Presentation on theme: "DC Housing Finance Agency"— Presentation transcript:
1DC Housing Finance Agency Compliance & Financial ReportingCompliance and Asset Management DepartmentMaria K. Day-Marshall , Interim Executive Director & General CounselRisha K. Williams, Director, Compliance and Asset Management
3DCHFA & C&AM’s Role Who is DCHFA/C&AM? What does the Compliance & Asset Management Department do?Why are we involved with your project?
4DCHFA’s RoleDC Housing Finance Agency established by D.C. govt. in 1979 as quasi-independent instrumentalityTax-Exempt Bonds finance multi-family residential housing developments in D.C., through the Section 142 (d) of the IRS Code.Bonds are bought on the bond market and bondholders repaid from revenue generated by the project.Interest earned by bondholders is exempted from federal and (usually) state income tax.
5DCHFA’s RoleUse of tax-exempt bonds permits automatic access 4% federal low income housing tax credits.Risk Sharing Pilot Program authorized by Section 542 (c) of the Housing & Community Development Act of 1992Risk Sharing Program allows HUD to partner with Housing Finance Agencies to provide federal insurance for loans.Agency is a Level II participant: HUD accepts 90% of risk, Agency accepts 10% of risk.
6C & AM’s RoleAgency C&AM staff monitors financial and physical performance of a project and ensure compliance with bond requirements and HUD Risk Sharing Program.The Key Bond/Loan Documents that govern C&AM’s monitoring & asset management:Loan Agreement or Financing AgreementLand Use Restriction Agreement (LURA) orTax Regulatory AgreementHUD Regulations:HUD Handbook , & (Risk Sharing)
8IRS Tax-Exempt Bond Multifamily Program Requirements Income limits for Private Activity BondsBorrower Agrees to set asideMinimum of 20% units to be leased to persons whose income is 50% or lessof area median income (AMI)Minimum of 40% units to be leased to persons whose income is 60% or lessIncomes adjusted for household sizeQualified Project Period*Ongoing compliance/annual recertification of tenants
9QUALIFIED PROJECT PERIOD The Qualified Project Period (QPP) begins on the later of the first day on which 10% of the residential units in the project are first occupied or the date of issuance of the bonds and ends on the latest of:The date that is fifteen (15) years after the date on which 50% of the residential units in the project are or were occupied after acquisition, construction and equipping of the Project with proceeds of the Bonds, orThe first date on which no tax-exempt private activity bond issued with respect to the project is outstanding, orThe date on which any assistance provided with respect to the project under Section 8 of the United States Housing Act of ,as amended, terminates.
10QUALIFIED PROJECT PERIOD CONT. New Construction:Complete the QPP calculation form in accordance with the benchmarks set in the Bond DocumentsSubstantial Rehabilitation:In many instances these projects are occupied during the construction period. Complete the QPP calculation form based on your occupancy at closing and continue completing the form with the appropriate benchmarks* Qualified Project Period is defined in the Financing & Regulatory, Tax Regulatory and Land Use Restriction Agreement in the Definitions Section
11QUALIFIED PROJECT PERIOD CONT. Tax Regulatory AgreementARTICLE IITERM OF THE AGREEMENTThis Agreement shall become effective upon its execution and delivery and .recordation in the land records of the District, and except as provided in Section 7.9, this shall remain in full force and effect until the later of the expiration of the Qualified Project Period or the Tax Credit Compliance Period and all fees and expenses of the Issuer accrued and to accrue through final payment of the Bonds, and all other liabilities of the Owner accrued and to accrue through final payment of the Bonds under this Agreement and the Indenture and the Financing Agreement have been paid or provision is made for such payments pursuant to the lndenture and the Financing Agreement, it being expressly agreed and understood that the provision hereof may survive the repayment in full of the Bonds if such repayment occurs prior to the expiration of the Qualified Project Period. Upon the termination of this Agreement as aforesaid, upon request of any party hereto, the Issuer, the Owner, the Trustee and any successor party hereto shall execute a recordable document further evidencing and confirming such termination.Notwithstanding the the foregoing to the contrary, all representations and certification by the Owner to all matters affecting the exclusion from gross income of interest on the Bonds for purposes of federal income taxation and the provisions of Section 7.11 will survive the termination of this Agreement.