515 Portfolio AT RISK!

1. 515 PortfolioAT RISK!

2. New Construction VS Rehabilitation • According to the Comprehensive Physical Assessment report submitted by a private contractor: “We believe that the 515 portfolio generally exhibits attributes of preservation worthiness.”

3. Multi-Family Housing Preservation and Revitalization Program (MPR) • Purpose • MPR Tools • Eligibility • Processing • Pre-application • Scoring • Ranking • Final Applications • Underwriting • Final Approval

4. Purpose • Aging properties and ownership • Irreplaceable rural rental housing option • Revitalization is “to extend and enhance the use of each MFH property that continues to serve the affordable housing needs in its community” • Reserve requirements have not kept up with rehabilitation, replacement, and updating needs

5. MPR • Only owners or purchasers of existing Rural Development (FmHA) financed properties can apply • Section 515 (direct Rural Rental Housing) • Section 514/516 (direct Labor Housing Loan/Grant)

6. MPRTransaction Types • Simple – No changes in ownership • Complex – Property transfers (in accordance with 7 CFR 3560.406) or transactions with subordinations to 3rd party financers • Portfolio Sale – Multiple project sales that will be closed with a common purchaser within 1 state Note: MPR Transfers must meet 7 CFR 3560.406

7. MPR TOOLS Primary Tool • Debt Deferral: - 514 or 515 loans obligated prior to 10-1-91 - balloon payment of P & I due at end of the deferral period - Interest accrues at Note rate - Subsidy applied per Interest Credit Agreement - No interest charged on deferred interest

8. Other MPR Tools • Revitalization Grant: - NP applicants only - Only for costs to correct health and safety violations - Administered per 7 CFR part 3015 • Revitalization Loan: - 0% loan - 30-year amortization

9. Other MPR Tools (Continued) • Soft Second (Bullet) Loan: - 1% loan - Balloon of deferred P&I - Due when the latest maturing 514 or 515 loan is due

10. Other MPR Tools (Continued) • Traditional Section 515 Loan: • 1% Loan w/Interest Credit • Up to 50-year amortization • Traditional Section 514 Loan: • 1% loan • Up to 33-year amortization • Grants limited to 90% of total costs

11. Other MPR Tools (Continued) • Existing Regulatory Approvals: • Transfers • Subordinations • Consolidations • Re-amortizations • Debt Forgiveness • Debt Write-Down

12. Funding Opportunities Conditions • Provide affordable, decent, sanitary housing for at least 20 years • No rent increases except for normal O&M costs • Execute a Conditional Commitment • Execute a Restrictive Use Covenant

13. Eligibility • Applicant eligibility: • 7 CFR part 3560.55 – Section 515 • 7 CFR part 3560.555 – Section 514/516 • Section 515 only : (Avg. 12 mos.) - Vacancy NTE 10% (16+ units) - Vacancy NTE 15% (<16 units) • Section 514 only: • Positive Cash flow 3 years (Exception: Market Survey showing overwhelming demand)

14. Eligibility (Continued) • Ability to ownand operate after MPR (Transferee = applicant) • Demonstrate CNA and restructuring financially feasible and necessary

15. ProcessingPre-application Submission • MPR Pre-application (NOFA Attachment) http://www.rurdev.usda.gov/rd/nofas/index.html • MPR Electronic Pre-application http://www.rurdev.usda.gov/rhs/mfh/MPR/MPRhome.htm • .pdf format • fillable • “SEND IT” – e-mails it to ORHP • Receipt date and time • Breaks scoring ties • Hard copy = 5:00 p.m. ET • Electronic = actual time

16. ProcessingPre-application Submission (Continued) • Attach Purchase Agreement or Market Survey • Acknowledgement of Receipt • Due date is specified in the Notice of Funding Availability published in the Federal Register

17. ProcessingPre-application Submission (Continued) • - Hard copy to: • Office of Rental Housing Preservation-STOP 0782 (Room 1263-S) U. S. Department of Agriculture Rural Housing Service 1400 Independence Avenue, SW Washington, DC 20250-0781

18. ProcessingScoring • Points based on: • Pre-application data • MFIS data • Documented written evidence of commitments • Verify accuracy of data • Borrower ID • Project ID • Operational date • Classification • Units

19. ProcessingScoring (Continued) 1. Contribution of other funds: • $3,000 to $5,000/unit/property = 15 pts. or • $5,000/unit/property = 20 pts. Total Possible Points = 20 2. Owner contribution $5,000/project for TR costs= 5 pts.

