1. 2016 HUD MAP GUIDE CHAPTER 5 & MIP TRAINING SMAC Conference, Atlanta, GA May 10, 2016 Roy Williams – Wells Fargo Angela Folkers – Love Funding Jeffery S. Smith, AIA - JPS & Associates, Inc.

2. 2016 MAP Guide – What’s New ? Chapter 5 – Architectural & Construction Analysis Chapter 5 – Appendix (A through J) Energy Concepts in MAP Guide and MIP Notice Questions & Answers Training Agenda

3. 2016 HUD MAP Guide – What’s New? HUD’s Explanation of Changes, HUD FAQ’s, and MIP Reduction Housing Notice CNA e Tool Update – (not yet in use) Third Party Qualifications revised Revised classification of work definitions & new tiered construction levels an repair costs limits New 20-year R4R funding schedule for NC & SR New 221(d)(4) Streamlined processing Modifications to accessibility & seismic MIP Reduction Housing Notice

4. Chapter 5 Architectural & Construction Analysis (consolidation of old Chapters 5 & 6) 5.1 – Classifications of Work & Eligible Construction Activities Classifications of Work - Repair – for purpose of maintenance Level 1 Alteration – replacement of like/similar finishes, materials, equipment for same purpose Level 2 Alteration – reconfiguration of spaces Level 3 Alteration – work area exceeds 50% total building area Sub Rehab – sow exceeding $15,000/unit or 2 systems replaced Gut Rehab – Level 3 alterations in 1 bldg., or Level 3 alterations in 75% of all areas for multiple buildings New Construction – new building

5. Examples for Class of Work Repair – patching drywall, replace broken window, replace broken fixture with same, maintenance on appliances … Level 1 – painting, flooring changes, cabinets/countertop replacement (same size and location), replace WH, HVAC condensers/air handlers, appliances (same size and location) … Level 2 – adding elements to a space (additional cabinets/countertops, relocating fixtures, replacement of appliances with larger size, increasing/decreasing spaces by moving/adding/deleting walls Level 3 – Level 2 alterations where work area exceeds 50% total building area, reconfiguring kitchen or baths, adding an element to all units, new door/window location for all units

6. Building Systems - Structural Frame Building Envelope Mechanical Plumbing Eligible Construction Activities by Program – Section 223(a)(7) – repairs and Level 1 Section 223(f) – repairs, Level 1, 2 and 3 Section 220, 221, 231, 241(a) – all permitted

7. Substantial Rehabilitation – Exceeds sum equal to base per unit limit X applicable HCF X number of units proposed after renovation; or replacement of Two or more building systems Base limit has been revised to $15,000 per unit and may be periodically updated HUD ML 2015-28 new HCF listings Gut Rehabilitation – When scope retains only structural frame of building (past building performance irrelevant)

8. 5.2 – Third Party Qualifications Construction Analyst “The lender’s construction analyst should be a licensed or registered architect or physical engineer but must, at a minimum, have a degree (BS or BA) in architecture, civil or structural engineering or construction with five years of experience in design, construction, or development of multifamily buildings.” Needs Accessor “The lender must select a needs accessor it determines to have education, professional credentials, and field experience appropriate to the assessment assignment considering the age, size, type of building systems, construction methods, and location of property.” Energy Professional “The required verification of utility consumption data, and preparation of an energy audit when necessary, must be by persons with not less than 3 years work experience evaluating utility consumption in multifamily buildings and with appropriate professional certifications or credentials.”

9. 5.3 – Required Design Services by Program Chart p. 101 of MAP Guide CNA’s required for all programs and class of work – see MAP Guide Appendix 5G for guidelines (note e Tool is not in use yet) 5.3 B – F Architect’s insurance amount consistent with risk of loss per scope AIA B108 contract with HUD 92408-M amendment; or AIA B104 for 223(f) with repairs/alterations exceeding thresholds Architects fees must be fixed fee, AS & RE not paid from Mortgage proceeds (entity responsible noted in Item 13 of HUD Amendment) Modular Housing – design needed for modular systems (off-site & on)

10. 5.6 Streamlined Processing Streamline Processing for LIHTC project “Streamline processing means that less than 100% complete plans and specifications may be submitted with application for Firm Commitment. Proposed final drawings and specifications must be submitted for HUD review and comment/approval at least thirty calendar days prior to initial endorsement.” Need to go to Due Diligence firm first prior to going to HUD “less than 100% complete plans” does not mean a sketch plan. Due Diligence firm must be able to price the project within 5% of the pricing submitted at Initial Endorsement. (5.6 D 1) Guide project team to 5.6 C Minimum Construction Documents Need Architect’s DETAILED scope for Sub-Rehab or Gut Rehabs Need SEP or SEDI Reports (when e Tool in use) EPA Portfolio Manager Reports with Scoring at 60 or higher on SR & GR