[End of Article II]Land Use Restriction Agreement (LURA)Section 3. Recording and Filing; Covenants to Run With the Land.(a) Prior to or simultaneously with the disbursement of moneys under the Resolution, the Borrower shall cause this Agreement and thereafter shall cause any amendments and supplements hereto to be recorded and filed in the official land records of the State and shall pay all fees and charges incurred in connection therewith.The Borrower intends, declares and covenants, on behalf of itself and all future owners and operators of the Project Site during the Term of this Agreement, that this Agreement arid the covenants, restrictions and charges set forth in this Agreement regulating and restricting the use and occupancy of the Project Site and the Project (i) shall be covenants running with the Project Site, encumbering the Project Site, for the Term of this Agreement, binding upon the Borrower's successors in title and all subsequent owners and operators of the Project Site, including any purchaser, grantee, owner or lessee (other than tenants in the ordinary course) of any portion of the Project and any other person or entity having any right, title or interest therein and upon the respective heirs, executors, administrators, devisees, successors and assigns of any purchaser, grantee, owner or lessee of any portion of the Project and any other person or entity having any right, title or interest therein, for the Term of this Agreement, (ii) are not merely personal covenants of the Borrower, and (iii) shall bind the Borrower (and the benefits shall inure to the Agency and the Trustee) and its (their) respective successors and assigns during the Term of this Agreement.
12Annual Compliance & Financial Reporting Annual Reportingdue by January 30thCurrent Rent ScheduleCurrent Utility AllowanceAnnual Statement from Borrower to IssuerAdditional Annual ReportingIRS Form 8703DRAFT due Feb 28 (March 31st)Audited FinancialStatementsdue 90 – 120 days after YR EndProposed Budgetdue November 1st
13Financial Reporting – Audit Cont. What to Submit:The Audit, to includeFinancial Statements (Balance Sheet, Statement of Income, Statement of Cash Flows, Changes in Owner’s Equity)NotesAuditor’s Certification and OpinionOwner & Management Agent’s CertificationSupplemental Data, to include:Trial Balance & Adjusting Journal EntriesAccounts & Notes ReceivableAccounts & Notes PayableBank Reconciliations and Statements as of Fiscal YE for Operating Cash, Security Deposits, Escrows and Reserve Accounts
14Financial Reporting - Budget Final Proposed Budgets are due by November 1stPreparing the budgetDCHFA Budget Format/HUD Chart of AccountsBudgeting Income and ExpensesLine Item ComparisonLine Item NarrativeAdditional/Supporting InformationBudgeting Reference Guide (Chapter 4 of HUD Handbook Rev-1) Financial Operating and Accounting Procedures for Insured Projects
15Compliance Reporting Rent Increases Rent Increase FrequencySubmission RequirementsCurrent RentsProposed RentsUtility Allowance$ Amount and % of Rent IncreaseMarket SurveyCertification from OwnerTimeline for Review & Notification
16Compliance Reporting Additional Annual Reporting Cont. Digital Assurance Certification (DAC)Reportsdue date varies by projectAnnual Disclosure ReportOperating Data TemplateAnnual Financial Information
17Quarterly Compliance & Financial Reporting Quarterly Reports due on the 30th of April, July, October & JanuaryManagement Operations Summary (MOS)Rent Roll (for each month within the quarter)Occupancy ReportExhibit C “Monthly Report to Issuer/Certification of Continuing Program ComplianceFinancials: Balance Sheet, Cash Flow & Income Statement, General Ledger, Aged Accounts Payable, Aged Accounts Receivable, and Variance Report
18Compliance and Asset Management Performance Assessment and Risk Rating for DCHFA Financed Multifamily ProjectsCompliance and Asset Management
19PERFORMANCE ASSESSMENT AND Risk Rating Performance assessment is to analyze a project’s operations and performance. A project’s performance can be rated on a scale of 1 to 5. Scale of 5 rated as the best and 1 as the worst.The specific criteria for the risk rating are as follows:
20PERFORMANCE ASSESSMENT AND risk rating (CONT.) Debt Service Coverage Ratio (“DSCR”)DSCR represents a project’s ability to make mortgage payments. DSCR is the ratio of net operating income divided by debt service payments. Based on DSCR, a project’s financial performance is rated in the following scale:DSCR Performance Ratinga or above 5b –c –d –e. .99 or below 1* A well-performing project should have DSCR at least 1.10 or above the ratio projected by the underwriting pro forma.
