1. FHA Lending & RAD Susan Hall, CEO of HCM Sheri Davis, Deputy Chief UW of HCM July 30, 2014 Highland Commercial Mortgage www.hcmd4.com

2. FHA/RAD FHA multifamily mortgage insurance is an important source of debt financing for projects participating in RAD. HUD endorses many transactions each year involving the acquisition, refinance and rehab of PBRA or PBV-assisted projects. However, HUD is making certain allowances for processing RAD transactions that utilize FHA insured debt to accommodate and expedite these transactions. Highland Commercial Mortgage

3. Why FHA? Low current interest rates Construction/Rehabilitation Interest Rates Locked at Initial Endorsement (rolls over to permanent loan at final endorsement) Longer Amortization Periods Refinance: Up to 35 years Construction/Rehabilitation: Up to 40 years Non-recourse to the mortgagor Used to enhance Tax-Exempt Bonds Used with other sources of funding, including LIHTC, HTC, New Market Tax Credits, Federal Home Loan Bank, HOME funds, etc… Highland Commercial Mortgage

4. FHA Programs 223(f) Refinance or Acquisition Minor/Moderate Repairs ($6,500/unit times high cost factor) Permanent Debt with Repair Escrow – up to 35 years (fully amortizing) 90% rental assistance: DSC 1.15; 87% Loan to Value Affordable: DSC 1.176; 85% Loan to Value 223(f) – LIHTC Pilot Rehab expenditures of up to $40,000/unit (no adjustment for high cost areas) Tax Credit or Bond Cap allocation in hand Located in any part of the country but processed by Multifamily Hubs designated as LIHTC Pilot processing offices Highland Commercial Mortgage

5. FHA Programs Cont.’ 221(d)(4) – New Construction or Substantial Rehabilitation Substantial Rehabilitation: Two or more major building systems or over the threshold of $6,500/unit times the high cost factor for the 223(f) program Construction/permanent debt all in one transaction – initial/final endorsement (one rate lock) 40 year financing, after final endorsement (fully amortizing) 90% rental assistance: DSC 1.11; Loan to cost: 90% Affordable: DSC 1.15; Loan to cost: 87% Deferred submittal of architectural plans (LIHTC) Highland Commercial Mortgage

6. Important to Note An experienced development team demonstrating success with similar type transactions & successful management of assisted housing is essential A developer fee is authorized on all RAD conversions. 221(d)(4) & 223(f) with LIHTC – developer fee is payable from the tax credit equity subject to the LIHTC allocating agency’s limitations on developer fees (not to exceed 15% of total development costs) 221(d)(4) & 223(f) Non-LIHTC transactions – developer fee may be up to 10% of the total budget) Proposed FHA Asset Management changes Delegate the approval of release of the replacement reserve funds to the Lender Delegate the approval of release of immediate repairs required under the 223(f) program to the Lender Highland Commercial Mortgage

7. Partnering It is important to partner with your FHA Mortgagee throughout the entire process RAD: The FHA Mortgagee should be familiar with the required milestones for the RAD process and assist in reaching these milestones FHA: The FHA Mortgagee will partner with HUD and the Designated Underwriter to see your transaction through from beginning to end Highland Commercial Mortgage

8. Streamline Process To expedite the processing of RAD transactions, HUD will use a streamlined application review process for all Section 221(d)(4) and Section 223(f) transactions. All transactions are one stage applications. FHA/RAD Fast Tracking Centralized processing Contract support for Section 223(f)/RAD underwriting Special centralized team in Chicago for Section 221(d)(4)s Streamlined approval processes One approval committee replaces RAD/FHA loan committees Waivers of PCAs and most market studies for Section 221(d)(4)s Highland Commercial Mortgage