11. 5.7 New Construction, Standard Processing Concept Meeting Pre-Application Form HUD 92013, Location map with site clearly noted Sketch Plans - Site Plan w/ buildings, site elements, parking, egress, accessibility Typical unit floor plans w/ dimensions Typical building floor plans w/ dimensions and common spaces Typical building elevations and typical wall section Unit/Building Matrix for project w/ HUD Net & HUD Gross SQFT Lender address due diligence issues regarding site and environment Firm Commitment Application (Similar Exhibits) Reserve Schedule with NC based on plans/specs Need CNA with SEP or SEDI Reports (once e Tool released) EPA Portfolio Manager Reports with Scoring at 60 or higher on New Construction, Sub-Rehabilitation & Gut Rehabilitation projects

12. Reserve Schedule for New Construction based on plans/specs – must include items not being replaced within 20 year term. Lender to compare, account/reconcile all items Capital Costs vs Operation Expenses Lender ABC NC Project Physical Inspection Report Site and Grounds - Materials and Conditions NC Project Unit Total ItemEULAGERULCondActionDURQTYUnitCost Comments Roadways: Concrete400 GoodMaintain0107718sf0 $ - After installation the concrete paving should last the term with proper maintenance. Striping506GoodRepair0307ea9.05 $ 2,778 Parking lots and drives are to be striped every five years. Pedestrian Paving: Concrete400 GoodMaintain00sf0 $ - After installation the sidewalks should last the term with proper maintenance. Dumpster Enclosure400 GoodMaintain01ea0 $ - After installation the CMU with stone veneer dumpster enclosure should last the term with proper maintenance. Landscaping500 GoodMaintain00ea0 $ - This is considered a maintenance or operations expense. Fencing: Wrought Iron600 GoodMaintain02730lf0 $ - After installation the wrought iron fencing should last the term with proper maintenance. Fencing: Wood150 GoodReplace1684lf26 $ 17,784 After installation the wood fencing should replaced at the end of its expected useful life. Irrigation System300 GoodMaintain01ea0 $ - After installation the irrigation system should last the term with proper maintenance. The sprinkler heads are considered a maintenance item. Mail Facilities250 GoodMaintain01ls0 $ - After installation the mailboxes should last the term with proper maintenance. Swimming Pool300 GoodMaintain01ea0 $ - After installation the swimming pool should last the term with proper maintenance.

13. Building Exteriors - Materials and Conditions Unit Total ItemEULAGERULCondActionDURQTYUnitCost Comments Concrete Apartment Porches and Patios500 GoodMaintain01ls0 $ - After installation the concrete apartment porches and patios should last the term with proper maintenance. Roof Covering: Composition Shingles250 GoodMaintain079452sf0 $ - After installation the composition shingles should last the term with proper maintenance. Exterior Walls: Fiber Cement450 GoodMaintain0154650sf0 $ - After installation the fiber cement siding should last the term with proper maintenance. Exterior Walls: Stone Veneer400 GoodMaintain038700sf0 $ - After installation the stone veneer should last the term with proper maintenance. Roof Drainage Exterior (gutter and downspout)250 GoodMaintain02325lf0 $ - After installation the gutters and downspouts should last the term with proper maintenance. Soffits: Vinyl250 GoodMaintain06640lf0 $ - After installation the soffit should last the term with proper maintenance. Roof Drainage Exterior (fascia)250 GoodMaintain03320lf0 $ - After installation the fascia should last the term with proper maintenance. Windows (Frames and Glazing)300 GoodMaintain0560ea0 $ - After installation the windows should last the term with proper maintenance. Exterior Common Doors (Storefront)300 GoodMaintain08ea0 $ - After installation the exterior storefront style doors should last the term with proper maintenance. Exterior Unit Doors250 GoodMaintain0199ea0 $ - After installation the apartment entry doors should last the term with proper maintenance.

