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Slide 1: Development Seminar Series Workshop 4: Homebuyer Budget & Finance Monte Franke Franke Consulting Group under contract to NY DHCR/HTFC
Slide 2: Franke Consulting Group Overview of the Seminar Series  6 workshops: Introduction to Development – May  Project Selection – June  Project Design – July  Project Finance  Project Implementation – October  Ongoing Management & Org Survival - November  9/08 DHCR/HTFC Development Seminar Series 2
Slide 3: Franke Consulting Group 9/08 DHCR/HTFC Development Seminar Series 3
Slide 4: Franke Consulting Group LPA Mini-Series Working with Homebuyers - June  Lead Based Paint Overview – July/August  Managing Housing Rehab Programs - October  9/08 DHCR/HTFC Development Seminar Series 4
Slide 5: Franke Consulting Group Materials  Reference manual   Supplemental discussions of institute topics For review outside of class Overheads for note-taking Tools for project planning  Each seminar, add:   9/08 DHCR/HTFC Development Seminar Series 5
Slide 6: Franke Consulting Group Seminar 4 Topics Project budgeting  Project financing  Homebuyer financing  Subsidizing the buyer  9/08 DHCR/HTFC Development Seminar Series 6
Slide 7: Homebuyer Project Budgets
Slide 8: Franke Consulting Group The Development Budget 2 phases:  Part I: Development Construction loans used to build/rehab  Costs deferred to sale: sales costs, dev fees, other   Part II: Sales  Proceeds pay:    Sales/ closing costs Private and public construction loans Developer fee  Excess proceeds: profit, subsidy repayment DHCR/HTFC Development Seminar Series 8 9/08
Slide 9: Franke Consulting Group Homebuyer Dev. Budgets Development: Sources: Equity Construction loan Public capital advances Sales: Sources: Buyer $: DP+1st Mortgage Minus: sales costs Minus: constr. loan payoff Uses: Acquisition/site Construction (hard costs) Soft Costs Net Proceeds: Developer fee Public loan payoff * Profit/Loss 9/08 DHCR/HTFC Development Seminar Series 9
Slide 10: Franke Consulting Group Development Budget Analysis Acquisition  Construction/Rehab  Soft costs  Fees  9/08 DHCR/HTFC Development Seminar Series 10
Slide 11: Franke Consulting Group Cost Analysis Principles  Principles Eligible (allocable)  Necessary  Reasonable  Documentable   Pre-award costs: & would have been allowable if incurred after award (2 CFR 225 Att B; Item 31 – old OMB A-87) 9/08 DHCR/HTFC Development Seminar Series 11
Slide 12: Franke Consulting Group Acquisition Cost Acquisition cost < fair market value  True acquisition cost: costs to make “shovel ready”   Price + infrastructure + site improvements + env remediation + demolition + relocation  Location: if unsuitable for market housing… Environmental & neighborhood conditions  inaccessibility to services and transportation   Related party transactions – cost reasonableness 9/08 DHCR/HTFC Development Seminar Series 12
Slide 13: Franke Consulting Group Construction Costs Basis of bid/estimate, level of detail  Reasonableness: critical if not competitively bid  Regulatory compliance:   Program property standards: 504/FHAA; Davis-Bacon; LBP  Adequacy of scope v. sustainability    Compliance period v. useful life of systems/structure Cost of improvements v. energy/maintenance costs Market competitiveness (level of finish)  9/08 Contingency DHCR/HTFC Development Seminar Series 13
Slide 14: Franke Consulting Group Soft Costs  Typical soft costs Acquisition: transaction costs  Financing costs  Interim holding: insurance, taxes, security, mgt, etc.  Buyer intake, counseling  Marketing & sales   Analysis    Completeness: all costs Reasonableness: typically 20 – 30 % of budget Timing of expenditures  Constr. financing or out of sales proceeds 9/08 DHCR/HTFC Development Seminar Series 14
Slide 15: Franke Consulting Group Fee Analysis   What’s a developer fee cover?  Inclusive of consultant fees Level of effort of developer Economy of scale: level of effort is not proportionate Smaller v. large projects; complex v. simpler projects Builder OHPGR; other fees to developer/related parties Sliding scale of fees     Identity of interest: developer/builder/other   9/08 Tie draws to milestones & accomplishments DHCR/HTFC Development Seminar Series 15
