Panel

4 Which Principals Undergo Credit Review?  Active Principals with >25% interest in the borrowing entity (10% for a corporation)  Active Principals with <25% ownership interest but possessing substantial financial interest or having decision making authority  An investor determined to be an essential partner from a financial and cash contribution standpoint but with <25% ownership interest Midwest Lenders– Mortgage Credit Discussion Panel

5 Which Principals Undergo Credit Review, cont.?  Investors that have exceeded the $250M threshold or wish to avoid exceeding the threshold and wish to invest as a passive investor with less than 25% interest;  Investor with significant assets and financial contribution with an ownership interest of < 25%. Midwest Lenders– Mortgage Credit Discussion Panel

6 Non-Profit Principals  Generally understood to mean the borrowing entity and its Board of Directors.  Financial analysis limited to:  2530 review of ownership entity and officers and resumes of officers, and  Financial and credit review of Borrowing entity  “Sponsor” – informal term used to define persons or entities who assist in development of the project  May also act as a Principal in the project Midwest Lenders– Mortgage Credit Discussion Panel

7 Regulatory Agreement Provision Section 50  Determine the individual and/or entity with requisite control and involvement or interest in the project  Possesses positive credit history and adequate financial strength Midwest Lenders– Mortgage Credit Discussion Panel

8 Credit & Financial Review  Financial statements  REO Schedule  Credit reports/credit references  Form SUPP  Verification of Deposits/Bank statements  Resume  Internet search Midwest Lenders– Mortgage Credit Discussion Panel

General Comments A.Less check the box, more substantive underwriting. B.Early issue identification (Note: focus on “early”). Mortgage Credit Top

 Successful and comparable experience: Type, scope, size, operationally, market.  Organizational Charts/Borrower Narratives: Unclear and/or insufficient detail.  Section 50 Signatory: Failure to adequately identify.  Net Worth and Liquidity: Analysis and identify adjustments.  VODs: See General Comment A.

Mortgage Credit Top  REO/Debt Schedule: Insufficient analysis of portfolio and risk  Active Principals, if aging and/or retiring: Succession Plan?  Multi-layered financing: More detailed S&U and flow of funds.  Acquisitions/Recently Acquired Projects: previous financials  Processing Inconsistencies: HUD Forms, Narrative, etc.

MAP Guide Handbooks Notices MLs MORTGAGE CREDIT TOOLBOX Financial Stmts & REO Credit Reports HUD Forms IOD’s & Reserves

The Voice, LLC Mortgagor 100% Owner Adam Levine 76% Managing Member Blake Shelton 24% Member Sample Organizational Chart Limited Liability Corporation (For Profit)

The Voice, LLC Mortgagor 100% Owner Adam Levine 76% Member Blake Shelton 24% Managing Member Sample Organizational Chart Limited Liability Corporation (For Profit)

Born in Chicago, LLC Mortgagor 100% Owner Actors, LLC 50% Managing Member Harrison Ford 51% Managing Member Donald O’Connor 49% Member Singers, LP 50% Member Nat King Cole 49% General Partner Dancers, LP 51% Limited Partner Bob Fosse 25% General Partner Other Limited Partners < 10% each Sample Organizational Chart Limited Liability Company (For Profit) EFFECTIVE INTEREST 25.5% Eff 24.5% Eff 25.5% Eff 6.375% Eff

Rolling Stones, Inc. Non-Profit Mortgagor 100% Owner Mick Jagger President Keith Richards Vice President Charlie Watts Director Mick Taylor Director Sample Organizational Chart Limited Partnership (Non-Profit)

The Voice, LP Mortgagor 100% Owner Blake Shelton 24% Limited Partner Adam Levine 24% Limited Partner Gwen Stefanie 10% Limited Partner Usher Raymond 10% Limited Partner Pharrell Williams 10% Limited Partner Cee Lo Green 10% Limited Partner Christina Aguilera 10% Limited Partner Carson Daly 2% General Partner Sample Organizational Chart Limited Partnership (For Profit)

The Fab Four, LLC Mortgagor 100% Owner Eleanor Rigby, LLC 10% Managing Member Yoko Ono 1% Managing Member John Lennon 99% member Penny Lane, Inc. 90% Member Ringo Starr President George Harrison Secretary Paul McCartney Treasurer Sample Organizational Chart Limited Liability Corporation (For Profit) 80% Shareholder 20% Shareholder

The Fab Four, LLC Mortgagor 100% Owner Eleanor Rigby, LLC 10% Managing Member Yoko Ono 1% Managing Member John Lennon 99% member Penny Lane, Inc. 90% Member Ringo Starr President George Harrison Secretary Paul McCartney Treasurer Liverpool Ltd. A United Kington Corporation 100% Shareholder Sample Organizational Chart Limited Liability Corporation (For Profit)

Bootleggers, LLC Mortgagor 100% Owner Windy City, LLC 76% Managing Member Dion O’Banion 40% Managing Member John Dillinger 30% Member Alfonse Capone 30% Member Second City, LP 24% Member Sample Organizational Chart Limited Liability Company (For Profit) EFFECTIVE INTEREST 30.4% Eff22.8% Eff

Bootleggers, LLC Mortgagor 100% Owner Windy City, LLC 76% Managing Member Dion O’Banion 40% Managing Member John Dillinger 30% Member Alfonse Capone 30% Member Second City, LP 24% Member Bugs Moran 50% Managing Member Alfonse Capone 50% Member Sample Organizational Chart Limited Liability Company (For Profit) EFFECTIVE INTEREST 30.4% Eff22.8% Eff 34.8% Eff 12.0% Eff 34.8% Eff

Chicago LP An Illinois Non-Profit Corporation 100% Owner Navy Pier, LLC 0.01% General Partner Rahm Emanuel 20% Managing Member Susan Mendoza 80% Member Tax Credit Investor LLC 99.98% LP Willis Tower, Inc..01% Special Limited Partner Sample Organizational Chart Limited Partnership (Tax Credit)