HUD Multifamily Southwest Region

Southwestern Affordable Housing Management Association (SWAHMA)

March 17-18, 2015

Presentation Agenda

1. MFT Transformation Wave 1 Overview & Updates

2. Preparing Budget Based Rent Adjustments

3. Management Fees

2

Kelly Haines Regional Director

Daisy Parker Resolution Specialist

Branch Chief

Christie Newhouse Asset Management

Branch Chief

Multifamily for Tomorrow (MFT) Transformation – Wave 1 Overview

3

Timeline of Activities for Wave 1

- Digitize Assets

- Electronic Intake

- Space Adjustments (move)

- Reassignment Process

- Hire Additional Staff

- Shift Work in Anticipation of Staff Training (Alpine/ Summit/Workload Share)

4

Trained all Staff on New

Business Model

Operate Southwest Region Under New Model

Support Future Waves Through

Their Transformations

Started in May

and Worked Up to

Reassignment

Date of 10-5-14

Supervisor Training

Sept-14

Frontline Training

Oct-Dec 14

Completed

12-31-14

Reassignment Date = Implementation Date

On October 5th Regions 6 & 7 became the Southwest Region

5

75% of staff were reassigned into new roles

Wave 1 Hiring Process

6

KEY NUMBERS

46 Buyouts 4

(8 participants) Job Exchanges

20 Resume Bank Placements/ Reassignments

Wave 1 Hiring Process

In preparation for the implementation of Wave 1 of MFT Transformation, we interviewed over 150 potential candidates in both Fort Worth and Kansas City, which resulted in 43 new hires

7

New Multifamily Business Model Highlights

8

Workload sharing nationally

Underwriter Model and risk-based processing in Production

Account Executive Model in Asset Management

Streamlined organizational structures in Headquarters and field

FORMER MF MODEL

NEW MF MODEL

Asset Management

Project Manager Account Executive

Senior Project Manager Senior Account Executive

Resolution Specialist

Production

Project Manager

Underwriter Housing Representative

Mortgage Credit Analyst

Senior Project Manager

Senior Underwriter Senior Housing Representative

Senior Mortgage Credit Analyst

Underwriter Analyst

Closing Coordinator

9

Multifamily Southwest Region

Organizational Structure

10

Southwest Region Leadership

11

Southwest Region Operations

12

Southwest Region Production Division

13

14

Application Intake and Assignment • As of May 5, 2014, all applications are submitted electronically

to the Fort Worth Office

• Applications are uploaded to a Regional system and assigned for processing (based on capacity) throughout Fort Worth or Kansas City

• Within 3 – 5 days of receipt of application, the assigned Underwriter emails the lender with instructions on where to send the hard copy

• Underwriters can begin processing applications immediately using the uploaded submission; we are no longer waiting to receive hard copies of the application to begin our review

15

Closing Coordination • New organizational structure has a Closing Coordinator in

both Kansas City and Fort Worth to facilitate closings

• “Closing Coordinators” take the loan from Firm Commitment to closing, and pull in Underwriters and Technical Specialists as needed

• Closing Coordinator ensures all documentation is in place and routes comments between lender attorneys and HUD attorneys

• The location of the property will determine the Regional Counsel, not the location of the Multifamily employee

16

Southwest Region Asset Management Division

17

18

19

Portfolio Assignments • All properties that were temporarily serviced by Alpine have now

been reassigned back to Account Executives in the Southwest Region

• Alpine is moving forward to support future Waves during their transformation timelines

• The Southwest Region is supporting other parts of the country through National Workload Share

• Letters regarding property reassignments were recently mailed out using stakeholder contact information in iREMS; because a large number of properties had missing or incorrect data in our system, staff will be reaching out to stakeholders to ensure all information is current

20

The Southwest Region is Going Paperless!

• Asset Management has adopted an electronic intake process for all incoming Asset Management work – AMPS (Asset Management Project System)

• AMPS was implemented several years ago by the Detroit HUD Office as a tool to reduce paperwork and balance the workload

• We have developed standard email boxes to receive all incoming work

21

Electronic Mailboxes The following two mailboxes are used to receive new incoming work from external and internal clients:

MFSouthwest@hud.gov

This box receives general correspondence/incoming requests for all properties serviced by the Southwest Region. Oversight of this box is assigned to support staff and their respective Branch Chiefs.

MFSouthwestMARs@hud.gov

This box receives all incoming Monthly Accounting Reports (MARs) for properties serviced by the Southwest Region. Oversight of this box is assigned to support staff and their respective Branch Chiefs.