Slide 16: Project Finance
Slide 17: Franke Consulting Group Sources & Gap Issues  Development financing: Phasing of construction  Costs deferred to sales phase  Analysis of net proceeds   Gap analysis – two parts: Determining gap funds needed for development  Estimating buyer subsidy need  9/08 DHCR/HTFC Development Seminar Series 17
Slide 18: Franke Consulting Group Phased Development Budgets  Matrix budget: costs distributed by phases   Construction costs based on number of units in phase Costs front-end loaded: e.g., acquisition, infrastructure, design costs, approvals, constr financing costs Sales costs & perhaps partial fees paid Constr. line of credit may be paid down between phases Ph. 1 budget + Overlaps (next phase uses prior to sales proceeds) + Shortfalls in net proceeds (phase to phase dev subsidy)  Net sales proceeds rolled into next phase    Construction line of credit needed =    9/08 DHCR/HTFC Development Seminar Series 18
Slide 19: Franke Consulting Group Costs Deferred to Sales Phase? Some marketing costs  Counseling costs  Sales costs  Closing costs  Portion of developer fee  9/08 DHCR/HTFC Development Seminar Series 19
Slide 20: Franke Consulting Group Stages of Project Financing Pre-development financing  Acquisition/construction financing  Buyer financing – the sales phase   Gap analysis 9/08 DHCR/HTFC Development Seminar Series 20
Slide 21: Franke Consulting Group Homebuyer Project Example $1,200,000 HOME Buyer Subsidy Buyer Downpayment Buyer 1st Mortgage HOME rehabilitation Conv Acquisition HOME Acquisition HOME Pre-Dev Loan Developer Capital Advances $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 Pre-Dev 9/08 Acquisition Rehabilitation Sale 21 DHCR/HTFC Development Seminar Series
Slide 22: Franke Consulting Group Pre-Development Funding Pre-development Uses Pre-development Sources  Site control  Equity/capital advances  Prel design/engineering  Pre-development loans  Environmental assessment  Legal  Usually  repayable (sometimes forgivable) Rolled into construction loans  May 9/08 need environmental clearance DHCR/HTFC Development Seminar Series 22
Slide 23: Franke Consulting Group Acquisition Loans Developers may self-fund or take interim loan  Interim financing:  Conventional loans: usually not more than 50% LTV  May be rolled into construction loan (if acquisition coordinated with construction start)   Public loans for acquisition: CDBG  HOME - requires development plan (expected to begin construction within 12 mos.)  If Federal, contingent on environmental review *  9/08 DHCR/HTFC Development Seminar Series 23
Slide 24: Franke Consulting Group Construction Financing Pays for construction costs till perm closing  Often 80 - 90% of TDC (incl acquisition)   Some costs deferred to permanent closing: perm fin costs, partial dev fee & some working capital items  May be a package deal   Construction to homebuyer loans Or a buy-sell agreement between lenders 9/08 DHCR/HTFC Development Seminar Series 24
Slide 25: Franke Consulting Group Construction Financing Construction uses  TDC minus: Dev fee (portion)  Sales/closing/legal costs  Some marketing costs  Construction sources  Equity  Construction loans  Public gap sources? 9/08 DHCR/HTFC Development Seminar Series 25
Slide 26: Franke Consulting Group Construction Lenders  Public agency construction-period lending Requires underwriting & construction inspections  May opt for private lender to administer loan  May advance funds during construction as part of perm.   Conventional lenders Like to do constr lending: short-term, high interest rate  Underwriting & management structure in place  Risk mgt: bonding, insurance, letters of credit/ guarantees, structured draws & retainage, take-out loans  9/08 DHCR/HTFC Development Seminar Series 26
