1. Module 5: Financing Issues

2. Module 5: Financial Issues 2 Module 5 Content Affordability Financing Mechanisms (Eligible Use A) Types of Assistance Financing Options Program Income

3. Module 5: Financial Issues 3 Affordability Initial Affordability Long-Term Affordability

4. Module 5: Financial Issues 4 Initial Affordability NSP Recipients Must: –Define Affordable Rents –Ensure Affordability Standards –Enforce NSP Mechanisms HOME Affordability Standards are Minimum

5. Module 5: Financial Issues 5 Initial Affordability (continued) Housing Costs vs. Household Income Housing Costs: 30-35% of Total Family Income Affordability Based On: –Purchase Price or Rent –Cost of Occupancy

6. Module 5: Financial Issues 6 Financing Mechanisms

7. Module 5: Financial Issues 7 Financing Mechanisms Eligible Use A Eligible Use A Allows NSP Funds to Establish Financing Mechanisms –Direct Loans –Indirect Loans –Loss Reserves –Soft Second Loans –Shared Equity Loans

8. Module 5: Financial Issues 8 Types of Assistance

9. Module 5: Financial Issues 9 Types of Assistance NSP Grantee May Provide Downpayment Assistance to Home Buyer NSP Funds May be Used to Reduce Interest Rate Grantee May Use NSP Funds for Loans to Third Parties Loan Terms May Be Specially Structured Shared Equity Arrangements CDBG Can Help

10. Module 5: Financial Issues 10 NSP Financing Options

11. Module 5: Financial Issues 11 Financing Options Initial Affordability Sell for Cash Based on Actual Cost Reduce Sales Price Sell at Cost and Provide Second Mortgage Pay Mortgage Insurance

12. Module 5: Financial Issues 12 Financing Options Initial Affordability (continued) Downpayment Assistance Loan Loss Reserve Closing Costs Capitalize Reserves When Condition of Primary Lender (rental)

13. Module 5: Financial Issues 13 Long-Term Affordability Homebuyer Requirement –Primary Residence for Period of Affordability Rental Requirements –Occupancy by Income-Eligible Tenants –Affordable Rents Grantee Defines –Length of Affordability Period –Affordable Rent Levels

14. Module 5: Financial Issues 14 Financing Options—Homebuyer Long-Term Affordability Balloon Payment Due on Sales Loans Shared Equity Loans May Reduce Loan for Each Year of Affordability Compliance

15. Module 5: Financial Issues 15 Financing Options— Long-Term Affordability Rentals No Recapture Option –New Buyer Must Continue Affordability Occupancy Rent Restrictions Lien for Period of Affordability

16. Module 5: Financial Issues 16 Program Income Applicability of CDBG Requirements CDBG Definitions and Requirements How Program Income Applies to NSP Home Buyer Projects Calculating Program Income on Rental Project –Owned by Grantee or Subrecipient –Owned by Private Developer

17. Module 5: Financial Issues 17 CDBG Definitions and Requirements CDBG Rules Imposed by Recovery Act 570.500(a) Program Income is Revenue Received by a Grantee or Subrecipient from: –Sale of Property –Loan Repayments –Rental Income

18. Module 5: Financial Issues 18 Program Income Rules Spend Cash On Hand First NSP Income Only for NSP Uses Income Not Counted Toward Obligation

19. Module 5: Financial Issues 19 Program Income—Homebuyer Transactions Sales Revenue Received by Grantee or Subrecipient Debt Service Payments Made to Grantee or Subrecipient Recaptured Funds

20. Module 5: Financial Issues 20 Program Income—Rental Properties When Owned by Grantee or Subrecipient: –Gross rental income minus costs incidental to its generation. Such costs include: Management expenses Property maintenance and repairs Contributions to replacement reserves Taxes and insurance

21. Module 5: Financial Issues 21 Program Income—Rental Properties (continued) Program Income Does Not Include Revenue from Privately Owned Rental Projects Make Loans, not Grants, Wherever Possible Grantee Should Underwrite to Avoid Undue Enrichment

22. Module 5: Financial Issues 22 Module 5 Summary Affordability Financing Mechanisms (Eligible Use A) Types of Assistance Financing Options Program Income