1. HUD/FHA Update: OIG Audit of HFA Down Payment Assistance Programs Texas Association of Local Housing Finance Agencies 2015 Annual Conference October 21-23, 2015

2. 2 Overview-Timeline July 9, 2015: OIG releases audit of NOVA Financial participation in HFA DPA programs July 20, 2015: FHA Head Ed Golding clarifies FHA support of state and local DPA programs August 11, 2015: HUD General Counsel issues internal interpretation of NOVA DPA programs September 30, 2015: OIG releases audit of loanDepot participation in HFA DPA programs

3. 3 Overview-OIG Audit NOVA Financial participation in several state and local HFA programs examined in audit Phoenix and Maricopa County (AZ) IDAs Tucson and Pima County (AZ) IDAs Other state and local HFAs in Arizona, Colorado and Nevada OIG audit indicates two major areas of NOVA Financial non- compliance with FHA rules and regulations with respect to participating in an HFA DPA program 1.DPA derived from a “premium priced mortgage” 2.Borrowers making a “repayment” of the DPA gist through an above- market rate mortgage loan

4. 4 Overview-OIG Audit NOVA Allowed Premium Pricing Associated with Downpayment Assistance: “NOVA inappropriately originated FHA loans that included ineligible downpayment assistance gifts provided by programs administered through two State of Arizona development authorities”

5. 5 Overview-OIG Audit NOVA Used Programs That Depended on a Circular Funding Mechanism: “NOVA used programs administered by the development authorities that were structured with the intention of generating revenues to perpetually fund the downpayment assistance programs”

6. 6 Overview-OIG Recommendations NOVA cease originating FHA loans with ineligible gifts Indemnify HUD for 709 FHA loans=$48.5 million Reimburse borrowers in misrepresented discount fees, overpaid interest, and other “non customary” fees Update internal controls HUD/OIG Review Process HUD has 120 days to respond to OIG recommendations OIG then 30 days to respond to HUD’s response If no agreement, HUD Dep. Sec. rules

7. 7 HUD Response & NALHFA Activity May/June: NALHFA begins working with counsels to various HFAs working with NOVA to generate response June: NALHFA urges to FHA to oppose OIG audit and issue regulatory guidance that definitively states premium pricing does not apply to HFA DPA programs June: NALHFA begins meeting with House Financial Services Committee staff to brief them on issue and prepare them for a potential request to HUD/FHA

8. 8 HUD Response & NALHFA Activity July: FHA issues Notice to calm lenders and HFAs

9. 9 HUD Response & NALHFA Activity August: HUD General Counsel provides internal interpretation on “Permissible Source of Funds for Governmental Entities DPA Programs: Agency places no restrictions “on how a governmental entity may fund its DPA programs” “Funds derived from the sale of mortgages with higher than market rate interest rates does not constitute premium pricing as defined by FHA, nor does it violate any other requirement placed on DPA provided by government entities”

10. 10 Next Steps Final audit recommendations now with “highest levels” of the agency HUD deciding what they “how to say what they want to say” in guidance

11. 11 QUESTIONS?