San Francisco Multifamily Hub Industry Meeting

October 18, 2012
Agenda

The next Industry Meeting will be held on April 18, 2013

Summary of Topics

1. 2012 Multifamily Overview
   
   
2. New Options for Federal Housing Administration (FHA) Financing
   • Affordable housing and preservation are high priorities for FHA and the San Francisco production office is encouraging borrowers to consider FHA financing.
   • HUD Production has significantly decreased its processing times (approximately 120 days from application submission to firm commitment) and has streamlined its processing of affordable and preservation projects.
   • Our focus in preservation transactions is ensuring that there are sufficient resources to address the long-term capital needs of the project.
   • We encourage borrowers to talk with us early in the preservation timeline to see if FHA financing is a good fit for the project.
   • The San Francisco HUD Office is now in the Tax Credit Pilot and is seeking projects that are eligible for the Pilot.
   
   
3. Performance-Based Contract Administrator (PBCA) Update and Restrictions on Residual Receipts
   
   
   1. PBCA Update
      • The PBCAs (four in the Hub) are still operating under a short-term extension of the Annual Contributions Contract (ACC) until December 31, 2012.
      • The San Francisco Hub is eagerly awaiting HUD's response to the Government Accountability Office (GAO) ruling requiring HUD to procure the PBCA services thorough procurement under the Federal Acquisition Regulations rather than through a Notice of Funding Availability (NOFA).
      
      
   2. Restrictions on Use of Residual Receipts for Projects with New Regulation HAP Contracts (Notice H 2012-14)
      • HUD and the Hawaii, Arizona, and Nevada PBCAs have started the recapture of Residual Receipts per Notice H 2012-14 for the November 2012 vouchers.
      • The Northern California PBCA will start the recapture process on the December 2012 vouchers.
      • We have identified an initial 71 properties within the Hub where Residual Receipt funds can be recaptured which comply with the criteria indicated in Notice H 2012-14.
      • There will be a Phase II of the Recapture Process, which may include 38 or more properties where Residual Receipts can be recaptured.
      • The Notice can be found online.
      
      
4. Preservation Guidance Updates
   
   
   1. Updated Requirements for Prepayment and Refinance of Section 202 Direct Loans (Notice H 2012-08)
      • The Section 202 Supportive Housing for the Elderly Act of 2010 signed into law on January 4, 2011, made significant changes to policy governing the prepayment of Section 202 Direct Loans.
      • This Notice supersedes all outstanding policy regarding Section 202 Direct Loan prepayments, including Housing Notice 02-16 and Housing Notice 10-14.
      • The Notice does not alter FHA underwriting requirements. The requirements of Multifamily Accelerated Processing (MAP) Guide and Housing Notice 2004-21 still apply.
      • The Notice applies to the prepayment and refinance of all Section 202 Direct Loans for which HUD approval of mortgage prepayment is required as well as to properties that previously prepaid/refinanced a Section 202 Direct Loan and are "re-refinancing" the subsequent loan to place new debt on the project.
      • Owners whose 202 loans do not require HUD approval are not required to, but may voluntarily comply.
      • The Notice does not apply to Transfers of Physical Assets (TPAs) where the Section 202 Direct Loan remains in place.
      • The following requirements apply to prepayment of a 202 Direct Loan under Notice 2012-08:
        • 20- Year Use Agreement;
        • 20-Year HAP Contract with Preservation Exhibit requiring automatic renewal for an additional term of not less than the remaining term of the existing HAP;
        • Section 8 Rent increase may be available (initially exempt from debt-restructuring under MAHRA);
        • Unit Conversions may be permitted;
        • Additions or Rehab of related facilities may be permitted;
        • Acceptable Project Ownership:
          1. Current ownership entity, or
          2. For-profit Limited Partnership, the sole General Partner of which is:
             1. (1) the current project Owner or another nonprofit entity;
             2. (2) for-profit corp. wholly owned and controlled by one or more non-profit entity; or
             3. (3) a limited liability co. wholly owned and controlled by one or more non-profit.
      • Sales proceeds will not be restricted if the prepayment is part of a sales transaction. HUD will restrict the use of refinance proceeds in non-sales transactions, and additional restrictions may apply.
      • The Notice can be found online.
      • Additional guidance clarifying the requirements in the Notice 2012-08 can be found in the FAQ document online.
      