Slide 27: Franke Consulting Group Permanent Financing  Buyer financing (1st mortgage) & downpayments  And rollover of HOME (and other subsidies into buyer subsidy mortgage – and HOME Development Subsidy if applicable)  Takes out construction loans & pays for other development costs incurred at permanent closing 9/08 DHCR/HTFC Development Seminar Series 27
Slide 28: Franke Consulting Group Layering   HOME + 1 public source: 92.250 (CPD-98-01):  PJ must adopt guidelines Cost analysis Fee analysis (reasonable; identity of interest) Source analysis (adequate, not excessive funding) Elements of layering analysis for homebuyer     Also final accounting of HOME funds 9/08 DHCR/HTFC Development Seminar Series 28
Slide 29: Homebuyer Financing
Slide 30: Franke Consulting Group The End Borrowers Homebuyers are the ultimate borrowers  Can’t underwrite at project application stage:   If individual borrowers are not known Don’t need to underwrite for repayment  Subsidy loans probably not be amortized   However, still need to do analysis: Ensure optimal 1st mortgage  Understand long-term affordability & default risk  9/08 DHCR/HTFC Development Seminar Series 30
Slide 31: Franke Consulting Group Credit: The Primary Issue!  Poor credit is the leading factor in the rejection of mortgage applications  Affects all income and racial groups BUT  Minority & immigrant borrowers are more likely than white borrowers to experience credit problems  But 2/3 of HH growth in the next decade  Let’s talk about the 4 C’s in reference to buyers 9/08 DHCR/HTFC Development Seminar Series 31
Slide 32: Franke Consulting Group Layering of Risk  Why automated underwriting is better   Objectivity Synergy of risk factors Multiple small problems tend to be deceptive (appear to be insignificant) May overwhelm borrower  Layering: the interaction of many small risk factors    Pay attention to market & borrower risks as well as project risks, and consider interaction of risk factors DHCR/HTFC Development Seminar Series 32 9/08
Slide 33: Franke Consulting Group Capacity Can the homebuyer repay the debt?  Ratio Analysis  Housing expense to income ratio – front ratio  Total debt to income ratio – back ratio  Back end more important: increasing debt load of HHs   Freddie Mac does not consider front ratio  Ratio concerns:  High ratios, especially with adjustable mortgages DHCR/HTFC Development Seminar Series 33 9/08
Slide 34: Franke Consulting Group Growth in Consumer Debt 9/08 42% increase in mortgage debt since 2001 DHCR/HTFC Development Seminar Series 34
Slide 35: Franke Consulting Group Cash (Capital)  Does the homebuyer have sufficient cash for down payment and closing costs? No longer the major barrier due to high LTV loans  But DP + Closing Costs can drain all cash   Analyze: Total buyer funds required for DP and closing costs  Standards for reserves/liquidity after closing  Level of improvements; likelihood of early capital needs  9/08 DHCR/HTFC Development Seminar Series 35
Slide 36: Franke Consulting Group Q Financing the Mortgage According to 2005 NAR survey, what percentage of the first-time buyers bought with no money down? A 1) 2) 3) 4) 72% 56% 42% 27% 25% of all buyers financed 100 percent of the purchase price *This Survey covered people who bought homes from August 2004 – July 2005. 9/08 DHCR/HTFC Development Seminar Series 4 36
Slide 37: Franke Consulting Group Collateral  Will the lender(s) have adequate security? Likelihood of recovery in event of foreclosure  Higher owner equity reduces risk of default   Value v. cost Look at appraisal (1st mortgage likely required)  TLTV: Risk increased if TLTV > 100%  Even if “Development Subsidy”   Loss of public funds & intended use  Mortgage insurance unlikely to protect subsidy liens DHCR/HTFC Development Seminar Series 37 9/08
Slide 38: Franke Consulting Group Default Risk Highest at High LTV Loan Performance 3/06 9/08 DHCR/HTFC Development Seminar Series 38
Slide 39: Franke Consulting Group Credit History Will the homebuyer repay the debt?  Past performance is the best predictor   1st time buyers don’t have prior history Enables automated approvals, but some LI buyers won’t qualify Identified loan programs that will work with lower scores and non-traditional credit? Provided adequate lead outreach, education, counseling?   Credit reports are major source of information  Has the developer   9/08 DHCR/HTFC Development Seminar Series 39