22

AMPS Workflow Process

Incoming work

arrives in electronic

inbox

Support staff logs

assignment into workflow management

system (AMPS)

Support staff saves electronic

assignment to a shared

drive

Assigned technical staff

retrieves assignment from shared

drive and processes

item

Upon completion of work, support staff logs out work item in

AMPS and uploads copy to electronic

storage system

23

AMPS: Key Points • We encourage stakeholders to submit all

work electronically using the appropriate email box

• When paper mail is received, support staff will scan it and forward it to the appropriate mailbox

• AMPS accommodates property reassignments among Account Executives; the person originally assigned to a task always completes current work they have outstanding, regardless of the timing of the reassignment

• We will have more meaningful data to report in Quarters 3 and 4

24

Stakeholder Communications Telephone

• Customer Service Desk (1-800-568-2893) provided to the industry during regular office hours (8:00 a.m. – 4:30 p.m.) every Monday through Friday; a live person will answer and assist all callers (received over 4,000 calls last year)

Email • FTWMultifamilyHousing@hud.gov available to answer

questions along the way (mailbox checked daily) Website Updates

• Production Loan Processing Report posted on both the Fort Worth and Kansas City websites

• Link to current Asset Management portfolio assignments updated twice per month

25

Southwest Region Website Links

Fort Worth http://portal.hud.gov/hudportal/HUD?src=/states/shared/working/r6/mf

Kansas City http://portal.hud.gov/hudportal/HUD?src=/states/shared/working/r7/mfhsg

26

Up Next… Preparing Budget Based Rent Adjustments

27

Preparing Budget Based Rent Adjustments

Daisy Parker, Resolution Specialist Branch Chief Kansas City Satellite Office

28

Budget Based Rent Adjustment Guidance

29

• Chapter 7 of HUD Handbook 4350.1 REV-1, Multifamily Asset Management and Project Servicing

• Chapter 4 of HUD Handbook 4370.2, REV-1, Financial Operations and Accounting Procedures for Insured Multifamily Projects

• Housing Notices related to PRAC Operating Cost Increases

Submission Requirements • Cover Letter

• Form HUD-92547-A, Budget Worksheet Income and Expense Projects (Exp. 12/31/2014)

• Explanation

• Documentation

• Notices

• Reserve for Replacement

• Additional Information

30

Cover Letter

31

The Cover Letter should summarize why a rent increase is needed

The Cover Letter must:

• Explain the need for the increase

• State the percentage of rent increase requested

• Describe the project’s physical condition and any proposed improvements that are included within the budget

• State the requested effective date of the rent increase

• Describe any proposed changes in services, equipment, or fees along with reasons for the change

Budget Worksheet

32

The Budget Worksheet provides income and expenses for the 12 months following the anticipated effective date of the proposed rent increase

• Left column: Most recent audited financials figures (these figures must match the latest audited annual financial statements submitted to HUD)

• Center column: Year-To-Date actual expenses; include the number of months for the reporting period

• Right column: Proposed figures for the requested budget year

**This form must be signed and dated by the owner or a designated representative authorized to prepare and submit the budget

Sample Budget Worksheet

33

Explanation

34

The Explanation is a statement detailing the basis for any increase in the expense line items on the budget worksheet

• A written justification must be provided for budget line items that have increased by more than a five percent (5%) since the last audit. If the income or expense was estimated at the prior annual period's actual, or if the increase is less than $500, no explanation is required

Acceptable Explanation: A new part-time site manager will start on 08/01/2015 and work twenty (20) hours per week at a salary of $18/hour. The total salary for the last five months of 2015 will be approximately $7,200

Unacceptable Explanation: Will hire a part-time site manager

Documentation

35

• Current (past 12 months) copies of contracts, invoices, bills, or estimates obtained

• Dated notice of an increase received from a utility provider, insurance company, etc.

• Analysis and back-up documentation of how the projected expenses were estimated

Examples of supporting Documentation include:

Notices

36

• Notice to Tenants (if the project is not 100% subsidized); must show when and how it was distributed

• Copy of Comments from Residents and Owner Evaluation of Comments and Owner’s Certification as to Compliance with Tenant Comment Procedures in 24 CFR 245 (formerly in 24 CFR 401); refer to Chapter 7 of HUD Handbook 4350.1, REV-1

• Owner’s Certification Regarding Purchasing Practices and Reasonableness of Expenses. Copy must be executed, signed, and dated by the owner