14. Common Areas - Materials and Conditions Unit Total ItemEULAGERULCondActionDURQTYUnitCost Comments Amenity Area Floors: Carpet707GoodReplace1496sf2.55 $ 1,265 After installation the common area carpet should be replaced every seven years. Amenity Area Floors: Ceramic Tile300 GoodMaintain04356sf0 $ - After installation the common area ceramic tile flooring should last the term with proper maintenance. Common Area Kitchen Cabinets and Countertops300 GoodMaintain031lf0 $ - After installation the kitchen cabinets and countertops in the common areas should last the term with proper maintenance. Public Bathroom Fixtures300 GoodMaintain08ea0 $ - After installation the fixtures in the public restroom should last the term with proper maintenance. Common Area Ceilings: Paint100 GoodMaintain00ea0 $ - The common area ceilings should be painted every ten years as a maintenance or operations expense. Common Area Walls: Paint100 GoodMaintain00ea0 $ - The common area walls should be painted every ten years as a maintenance or operations expense. Mechanical and Electrical - Materials and Conditions Unit Total EULAGERULCondActionDURQTYUnitCost Comments Electric Air Handler200 GoodReplace13ea1050 $ 3,150 After installation the common area air handlers should be replaced at the end of their 20-year expected useful life. Local HVAC: Condensing Unit150 GoodReplace13ea1350 $ 4,050 After installation the common area condensing units should be replaced at the end of their 15- year expected life. DHW Generation: Water Heater150 GoodReplace11ea1600 $ 1,600 After installation the common area water heater should be replaced at the end of its 15-year expected life.

15. Apartment Interiors - Materials and Conditions Unit Total ItemEULAGERULCondActionDURQTYUnitCost Comments Living Area Floors: Vinyl Plank150 GoodReplace580760sf4 $ 323,040 After installation the apartment vinyl plank flooring should be replaced at the end of its expected useful life. Living Area Floors: Ceramic Tile400 GoodMaintain032028sf0 $ - After installation apartment ceramic tile flooring should last the term with proper maintenance. Kitchen Cabinets and Countertops200 GoodReplace5199ea1200 $ 238,800 After installation the kitchen cabinets and countertops should be replaced at the end of their expected useful life. Range150 GoodReplace5199ea525 $ 104,475 After installation the ranges should be replaced at the end of their expected useful life. Rangehood150 GoodMaintain0199ea0 $ -These are considered a maintenance item. Refrigerator120 GoodReplace5199ea575 $ 114,425 After installation the refrigerators should be replaced at the end of their expected useful life. Disposal505GoodMaintain0199ea0 $ -These are considered a maintenance item. Dishwasher100 GoodReplace5199ea325 $ 64,675 After installation the dishwashers should be replaced at the end of their expected useful life. Washer/Dryer150 GoodReplace5199ea800 $ 159,200 After installation the washers and dryers should be replaced at the end of their expected useful life. Vanities200 GoodReplace5276ea250 $ 69,000 After installation the bathroom vanity cabinets should be replaced at the end of their expected useful life. Water Closet400 GoodMaintain0276ea0 $ - After installation the water closets should last the term with proper maintenance. Tub and Shower Surround300 GoodMaintain0276ea0 $ - After installation the tubs and surrounds should last the term with proper maintenance. Electric Air Handler200 GoodReplace5199ea1050 $ 208,950 After installation the apartment air handlers should be replaced at the end of their expected useful life. Unit Air Conditioning Condensing Unit150 GoodReplace5199ea1350 $ 268,650 After installation the apartment condensing units should be replaced at the end of their expected useful life. Unit Level Water Heater120 GoodReplace5199ea311 $ 61,889 After installation the apartment water heaters should be replaced at the end of their expected useful life.

16. 5.9 Sub - Rehabilitation, Standard Processing Concept Meeting Class of work determines if CNA is used to define Scope of Work CNA and utility use verification needed for scope SEP score is required and if under 60, CNA must have ASHRAE Level II Energy Audit Seismic Threshold for Retro-fit Analysis Lender to address due diligence issues regarding site and environment Pre-Application Due Diligence and Design Work Plan (verified by CNA – SR & GR) Joint Site Inspection Sketch Plans – “as is” & “scope of work” plans (if needed) Determine year built / first occupancy date for Fair Housing Act requirements Determine Federally Assisted status for UFAS/504 requirements Preliminary Work Write-up (CNA immediate repairs) LBP & ACM reports (can be deferred until Firm Commitment)

17. Firm Commitment Application (Similar Requirements) Multiple requirements for use of CNA e Tool information to be used and/or referenced (once e Tool released) EPA Portfolio Manager Reports with Scoring at 60 or higher on New Construction, Sub-Rehabilitation & Gut Rehabilitation projects 5.10 Processing 223(f), 223(a)(7), 241(a) (Similar Requirements w/ CNA e Tool noted) Concept nor Pre-Application meetings are not needed/required for 223(a)(7) and 223(f) projects. (may be advisable for 223(f) with Level 1 and Level 2 Alterations to assist in determination of the scope of work) CNA required per Appendix 5G (once e Tool released)