Slide 40: Franke Consulting Group Delinquency Rates by Loan Type Joint Economic Committee 9/08 DHCR/HTFC Development Seminar Series 40
Slide 41: Franke Consulting Group Credit Scores   Statistical method of predicting likelihood of repayment  Only one of several pieces of information lenders use FICO score v. new VantageScore  Credit scores based on (in order of importance in FICO):      Late payments, delinquencies, bankruptcies (35%) Outstanding debt (30%) Length of credit history (15%) New applications/inquiries for credit (15%) Types of credit in use (10%) 9/08 DHCR/HTFC Development Seminar Series 41
Slide 42: Franke Consulting Group Review Your Borrower Standards Counseling requirements  Downpayment  Underwriting ratios/metrics  Standards for 1st mortgages  Sustainability  Structuring the subsidy  Resubordination policy  Legal documents  9/08 DHCR/HTFC Development Seminar Series 42
Slide 43: Franke Consulting Group Underwriting Ratios & Metrics  Loan-to-Value (LTV)   1st lender’s LTV (affects PMI) TLTV (affects your collateral risk) Should you go above 25-28%? And how about a minimum?  Front-end ratio (PITI):   Back-end ratio: probably the limiting factor  Loan types: allow anything other than FRMs?  9/08 DHCR/HTFC Development Seminar Series 43
Slide 44: Franke Consulting Group Sustainability Risk  Can homebuyers can sustain ownership over compliance period/loan term?     Ability to manage mortgage/financial obligations Energy efficiency: control utility costs Ability to maintain: quality/useful life of structure, systems & finishes Market viability: ability to sell & recover funds 9/08 DHCR/HTFC Development Seminar Series 44
Slide 45: Franke Consulting Group The Effect of Counseling The higher the “touch”, the greater the impact. 40 30 34% 26% 21% Reduction in Delinquency Rate (%) 20 10 0 Individualized Classroom Home Study Type of Counseling/Education Type of Counseling/Education Source: A Little Knowledge Is a Good Thing: Empirical Evidence of the Effectiveness of Pre-Purchase Homeownership Counseling, Freddie Mac, 2001. 9/08 DHCR/HTFC Development Seminar Series 45
Slide 46: Franke Consulting Group Q Awareness of mortgage type According to a 2007 Gfk Roper survey, what % of owners don’t know what type of mortgage they have? A 9/08 DHCR/HTFC Development Seminar Series 46
Slide 47: Franke Consulting Group Delinquent Owners Contact Lenders? Delinquent owners: 25% claimed not contacted by lender; 31% never contacted lender; 11% claimed no problem Don't need to/ No reason to Can take care of situation without involving them There’s nothing they can do Don’t have money to pay it now Never had difficulty paying mortgage Source: Telephone survey in 8/05 by Roper for Freddie Mac. Respondents were considered to be in default if they were more than one month late on their mortgage payment. 20% 17 8 7 6 6 5 5 12 0% 20% 40% 47 Embarrassed Didn’t know who to call Scared Don’t know/Refuse 9/08 DHCR/HTFC Development Seminar Series
Slide 48: Franke Consulting Group Awareness of Options % Aware % Likely (Aided) to Use Talking to a housing counseling agency A forbearance agreement Adding missed payments to the existing loan balance Changing the interest rate on the mortgage loan Extending number of years you have to repay A repayment plan Knowledge Gap 38 34 18 17 13 7 3 -6 Low awareness; High interest 36 36 54 58 53 74 70 72 75 66 Moderate awareness; Moderate/high interest 60 61 74 43 67 64 68 26 Making an adjustable-rate mortgage into a fixed-rate Paying mortgage company lump sum you are behind An assumption of the mortgage A deed-in-lieu of foreclosure High awareness; Moderate interest Low awareness; Low interest -17 -18 41 23 9/08 Source: Telephone survey conducted in 2005 by Roper Public Affairs and Media for Freddie Mac DHCR/HTFC Development Seminar Series 48