• Energy Conservation Plan

Reserve for Replacement • Any requests to modify the monthly Reserve for

Replacement deposit amount must be accompanied by a completed form HUD-9250, Funds Authorizations (Exp. 09/30/2016)

• At a minimum, an analysis of the Reserve for Replacement account should be done every five (5) years

NOTE: Do not include the addition of capital items in the Operating Budget; capital items should be funded through the Reserve for Replacement account and are ultimately the responsibility of the owner

37

Additional Information • For projects with tenant-paid utilities, the budget

submission must include a utility survey from the utility provider and owner’s recommendation for changes to the utility allowance, along with documentation to support the recommendation (i.e., 12-month “actual” expense sheet from utility provider by unit type)

• For non-profit projects with a Residual Receipts account, the budget submission must include documentation of the current Residual Receipts account balance

38

Up Next… Management Fees

39

Management Fees

Presented by Christie Newhouse, Asset Management Branch Chief Fort Worth Regional Center

40

Spoiler Alerts!!

41

• The primary source of today’s material is HUD Handbook 4381.5, REV-2, The Management Agent Handbook

• Owners determine the actual amount of fee to be paid to the management agent

• For certain projects, HUD determines the amount of fee that may reasonably be paid out of project funds

• Management fees may be paid only to the person or entity approved by HUD to manage the project

Types of Management Fees • Residential Income

• Commercial Income

• Miscellaneous Income

• Special Fees

• Add-On Fees

NOTE:

– Residential, Commercial, and Miscellaneous Fees are quoted and calculated as a percentage of the amount of income collected by the agent

– Special and Add-On Fees are quoted as dollar per unit amounts

42

Residential Income

43

Residential income is the income received from the rental of housing units Are the following items included in residential income?

– Utility Reimbursement Payments INCLUDED

– Section 8 Special Claims NOT INCLUDED

Commercial Income

44

• Sources of commercial income

• The yield likely to be derived from the fee proposed for the project must not exceed the yields generated by projects with comparable types of commercial space (e.g., stores, offices, etc.)

• The commercial income percentage must not exceed the residential fee percentage

Are the following items included in commercial income?

– Charges for Services Paid Directly to an Outside Contractor

NOT INCLUDED

– Fees for Parking Spaces or Garages

INCLUDED

Miscellaneous Income

45

• Selected types of miscellaneous income

• The miscellaneous fee percentage must not exceed the residential income fee percentage

Are the following items included in miscellaneous income?

– Refund of Property Tax Appeal

NOT INCLUDED

– Reserve for Replacement Reimbursements

NOT INCLUDED

– Laundry Income

INCLUDED

Special Fees

46

• Owner may agree to pay if a project has unusual needs or problems

• Special fees are an appropriate way to address specific, temporary conditions

• Only allowed if all 6 conditions below are met:

1. Agent did not cause the problem(s) for which the fee is designed to address

2. Fee is tied to the correction of a problem or the completion of tasks

3. Fee is structured so that it is payable only if required actions or results are obtained

4. Fee does not include services that are already covered by other sources of compensation (to include residential, commercial, miscellaneous income)

5. Fee is reasonably related to the time, effort, and expertise required of the agent

6. Fee is paid only for a limited period of time

Add-On Fees

47

• May ONLY be considered AFTER computation of the permitted percentages for residential, commercial, and miscellaneous income have been determined and approved by HUD. This calculated permissible percentage fee PUPM Yield must fit within the established range of the HUD area office (Regional Center)

• Flat dollar per unit fee paid to agents managing projects with long-term project characteristics/conditions that require additional management effort beyond the activities covered by the residential management fee (i.e., Scattered Site Project)

• HUD area offices establish a schedule of fees

• Schedule is updated every 2 years

Region VI Management Fee Schedule

48

Renewal of Existing Fixed-Term Agreements

• Owners with fixed-term agreements that propose to change the management fee percentage must be reviewed in accordance with the reasonableness criteria

• If the fee is subject to HUD review and exceeds the maximum amount allowed, HUD staff must cap the fee at its current yield, even if it was not previously capped

• An owner of a project where HUD has capped the fee yield may request HUD reconsider the fee at any time

49

Renewal of Existing Fixed-Term Agreements (Continued)

• The fee must remain capped until:

– It no longer exceeds the maximum allowable yield

– The financial or physical condition of the project has changed

– The scope of management services has changed

• REMINDER: Commercial and miscellaneous income percentage fees cannot exceed the residential fee percentage. If the residential fee percentage is reduced to maintain the capped fee yield, the commercial and miscellaneous income percentage fees must be reduced accordingly

50

51

Questions or Comments?

52