      
   2. Funding for Tenant-Protection Vouchers for Certain At-Risk Households in Low-Vacancy Areas - Request for Comments (Notice H 2012-15)
      • Notice issued 9/5/2012 to provide instructions, eligibility, selection criteria on funding process for tenant protection vouchers for certain at-risk households in low-vacancy areas.
      • Final Notice will be issued following receipt and consideration of public comment.
      • 2012 Appropriations Act provides up to $10,000,000 to protect tenants with housing choice voucher rental assistance in low-vacancy areas paying rents greater than 30% of household income as a result of:
        • Maturing HUD-insured, HUD-held or section 202 loan that requires permission of the Secretary prior to loan prepayment;
        • Expiration of a rental assistance contract and tenants are not eligible for enhanced voucher or tenant protection assistance under existing law; or
        • The expiration of affordability restriction accompanying a mortgage or preservation program.
      • Notice describes funding process with instructions for owners on how to apply for assistance.
      • A deadline to apply will be established after publication of the Final Notice.
      • HUD will rank the applications according to date of mortgage maturity, rental assistance contract expiration, or use agreement expiration to determine the order of funding. HUD is also prioritizing funding for families facing the greatest rent burden.
      • All comments are due no later than 10/10/2012.
      • The Notice can be found online.
        
        
5. General Multifamily Updates
   
   
   1. State Registered Lifetime Sex Offenders in Federally Assisted Housing (Notice H 2012-11)
      • HUD issued the Notice on 6/11/2012 to reiterate the statutory and regulatory responsibilities to prohibit admission of State registered sex offenders in Federally Assisted Housing.
      • This Notice supersedes H 2009-11.
      • The Notice applies to Section 202, 811, Project Rental Assistance Contracts (PRACS), Project Assistance Contracts (PACS), Senior Preservation Rental Assistance Contracts (SPRACS), Section 236, Rental Assistance Payments (RAP) , Section 221(d)(3) Below Market Interest Rate (BMIR), Rent Supplement, Section 8 project-based, Public Housing, tenant-based housing choice, project-based certificate and housing choice vouchers, and moderate rehab projects.
      • Owners and Agents (O/As) must pursue eviction or terminate assistance of residents who are registered lifetime sex offenders and were erroneously admitted into above housing programs.
      • O/As must offer the family the opportunity to remove the ineligible member, but O/As must pursue eviction and terminate assistance if the family is unwilling to comply.
      • For admissions prior to 6/25/2001 there is no HUD statutory or regulatory basis to evict or terminate assistance based solely on a family member's sex offender registration status.
      • Criminal background checks are required in the state where the housing is located and all states where applicant or any member of household may have resided.
      • O/A must ask the applicant if any member is a registered sex offender and provide written denial of admission if the applicant's household includes an offender and the family refuses to remove them.
      • Notice recommends adopting procedures at admission and at annual recertification to prevent lifetime registered sex offenders from receiving federal housing assistance.
      • The Notice can be found online.
        
        
   2. Waiver of Three-Year Rule for Section 223(f) Refinancing or Acquisition (Notice H 2012-12)
      • HUD issued Notice on 7/3/2012 to extend temporary authority established by Notice H 11-06 published 2/17/2011 that expired on 2/29/2012. This Notice supersedes and replaces Notice H 11-06.
      • Notice allows Hubs to process waiver requests pertaining to Three-Year Rule for Section 223(f) applications for an additional one year. Does not apply to market-rate projects.
      • Hub Directors have temporary authority to waive Three-Year Rule for 223(f) program for certain refinances and acquisitions.
      • Notice requires 15 conditions including: applies only to conventionally financed projects; final mortgage amount must be sufficient to pay off existing indebtedness, may not include equity payment; must meet all applicable program requirements for 223(f) program; applicant must submit evidence that debt service payments, accounts payable, other operating expenses have been made on time; applicant must submit financial statements; meet sustaining occupancy requirement among several other conditions
      • Notice can be found online.
        