Slide 49: Franke Consulting Group Summary: Borrower Financing  Assess your program design for: Marketing: lead time for buyers to improve credit & save for downpayment  Quality of counseling  Special lending programs & flexible lending criteria  Fixed rate loans & underwriting metrics  Level of improvements & long-term operating costs  Post-purchase assistance  9/08 DHCR/HTFC Development Seminar Series 49
Slide 50: Subsidizing Buyers
Slide 51: Franke Consulting Group Extra Risks in the Current Market   Home values extremely high…markets dropping  Many markets still considered over-valued; further declines? Price : income imbalance -- affordability problem Risky mortgage products that over-leveraged disappearing Investors have pulled out Building slowed, but inventory high (pipeline, investor dumping, foreclosures) DHCR/HTFC Development Seminar Series 51 Demand down     Excessive supply  9/08
Slide 52: Franke Consulting Group Why?   Strong national push into homeownership  Both as public policy and recognition of investment Labor & materials up – national, international  But run-up not explained by the usual supply & demand factors:   Household growth? 2 M production v. 1.4 M HHs /yr Housing shortage? Prices 51% up v rents 8% (2004) 9/08 DHCR/HTFC Development Seminar Series 52
Slide 53: Franke Consulting Group 9/08 DHCR/HTFC Development Seminar Series 53
Slide 54: Franke Consulting Group 291 of 330 metro markets showed decline in 4th Quarter 2007 9/08 DHCR/HTFC Development Seminar Series 54
Slide 55: Franke Consulting Group National City & Global Insight 9/08 DHCR/HTFC Development Seminar Series 55
Slide 56: Franke Consulting Group Over-Valued Housing Markets National City & Global Insight, 4th Qtr 2007 9/08 DHCR/HTFC Development Seminar Series 56
Slide 57: Franke Consulting Group Affordability Improving… 9/08 DHCR/HTFC Development Seminar Series 57
Slide 58: Franke Consulting Group But Still Not Affordable to 1st Timers 9/08 DHCR/HTFC Development Seminar Series 58
Slide 59: 20 00 1000 1200 1400 1600 1800 2000 200 400 600 800 0 9/08 In thousands Housing Permits for Single-family Units DHCR/HTFC Development Seminar Series 59 -J 20 an 00 20 Ju 01 l -J 20 an 01 20 Ju 02 l -J 20 an 02 20 Ju 03 l -J 20 an 03 20 Ju 04 l -J 20 an 04 20 Ju 05 l -J 20 an 05 20 Ju 06 l -J 20 an 06 20 Ju 07 l -J 20 an 07 20 Ju 08 l -J an Franke Consulting Group
Slide 60: Franke Consulting Group Existing Home Sales Inventory 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 In Millions Months 11 10 9 8 7 6 5 4 3 2 1 • 10.3 months supply, 2nd highest since 1999. 20 Jan 00 20 - Ju 01 l 20 Jan 01 20 - Ju 02 l 20 Jan 02 20 - Ju 03 l 20 Jan 03 20 - Ju 04 l 20 Jan 04 20 - Ju 05 l 20 Jan 05 20 - Ju 06 l 20 Jan 06 20 - Ju 07 l 20 Jan 07 20 - Ju 08 l -J an 9/08 DHCR/HTFC Development Seminar Series 20 00 60
Slide 61: Franke Consulting Group Implications  Previously assisted buyers might be in troubled Recent buyers might be over-leveraged & “upside down”  ARM & high LTV mortgagors extremely vulnerable  Lending products more limited & stricter  Bottom line: “Can’t Pay, Can’t Refi, Can’t Sell”  New buyers might be buying in at the top  Collateral damage: increasing foreclosures & job losses might hurt everyone   0.9% decline in value for foreclosed home w/in 1/8th mile 9/08 DHCR/HTFC Development Seminar Series 61
Slide 62: Franke Consulting Group What’s Going On In Your Market? Price trends?  Supply:demand balance?  Affordability?  Foreclosures?   What are the implications for your homebuyer programs/projects?    What happens if values decrease? What happens to new owners: building wealth or taking hostages? What are the risks of foreclosures & subsidy loss for existing owners? 62 9/08 DHCR/HTFC Development Seminar Series
Slide 63: Franke Consulting Group Implications for Homebuyer Projects    Current market information is essential  Watch trends: inventory, listing times, sales/listing price ratios Declining prices & large public subsidies  What is the TLTV? If declines continue? As mortgage products narrow and underwriting becomes more conservative, what is happening to buyer pipelines? How much equity do they have? How quickly might they be upside down? What mortgage factors put them at risk? DHCR/HTFC Development Seminar Series 63 Narrower affordable income band: smaller target pool   Risk of buying in at top or on downward trend   9/08
