New  HUD  Mortgage  Insurance  Premiums  (MIP)

Rental  Assistance  Demonstration  (RAD)Lessons  Learned

National  Council  of  Housing  Market  AnalystsApril  19,  2016

New  HUD  MIP

• New  MIP  highlights:ØDirectly  reduces  the  debt  burden,  or  increases  proceeds,  for  new  FHA-­‐insured  mortgages.  

ØEffective  April  1,  2016ØExisting  Firm  Commitments  can  be  re-­‐issued  to  take  advantage  of  the  new  MIP  rates.

ØClosed  loans  are  unaffected.ØExisting  MIP  rates  will  apply  to  projects  which  do  not  meet  the  defined  criteria.

New  HUD  MIP

• Green/Energy  Efficient  Projects,  including  Affordable  &  Market  Rate  Projects:Ø.25%  MIP,  reduced  from  .45%-­‐.70%ØMust  be  certified to  one  of  several  HUD  Approved  Green  building  standards

ØMust  ultimately  achieve  and  maintain an  Energy  Star  score  of  75  or  better using  EPA's  Portfolio  Manager  (annual  reporting  after  completion).  • Properties  under  20  units  are  exempt  from  the  Portfolio  Manager  scoring  requirement

New  HUD  MIP

• “Broadly  Affordable”  Projects  Ø.25%  MIP,  reduced  from  .45%ØBroadly  Affordable  is  defined  as  either:

a)  90%  or  more  Section  8,  Project  Based  contract  (15  years  or  more  remaining),  or  b)  90%  or  more  LIHTC/restricted  and rents  at  least  10%  below  market  (15  years  or  more  remaining)  

New  HUD  MIP

• “Affordable”  Projects  (neither  Green  nor  Broad)Ø.35%  MIP,  reduced  from  .45%ØOwners  must  accept  Section  8  VouchersØAffordable  includes:

a) Inclusionary  zoning  projects  with  at  least  10%  of  units  at  80%  AMI  or  less  for  at  least  30  years,  orb) 10%-­‐90%  Section  8,  Project  Based  contract  (15  years  or  more  remaining),  orc) 10%-­‐100%  LIHTC/restricted  (15  years  or  more  remaining)  [no  requirement  for  below-­‐market   rents]

New  HUD  MIPHUD  Approved  Green  Standards

v Enterprise  Green  Communities  CriteriavU.S.  Green  Building  Council's  LEED-­‐H,  LEED-­‐H  Midrise,  LEED-­‐NC,  

or  LEED  for  Existing  Buildings:  Operations  &  Maintenancev ENERGY  STAR  certificationv EarthCraft House;  EarthCraft Multifamilyv Earth  Advantage  New  HomesvGreenpoint Rated  New  Home;  Greenpoint Rated  Existing  Home  

(Whole  House  or  Whole  Building  label)vNational  Green  Building  Standard  (NGBS)  vPassive  Building  Certification  or  EnerPHit Retrofits  certification  

from  the  Passive  House  Institute  US  (PHIUS),  International  Passive  House  Association,  or  the  Passive  House  Institute

v Living  Building  Challenge  Certification  from  the  International  Living  Future  Institute

vOther  industry-­‐recognized  green  building  standards,  in  the  sole  discretion  of  HUD's  Office  of  Multifamily  Production.

$1.92B  $66,317/unit

57,966 88,98228,952

185,000  units

75,000  units

RAD  and  HUD  Mortgage  Insurance

• Why  does  RAD  work  with  Mortgage  Insurance?ØSection  8  HAP  for  40  years:    Two  20-­‐year  contractsØOCAF  rent  adjustmentsØSeller  take-­‐back  mortgagesØGround  or  ground/building  lease,  up-­‐front  payments

ØTax  credits:    short-­‐term  bonds  and  4%  creditsØ$35,000-­‐$100,000/unit  of  rehabØInterim  Income

RAD  and  HUD  Mortgage  Insurance

• Underwriting  CriteriaØ1.11  DSC  if  90%+  Section  8;  1.15  DSC if  notØ97%  -­‐ 95%  OccupancyØSyndicatorsare  often  the  limiting  factor  on  loan,  will  only  go  to  1.15  or  1.20  DSC

ØLow  Interest  rates  &  Mortgage  Insurance  Premium• Today’s  rate  on  221d4:    3.70%    +    .25%  MIP• Today’s  rate  on  223f:    3.20%    +    .25%  MIP

RAD  and  HUD  Mortgage  Insurance

• RAD  Processing  at  HUDØDedicated  HUD  staff  in  Ft.  Worth,  Chicago,  and  Atlanta  (no  longer  Seattle).    

ØStill  some  work  sharing,  so  find  out  who  all  the  HUD  team  members  are  ASAP

ØCommunication  is  a  challenge

• Baltimore  City• 40-­‐year  old  

building• 15-­‐stories• Elderly  &  NED• 99%  Section  8• 130%  LIHTC  Basis  

boost• Ground  Lease• RE  Tax  Abatement

Sample Budget -- 221d4 Rehab & 4% LIHTC

Uses 350 Units $/Unit TotalHard Costs 96,000 33,600,000 Contingency & FF&E 10,500 3,675,000 Architect 2,500 875,000 Construction Period Interest 4,100 1,435,000 Other Soft Costs 11,800 4,130,000 Acquisition 72,000 25,200,000 Total HUD Mortgageable Costs 196,900 68,915,000 Developer's Fee 7,143 2,500,000 Add'l Non-mortgageable Costs 14,000 4,900,000 Working Capital Escrow (refundable) 1,572 550,200 Total Project Costs 219,615 76,865,200

Sources $/Unit TotalFHA Mortgage 78,600 27,510,000 LIHTC Proceeds 72,000 25,200,000 Seller Note 68,857 24,100,000 Deferred Developer's Fee 158 55,200 Total Construction Sources 219,615 76,865,200

RAD  and  HUD  Mortgage  Insurance

• HUD  Hot  ButtonsØFunctional  Obsolescence:  built  in  the  1950’sØScattered  Sites:  each  parcel  must  have  5  unitsØFair  Housing:    accessibility    and  MPS  for  elderlyØOccupancy  Regime:    Elderly  and  NEDsØEnvironmental  Issues:    UST,  flood  plain,  lead,  asbestos

ØAdditional  Testing:  terra  cotta  sewer  lines,  etc.ØAll  RAD  deals  pay  Davis-­‐Bacon  wages  (223f  and  221d4)

RAD  and  HUD  Mortgage  Insurance

• HUD  Hot  ButtonsØElderly:    Section  231  vs  Section  8ØGround  and  Building  Leases:    Waive  Paragraph  B;  limited  indemnifications

Ø“As  is  Value”  at  market  rents  and  expenses  used  for  Replacement  Cost  Mortgage

ØPurchase  Price  (could  be  greater  than  as  is  value)  used  for  Seller  take-­‐back  and  LIHTC  basis  

ØSeller  take-­‐back  at  compound  interest  to  be  in  LIHTC  basis;  OK  for  public  debt

RAD  and  HUD  Mortgage  Insurance

• HUD  Hot  ButtonsØAny  project  receiving  RAD  units  is  a  RAD  project;    must  meet  site  and  neighborhood  standards

ØAHP  loans  acceptable  if  same  term  as  HUD  mortgage  and  sign  subordination  agreement;  can  close  after  HUD  closing

ØPILOT;  runs  with  HA  is  OK  but  need  legal  opinionØRelease  of  the  DOT,  timing  issues