One Chase Manhattan Plaza | New York, NY | 60th Floor Financing Affordable Housing with Tax-Exempt Bonds and Housing Tax Credits Workshop Thursday, October 23, 2014 | 10:00a.m. - 4 p.m. | Chase Manhattan Bank, One Chase Manhattan Plaza | New York, NY | 60th Floor New Freddie Mac Tax Exempt Loan (“TEL”) Structure for Targeted Affordable Housing By: Shaun K. Smith Senior Director Targeted Affordable Production Multifamily 703-714-2852 (o) 703-629-3327 (m) 8100 Jones Branch Drive, MS B4S McLean, VA 22102

New Freddie Mac Tax Exempt Loan (“TEL”) Structure for Targeted Affordable Housing Since the financial crisis in 2008, many banks have developed tax exempt loan versions of their tax exempt bond private placement structures to obtain “lending credit” as compared to “investment credit” for CRA purposes and loan accounting treatment under GAAP accounting guidelines. Within the past five years, this type of tax exempt loan structure has been used by more than 35 Governmental entities. Freddie Mac has recently unveiled a new financing execution for multifamily housing pursuant to which it purchases from its qualified seller/servicers tax exempt notes (“Governmental Notes”) issued by state and local governmental entities (“Governmental Entities”) evidencing loans made by the seller/servicers (“Funding Loans”) to the Governmental Entities for the purpose of financing affordable multifamily rental housing. The Governmental Entities loan the proceeds of the Funding Loans to multifamily developers/owners (“Project Loans”) to finance the acquisition and/or moderate rehabilitation of affordable multifamily housing properties.

New Freddie Mac Tax Exempt Loan (“TEL”) Structure for Targeted Affordable Housing Governmental Note $ Governmental Lender and Fiscal Agent (same function as trustee) Seller/Servicer as “Initial Funding Lender” Funding Loan to Governmental Lender pursuant to Funding Loan Agreement Assignment of Governmental Note evidencing Funding Loan and Continuing Covenant Agreement Project Loan to Borrower pursuant to Agreement Project Note and Mortgage $ $ Continuing Covenant Agreement* Freddie Mac as “Funding Lender” Borrower *Contains project specific covenants consistent with Freddie Mac CME requirements.

New Freddie Mac Tax Exempt Loan (“TEL”) Structure for Targeted Affordable Housing The Project Loans meet the requirements for the issuance of tax exempt obligations under Section 142(d) of the Internal Revenue Code of 1986, as amended (the Code”) and for the syndication of 4% LIHTC under Section 42 of the Code. Once Freddie Mac has acquired approximately $300MM in Governmental Notes evidencing the Funding Loans, it will securitize the Governmental Notes using its M-Class execution. Freddie Mac’s new “TEL” execution offers loan terms of up to 18 years, a 35-year loan amortization, 1.15 debt service coverage and a 90% maximum LTV. It is priced at very competitive spreads to the 10-year U.S. Treasury Bond. Freddie Mac believes up front costs of issuance associated with private purchase of tax exempt affordable housing loans may be as much as 40% less than that associated with a public offering of rated, credit enhanced bonds. There are fewer documents (e.g. no offering statement, reimbursement agreement, credit enhancement agreement, etc.) and fewer parties involved (e.g. no underwriter, no rating agency). Freddie Mac anticipates that for many transactions, a rate lock can be achieved within three months of commencement of loan processing, and the closing can be achieved within 30 to 45 days thereafter.

Sample Timeline: Quote to Purchase Pre-Day 1: Production and Seller size loan Day 1: Quote accepted Day 30: Seller delivers full underwriting package Day 31-84: Underwriting Day 85: Commitment issued Seller completes/ uploads LST and requests quote Production determines eligibility and sizes loan Production requests quote from Pricing Pricing prices loan and provides to Production Production communicates quote to Seller/Borrower Seller/Borrower accepts quote Production creates file in Document Management System (DMS) 10bps application fee collected Third-party reports received Underwriting performs due diligence Production requests loan spread from Pricing and finalizes structure Underwriting performs site inspection Underwriting prepares final investment brief Underwriting approves loan Seller/Borrower accepts final pricing and structure

Sample Timeline: Quote to Purchase (cont’d) Day 90: Rate/spread lock Day 120: Seller makes loan Day 135: Freddie Mac purchases loan Commitment countersigned and delivered to Underwriting Seller, Underwriting and Pricing perform rate/spread lock Purchase and Legal review closing documents and authorize disbursements to purchase loan from Seller Day 125: Seller delivers loan to Freddie Mac Seller delivers final delivery package to Freddie Mac

New Freddie Mac Tax Exempt Loan (“TEL”) Structure for Targeted Affordable Housing Freddie Mac closed its first TEL transaction with the Ohio Housing Finance Agency in August 2014, and anticipates moving forward on multiple transactions this fall, with a number of Governmental Entities, many of whom are already familiar with the Freddie Mac TEL execution. Freddie Mac expects to issue its first TEL M-Class security in the next 6 to 12 months. At this time, the TEL execution is available only for immediate fundings, primarily for acquisition/moderate rehabilitation transactions. Within the next year Freddie Mac expects to expand the TEL execution to include forward commitments for new construction and substantial rehabilitation transactions. With the Freddie Mac TEL execution, Freddie Mac benefits from structuring the financings as loans, as opposed to bonds, because purchasing the Governmental Notes evidencing the Funding Loans originated by its seller/servicers is more consistent with Freddie Mac’s internal processing systems and it provides economies of scale and a more efficient execution. Securitizing the TEL loans will afford a more favorable secondary market execution and thus provide even more competitive interest rates.