Slide 64: Franke Consulting Group HOME Resale: 92.254(a)(5)(i)  During min affordability period, resale at price:   Affordable to LI buyer Giving reasonable return to seller New buyer must be LI  Deed covenant/restriction running with land  Required if no buyer subsidy over $1,000  9/08 DHCR/HTFC Development Seminar Series 64
Slide 65: Franke Consulting Group HOME Recapture: 92.254(a)(5)(ii)  Options: Full recapture  Declining balance recapture  Shared net proceeds  Owner investment returned first  Other method approved by HUD  Note & mortgage required  Recaptured $ repaid to City HOME account  Resale/recapture option designed in ConPlan  9/08 DHCR/HTFC Development Seminar Series 65
Slide 66: Franke Consulting Group Trends in HOME Buyer Subsidies  Recapture method preferred (exc high cost areas) Move away from declining balance toward full recapture  Equity sharing in up markets (instead of resale method)  Owner’s equity returned 1st in flat markets   Shift toward emphasis of program income More extended local use periods (loan terms)  After min compliance period, no repayment or recaptured funds, it’s all Program Income  9/08 DHCR/HTFC Development Seminar Series 66
Slide 67: Franke Consulting Group Development v. Buyer Subsidy  Development subsidy:   Development costs in excess of fair market value Forgiven after sale Amount that enabled homebuyer to buy the dwelling unit DPA or 2nd mortgage/gap funds HOME Mortgage = FMV – buyer funds (DP & 1st)  Buyer subsidy:     Applies only to recapture method   Buyer subsidy must be secured by note/mortgage If no buyer subsidy, resale method must be used DHCR/HTFC Development Seminar Series 67 9/08
Slide 68: Franke Consulting Group Estimating Buyer Subsidy  Review expected 1st mortgage loan terms: Reasonable terms given expected closing date  Look at front-end/back-end ratios  Look for predatory terms   Estimate the total gap amount: High/low max mortgages (back-end ration)  Compute average debt load (average other debt)  Compute ave gap: FMV – average debt – buyer DP  Average gap + 20% margin of error?  9/08 DHCR/HTFC Development Seminar Series 68
Slide 69: Franke Consulting Group Dev/Buyer Subsidy Example Acquisition + Rehab/soft costs = $140,000  HOME funds provided nonprofit = $30,000  Market value after rehab/sale = $120,000  Buyer funds = $105,000 mortgage + $5,000 DP  Devel. subsidy = $140,000 - $120,000 = $20,000  Buyer Subsidy = $120,000 - $110,000 = $10,000  Buyer’s HOME (2nd) note/mortgage = $10,000  9/08 DHCR/HTFC Development Seminar Series 69
Slide 70: Franke Consulting Group Developer Funds + DPA  Same project as before: TDC = $140,000  FMV = $120,000  HOME $ to nonprofit developer = $30,000   But HOME DPA of $5,000 added:    Buyer funds = $105,000 (DP + 1st) HOME buyer subsidy = $10,000 + $5,000 = $15,000 Can be covered by one or two HOME notes/mortgages 9/08 DHCR/HTFC Development Seminar Series 70
Slide 71: Franke Consulting Group No Buyer Subsidy  Project facts: TDC = $140,000  FMV = $110,000  HOME $ to nonprofit developer = $30,000  No DPA   House sold with resale restrictive covenant  $30,000 HOME note/mortgage for foreclosure/noncompliance 9/08 DHCR/HTFC Development Seminar Series 71
Slide 72: Franke Consulting Group Investment Terms   Designation of assisted units  Fixed/floating; VLI/LI; unit mix; rents Grants (recoverable) v. loans Beyond min compliance period Pre-development; development; permanent Amortization, cash flow loans, loan reviews Repayment in the event of default (foreclosure, non-compl) DHCR/HTFC Development Seminar Series 72 Amount & terms of investment     Timing of HOME investment  Repayment terms   9/08