        
6. Changes to the Section 8 Renewal Guide
   • Revisions to the Section 8 Renewal Guide, as of May 18, 2012 enact the following changes to policy:
     • Discontinue the extension of HAP contracts in favor of early termination and renewal of the Section 8 contract;
     • Change Section 3-2 D to no longer require rents for an Option One B renewal to be capped at use restricted levels;
     • Require the use of current debt service in a budget-based rent increase requests under Option Four; and
     • Permit the budget-based rent adjustments in a multiyear contract only if proposed rents do not exceed market comps for Option 4.
   • Additional changes in Sections 9-23, 9-24 and 9-25 which provide for new procedures when rents in a Rent Comparability Study exceed 110 percent of the Small Area Fair Market Rent (FMR) in metropolitan areas and FMR in non-metropolitan areas were suspended as of September 7, 201 in a policy memo issued by HUD Headquarters.
   • The updated Section 8 Renewal Guide is available online.
     
     
7. Active Partners Performance System (APPS) and Tenant Rental Assistance Certification System (TRACS)
   • What's new in APPS? HUD has added a new "What's New" link to the APPS home page. HQ will post new information about APPS at this link.
   • What's new in TRACS? System for Award (SAM) has replaced Central Contractor Registration (CCR) for registering Data Universal Numbering System (DUNS) numbers.
     
     
8. Flexible Subsidy Update
   • Flexible Subsidy assistance was provided over the years to projects suffering from physical and/or financial distress in the form of either "operating assistance" or "capital needs assistance."
   • Initially these funds were delivered as grants, and subsequently through loans.
   • Federal regulations (and loan documentation if handled properly at the time of loan origination) require that Flexible Subsidy debts be repaid upon project sale or refinancing.
   • Sometimes in the context of redevelopment and preservation, sufficient funding for repayment of this debt is not feasible. In such cases, HUD may grant regulatory waivers to allow Flexible Subsidy loans to remain outstanding and subordinate to primary financing. Relief from repayment requires a Regulatory waiver.
   • Waiver approval requires program and operational compliance. If there is noncompliance, some flexibility is available in cases in which the owner can show that this will be cured as a result of the proposed transaction.
   • Waivers will not be granted if the transaction model provides for equity take-out by the owner.
     
     
9. Guidelines for Determining Utility Allowances (UAs) - CAHI
   • The Owner/Agent (O/A) must submit to the PBCA a UA Analysis with Rent Adjustment and Contract Renewal packages regardless of the increase, decrease, or no change in the amount for each unit type.
   • At any time the recently approved UA increases by 10% or more due to increase in utility rates, the O/A must submit to the PBCA a request to adjust the UA.
   • If the O/A determines there should be a decrease in the UA, the O/A must notify the tenants in writing at least 30 days prior to submitting the request to the PBCA and must provide the tenants with the right to comment.
   • The O/A's best estimate of average monthly utility cost that an energy-conscious tenant will incur annually can be better achieved by identifying unusually high or low utility consumption "spikes" for each unit type.
   • The PBCA must not include those spikes in determining the approvable UA levels.
   • The Tom Azumbrado policy memo limits the number of supporting documents submitted with the UA Analysis to 10% of all unit types and, from a minimum of three (3) to a maximum of twenty (20) supporting documents.
   • The UA will be based on the PBCA's analysis of the O/A's submittal and cannot be left at the current level if the analysis results in a change of less than 10%. If there is even a $1 change in UA, the change will proceed.

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