THOUGHTS on POSITIVE CHANGES THAT COULD BE MADE TO THE MFH PROGRAM:

1. THOUGHTS on POSITIVE CHANGES THAT COULD BE MADE TO THE MFH PROGRAM: Larry Anderson VP RHPA & CEO Get RD Done Right! 571-296-4746 landerson@rhpallc.com 4-7-2017

2. Current State of the RD MFH Program • Shrinking Program – RA units peaked 2013, RA outlays peaked 2014 • Massive deferred rehabilitation needs – $2.6 B in 2004 New CPA says $5.6 Billion “reserve deficit from inflation and passage of time” • Pending Mortgage Maturity crisis – Lose 75% over the next 20 years • Massive unfunded energy efficiency opportunities and handicapped accessibility needs – who knows the actual amount? • Years of starving program operations and preservation to “save RA.” • Short sighted regulatory interpretations – no mgt fee increases, cut NP asset mgt fee, no PPI wait list, no split rents – regardless of the reg. • Verbal guidance – no rent increases, limit SWP’s to get the “bad” projects out, using 515, are we out of RA or voucher funds, etc…? • Shrinking staff – loss of experience, expertise, and accountability • Limited release of program data – how many prepaid, how many preserved, how many MPR’s closed, RA use, success of new RA tool • GOOD NEWS: Surplus RA -- $200 M in FY16, maybe $350 M in FY17? • GOOD NEWS: Great RD staff still hanging in there - new PAT and HQ underwriting team – experienced and committed owners/operators – irreplaceable program that works – people that need our help!

3. Latest on the RD MFH Mortgage Maturity (MM) crisis • New RD data - MM still bad, but the worst is 10 years later. • Key RD process questions: • Why the big difference with the new data? Is this version right? • What happens with 30 yr. term, 50 yr. am loans (after 95)? • What if “damage settlement” loan matures before RUC’s expire? • Will MM projects receive priority for funding - MPR, RA, 515 or 538? • Can prepayment prevention tools be used & prioritized to avert MM? • Key owner/operator/purchaser questions: • What and where are my restrictions (project based or property based) • Where are my projects with MM? (multiple, single loans or cost items) • When to talk to RD about options? (portfolio solutions or one off) • Preservation strategies • Exit strategies • Capital needs and resource availability

4. Key RD MFH Mortgage Maturity (MM) crisis policy changes to increase preservation activity • RD needs new ideas to attract resources to preserve projects • Use all available RA – the FY13 RA sequester funding crisis is over • Encourage two step transfers – acquire, then rehab • Allow operating budget support for GP purchase • Eliminate artificial caps on rent increases – CRCU and percentages • Better appraisal guidance - RUCS limit by tenant incomes not rents • Partner with State HFA’s, regional or local housing stakeholders • Better written guidance on NP sale rules and funding • Duty to Serve – work with Fannie and Freddie for new options • Encourage more mission based NP participation, beyond UNL: • End the artificial suppression of asset management fees – regulations over handbooks • Publish “Sale to NP and PB” funding availability and guidance • Encourage the use of prepayment prevention incentives with simpler guidance and national funding • Allow MPR RTO incentive to be used by NP’s

5. Significantly, USDA occupancy reports show RA units peaked in FY13 – the portfolio is now losing roughly 1,290 RA units a year

6. GAP between RA Outlays and Obligations (millions)

7. More common sense policy ideas to prevent MM • Use the RA windfall GAP – the RA funding crisis is over • Provide guidance and TA to encourage mission based ownership • Provide direction in writing - change your regulations – not interpretations – provide a coherent preservation program • Make it easier to get ownership change and rehab accomplished • Use existing prepay incentives: $1 M in RA = 10 projects saved • Use available funding to encourage portfolio transactions • Publish funding rules – use 515 money more openly and effectively • Bring in the full RD Team under MFH HQ – include CNA reviewers, appraisers, architects, and closing attorneys to speed up processing • Eliminate incentives to convert to market – huge reserves, no cost tenant protections, refusing common sense SWPs, allow for re-ams, clarify what happens after 30 year term, use 1% SWP deferrals • Steady the RA Boat – transfer all unused RA and stop RA retirement • Publish your accomplishments and program status • Fight for resources - work with Federal, State and Local funders.

8. Even more common sense policy ideas to prevent MM • Work with developers “upfront” to help manage expectations • Sit down, review potential deals, discuss options and make a plan • Find better ways to work with properties that don’t fit a market based solutions, but still meet a significant need in the community • Use dormant tools – such as consolidations, waivers, deferral, write offs, protective advances or unused RA • Make a quick decision on underwriting • Use a sales price option that covers “exit taxes” • No requirement that sales price equals equity • Clarify how “other” components and RUPS fit into a sales price • Don’t turn down free money • No requirement that all funds are “fungible” • Encourage GP buyouts by strong NPs or good mission based entities • Two step process – helps facilitate portfolio transactions • Develop a new protocol to “pool” reserve funding and reduce project costs - trade easy access to funding for reduced rents • Allow for portfolio level management

9. WA mortgage maturity loss data – New data pushes the cliff back ten years