20. ProcessingScoring (Continued) 3. Age of Project: • Operational date: • Prior to 12-21-79 = 25 points • After 12-21-79 before 12-15-89 = 20 points • On or after 12-15-89 before 10-1-91 = 15 points Total possible points = 25

21. ProcessingScoring (Continued) 4.Troubled Project: • Classification B (Stay-in Owners) = 25 pts. • Classification C or D 24 or more months = 20 pts. • Classification C or D < 24 months = 15 pts. Total Possible Points = 25

22. ProcessingScoring (Continued) Comprehensive Needs Assessment to determine needs, timing and funding 5. Prior Agency Approvals: • CNA approved: • After 10-1-06 & prior to 10-1-07 = 10 pts. • After 10-1-07 but before 4-1-08 = 20 pts. Total Possible Points = 20

23. ProcessingScoring (Continued) 6. Energy Generation: • Installation of energy generation systems funded by 3rd party = 5 pts. 7. Energy Conservation: • Rehab earning ENERGY STAR label = 5 pts.

24. ProcessingScoring (Continued) 8. Tenant Service Provision: • New tenant services provided by NP or Government Agency at no cost to tenants = 5 pts.

25. ProcessingRanking • ORHP receives MPR Pre-applications • Score • Rank • By State • By total score • By category • Portfolio sale (Avg. score of projects) • Complex • Simple

26. ProcessingRanking • States: • confirm eligibility • 2 highest-ranked portfolio sale transactions • 4 highest-ranked complex transactions • 10 highest-ranked simple transactions 16 Total Pre-applications • return incomplete preaps • send rejection w/appeals • National Office: • Re-scores • Selects portfolio sales NTE $150,000,000 in deferral

27. ProcessingFinal Applications • States obtain: • SF 424 applications • 1 portfolio sale • 2 complex • simple transactions [NTE a total of 5] • CNA • appraisal, if applicable • additional information per “MPR Application Requirements Checklist” Deadline: 45 days or by 9-1-08

28. ProcessingFinal Applications (Continued) CNA Guidance: http://www.rurdev.usda.gov/rhs/mfh/MPR/MPRHome.htm Forms: http://forms.sc.egov.usda.gov/eforms/mainservlet

29. ProcessingUnderwriting • State Underwriters: • determine eligibility • determine financial feasibility • identify needed resources • replace ineligible, infeasible, withdrawals

30. ProcessingUnderwriting Guidelines Purpose: • Minimize cost to the Government • Help assure a balanced utilization of tools • Assure the long-term economic viability of revitalized projects

31. Underwriting Guidelines (Continued) • Soft Second Loan – NTE $5,000/unit • Revitalization Grant – NTE $5,000/unit • Total Revitalization Grant, 0% Loan, Soft Second Loan – NTE $10,000/unit • 515 Loan – NTE $20,000/unit • 514 Loan – NTE $20,000/unit

32. Underwriting Guidelines(Continued) • Generally, tax credit properties will only receive debt deferral • Properties assisted with deep tenant subsidy (75% +) will receive rehab and Section 514 or 515 loans before grant and soft second loans • Necessary rent increases NTE 10% per year • Budgeted increases to reserve NTE 3% per year

33. Underwriting Guidelines(Continued) • Full RTO must be budgeted • Sufficient project revenue must cover a 10% O&M increase in the 2nd year after restructuring • Reserve balance at 20 years should be 2 X avg. annual needs (including inflation)

34. ProcessingFinal Approval • Final funding recommendations by Loan Committee • Obligation 1st come, 1st served within each of the 3 funding queues and to result in approximately the following ratios: - 30% portfolio sales - 50% complex - 20% simple

35. ProcessingFinal Approval (Continued) • States issue MPR Conditional Commitment (restructuring offer) for applicant signature/acceptance. • Offers expire after 15 days. • At closing, the applicant must execute a Restrictive Use Covenant • RD and 3rd party lenders subordination to RUC

36. ProcessingFinal Approval (Continued) • Term of Restriction: Existing loan(s) term, term of existing restrictions, or 20 years, whichever is longer. • All adverse determinations regarding applicant eligibility and awarding of points are appealable. • Approval by September 15, 2008 • Obligation by September 22, 2008

37. Voluntary Community Market Rent Demonstration • Rents set above basic (non-RA units) • Eligible tenants pay < 30% of income • Tenants do not pay overage • Owner can get 50% difference between basic and new community market rent Example: Basic = $350 Community Market Rent = $410 Difference = $60 Owner Retains = $30 Project Retains = $30

38. Questions