18. Chapter 5 – Appendix A - J Appendix B - Accessibility Easy to follow table for what applies FHA needs to be verified by dates of construction permits and occupancy HUD Recognized Safe Harbors list (updated current codes through 2006) Substantial and Other Alterations – “maximum extent feasible” ADA Title II – private areas (units) ADA Title III – common areas / public areas Appendix C – Seismic & Fire Protection for Existing Buildings http://earthquake.usgs.gov/designmaps/us/application.php Appendix D – Energy Codes All new construction

19. Appendix E – Drawings & Spec Requirements Similar but updated list of requirements Updated ALTA survey requirements Fire Sprinkler Drawings – deferred submittals

20. Appendix G – Capital Needs Assessments Must use CNA e-Tool (once it is released) for all transactions. Level of Repairs Level 1 Level 2 Level 3 Standard Estimated Useful Life Tables Need Categories, Need Items, Component Types & ID Utility Consumption Baselines, Benchmarking and Energy Scoring SEDI vs. SEP 60 and above, if not ASHRAE Level II Energy Audit Gathering utility data is time consuming, request data as soon as you sign up the deal! Minimum Balance Requirements

21. CNA – e Tool (CNA’s for all project types) CNA e Tool is not currently in use Since CNA e Tool is not presently ready for use those portions of the MAP Guide are not yet required to be preformed. Use of actual e Tool is not required No automated lender submissions and HUD automated review No utility consumption benchmarking required, including use of EPA Portfolio Manager SEP/SEDI reports and/or ASHRAE Level II Energy Audits Exception – projects being underwritten to 75% of utility cost savings for existing buildings must have ASHRAE Level II Energy Audit that calculates and supports cost savings CNA’s still need Reserve for Replacement (20 year schedule – 2 step 10yr/20yr) Use of Standard Table of Estimated Useful Life (mostly) Seismic threshold values (National Geographic Survey website) 25% units inspected Occupancy dates for FHA & federally assisted status

22. Introduction of Energy Concepts in MAP Guide ASHRAE Level II Energy Audit EPA Portfolio Manager Reports SEP – Statement of Energy Performance Existing Buildings SEDI – Statement of Energy Design Intent New Construction Green Building Certifications

23. Energy Audits & Benchmarking ASHRAE Level II Energy Audit Currently, no requirement in MAP unless underwriting to 75% savings or utilizing MIP Reduction In future with CNA e-Tool, all properties with SEP score of less than 60 will require an ASHRAE Level II Energy Audit to identify scope of work for energy efficiencies Benchmarking See 2016 MAP Guide Appendix 5G IV E for Minimum Energy Star Scores Required (basically 60 + on SEP / SEDI) CNA e-Tool deferment means no current requirement for SEP or SEDI reports until e-Tool released, unless underwriting to 75% savings or MIP Reduction

24. MIP Housing Notice EPA Portfolio Manager Reports (Score 75 or better) SEP – Statement of Energy Performance SEP requirements associated with MIP reduction are post closing/post construction Existing Buildings – 223 (f) based on 12 full months of stabilized occupancy New Construction/Gut Rehab – 221 (d)(4) and Level 3 Alterations – 223 (f) need within 15 months of construction based on 12 full months of stabilized occupancy Required annual SEP updates SEDI – Statement of Energy Design Intent Not required but recommended for reference / reassurance SEDI/SEP Reports Scoring only as accurate as input data entered, need accurate square footage data and utility information

25. Green Building Certification MIP Housing Notice lists approved Green Building Standards. Those not listed will have to be approved by HUD prior to submission Green Building Certification should be done by the design team and/or energy consultant Note that just because you certify to a Green Building Standard listed, it does not guarantee a EPA PM Score of 75 of better. Location has an impact on most Green Building Standard Certifications Performance Path & Prescriptive Paths Performance deals with existing building with a history of performance Prescriptive deals with new designs and will have a design, construction and commissioning phase

26. Green Building Certification – Cont. Thoughts to consider for MIP Notice (& MAP Guide) Underwriters/originators need to know that there are costs to meet MIP requirements that need to be considered EPA PM is Energy Star – Energy Star appliances/lighting Natural gas systems typically better than electric systems Projects commissioning fees are mortgagable costs This is new to everyone … be ready for a learning curve and additional time in processing … already experienced differences in SEP/SEDI needs for MIP Reduction Collecting utility information for SEP takes time! Additional Energy Requirements are new services that were not included in previous PCNA & Arch & Cost reports

27. Questions & Answers