Slide 73: Franke Consulting Group Legal Documents  Commitment letter   Terms of commitment & closing requirements/checklist Accepted commitment Rental: covenants; note/mortgage Homebuyer: resale covenants or recapture note/mortgage   Written agreement required for IDIS setup  Legal documents:   9/08 DHCR/HTFC Development Seminar Series 73
Slide 74: Franke Consulting Group Accounting for HOME $ @ Closing Written off at sale (Recapture) or in Resale Covenant Development Subsidy Development assistance + buyer assistance at closing CHDO Proceeds Total HOME Investment Buyer Subsidy In CHDO Agreement & 1st reuse monitored Report in IDIS; subject to recapture Program Income DHCR/HTFC Development Seminar Series Report in IDIS; returned 74 9/08
Slide 75: Franke Consulting Group Resubordination Policy  Resubordination:    Prepayment policy:    Refi with no takeout? Equity takeout for:       Home improvements? Economic emergency (e.g., job loss) Medical emergencies? Education? Other debt? Foreclosure prevention? Will you prohibit? Will you require preprepayment counseling? Do you require full repayment if noncompliance 9/08 DHCR/HTFC Development Seminar Series 75
Slide 76: Foreclosure Prevention & Intervention
Slide 77: Franke Consulting Group Foreclosure Trends foreclosures.com – foreclosure filings 50,000 (1.05%) of NY homes entered foreclosure in 2007 9/08 DHCR/HTFC Development Seminar Series 77
Slide 78: Franke Consulting Group Default Risk Highest at High LTV Loan Performance 3/06 9/08 DHCR/HTFC Development Seminar Series 78
Slide 79: Franke Consulting Group Delinquency Rates by Loan Type Joint Economic Committee 9/08 DHCR/HTFC Development Seminar Series 79
Slide 80: Franke Consulting Group Prevention v. Intervention  Prevention Helping existing owner avoid foreclosure  Counselor involvement  Restructure public loan terms?  Other subsidies; resubordinate HOME?  Additional HOME funds not eligible   Intervention Getting control of property or new buyer  Repurchase rights  Repurchase funds  Entity to repurchase/convey  Active buyer pool  Additional HOME funds eligible (see next slide)  9/08 DHCR/HTFC Development Seminar Series 80
Slide 81: Franke Consulting Group Post-Purchase Counseling A relationship…not just an event  Require it? Pay for it?   HOME $ not eligible  Cover: Things they forget/didn’t hear pre-purchase  Managing/maintaining your home  Avoiding predatory lending  Responsible refinancing & resubordination  Where to turn if you get into trouble  9/08 DHCR/HTFC Development Seminar Series 81
Slide 82: Franke Consulting Group HOME Foreclosure Intervention  11/22/04 rule Recapture/repayment capped: net proceeds  Additional investment:   To acquire/repair/resell properties; not for prevention  Add project $: subject to max subsidy limits (cum)  Admin funds may be borrowed (not subject to cap)  4/4/7 rule  Can use Admin $ to preserve affordable units  But not assist existing owner Home $ to buy foreclosures/assist new buyer  Amendment to existing project, not new project  9/08 DHCR/HTFC Development Seminar Series 82
Slide 83: Franke Consulting Group Repayment Repayment: HOME $ must be repaid that did not meet statute (incl. foreclosure, DILOF)  Amount subject to repayment    If resale, all HOME $ repaid If recapture, only balance of note/mortgage due  Foreclosure: Restrictions may terminate if foreclosure, transfer in lieu of foreclosure or FHA assignment 9/08 DHCR/HTFC Development Seminar Series 83
Slide 84: Wrap Up & Evaluation
Slide 85: Franke Consulting Group Questions to Take Away Do you recognize/track what is happening to your housing & mortgage markets & buyers? 2. Do you need to change underwriting and loan terms to better protect the public investment? 3. Do you need to increase your post-purchase monitoring and support? 1. 9/08 DHCR/HTFC Development Seminar Series 85
Slide 86: Franke Consulting Group Final questions?  Evaluation  MLFranke@aol.com  Tomorrow: Rental project budgets & finance   Next development seminar: 5. Project Implementation     Albany: 10/15 New York City: 10/16 Buffalo: 10/22 Syracuse: 10/23  Next in LPA series: Managing Rehab Prgms    9/08 DHCR/HTFC Development Seminar Series Saratoga 10/7 Rochester: 10/8 Poughkeepsie: 10/28 86