21PERFORMANCE ASSESSMENT AND risk rating (CONT.) Mortgagee/REAC Inspection ScoreIf a project is subject to REAC inspections, the REAC score is an indicator whether the project is in decent, safe, and sanitary condition:REAC Score Performance Ratinga. 90 –b. 80 –c. 75 –d. 60 –e. 0 –
22PERFORMANCE ASSESSMENT AND risk rating (CONT.) Percentage of Uncollected Rent (POUR)POUR is the percentage of revenue that is not earned due to vacancy and poor collection. It measures effectiveness of property management in terms of leasing and rent collections. Based on POUR ratio, a project is given the following performance rating:Percentage of Uncollected Rent Performance Ratinga. 4% or below 5b. 5% 4c. 6 – 8% 3d. 9 – 10% 2e. 11% or above 1
23PERFORMANCE ASSESSMENT AND risk rating (CONT.) Operating Expense LevelAssuming that a project does not have separate security contracts and is not paying more than 25% of utilities for the individual units, performance rating for the project based on its operating expense is as follows:Operating Expense Level (PUM) Performance Ratinga. $400 or below 5b. $401 - $c. $451 - $d. $501 - $e. $601 or above 1
24PERFORMANCE ASSESSMENT AND risk rating (CONT.) After the above review and assessment, a project can be placed in one of the following categories:A CategoryProjects in this group are well performing. The risk for mortgage default is low. Debt service coverage is at or above the ratio projected in the underwriting pro forma. For the most recent two years, there are no history of monetary or covenant defaults; the project (if applicable) has received a REAC score of 75 or above.
25PERFORMANCE ASSESSMENT AND risk rating (CONT.) B CategoryProjects in this group have no immediate risk for monetary default, but need more frequent monitoring and oversight. Projects in this group are underperforming in one or more areas such as debt service coverage below the ratio projected in the underwriting pro forma; some history of covenant defaults although the defaults have been cured; less than 75 REAC score.
26PERFORMANCE ASSESSMENT AND risk rating (CONT.) C CategoryProjects in this group have serious performance deficiencies and have a high probability for mortgage default. The projects exhibit one or more of the following characteristics: debt service coverage ratio below 1.0; some history of monetary defaults although the defaults may have been cured; REAC score below 60; POUR is 11% or more; trade payables are more than two months of rental income; delinquent in payments for utilities.
27PERFORMANCE ASSESSMENT AND risk rating (CONT.) Watch List CriteriaBased on performance review and risk rating analysis, the high risk of underperforming projects will be placed in the Watch List. This List shall cover all projects in the C Category as well as some projects in the B Category. In summary, a project exhibiting any of the following indications will be placed in the Watch List:A DSCR of 1.0 or below;REAC score of 60 or below. If not subject to REAC, the project failed inspections by DCHFA or another government or regulatory agency;POUR is 9% or above;
28PERFORMANCE ASSESSMENT AND risk rating (CONT.) Watch List Criteria (Cont.)Operating expense, adjusted for utilities and security contracts, is above $600 per unit month;Any history of mortgage defaults;Project rents are abnormally low and the Owner has not implemented adequate rent increases;Repeated failures in submitting reports required by DCHFA;The project’s outstanding trade payable is more than two months’ rental income;Serious findings are reported in the audited financial statements;Other indicators as determined by DCHFA.