1. Addressing the Unsold Inventory Monte Franke, Franke Consulting COSCDA Conference Under contract to HUD

2. Current rules affecting unsold projects Projects must be completed in IDIS within 120 days of final draw… 24 CFR 92.502(d) If not, incomplete projects; HUD can disallow cost and require repayment by PJ from non-federal funds Homebuyer projects not closed out Started, not finished – repayment likely Finished, not sold – the focus of this presentation Sold, not closed out – why not? HOME Context 2

3. FY 2012 Appropriations 4 years to expend after commitment; 1 year extension possible (waiver?) 6 months to sell or convert to rental Applies to 2012 ConPlan projects Expect implementing notice in March Proposed Rule 4 years to expend; 1 year extension (not waiver?) 6 months to sell or convert to rental Comment period closed; final rule later this year? Legislation & Proposed Rule 3

4. Soft for-sale market Buyers are wary of further declines Lenders imposing higher standards Supply is great, foreclosures flooding the market Financial pressure on CHDOs/developers Carrying costs often unfunded Delayed/reduced developer fee income Market Context 4

5. Assess project status & take steps to complete Strengthen efforts to market units for-sale; and/or Consider alternative uses: lease-purchase or rental It is not a regulatory issue; it’s a market issue; seek the fresh eyes of market experts Realtors, lenders, appraisers, counselors, developers Are your problems unique or are they generic to the market as a result of current market conditions? Time to Act 5

6. Why aren’t homes selling? Is it… Not the right price? Not enough subsidy? Lack of buyer access to credit? Not a competitive product? Ineffective marketing? Analyze the Problem 6

7. Evaluate current pricing & consider reductions Is it competitive? Does it generate lookers? Increase the availability of buyer assistance Sweeten the terms Recapture instead of resale Deferred instead of amortizing Forgivable instead of fully repaid Convert HOME into 1 st mortgage to bypass restrictive lending Price & Deal Structure 7

8. Examine/enhance curb appeal Compare amenities; offer modest “upgrades” Get a realtor or a new realtor Seek free media opportunities... counter story to foreclosure focus Mine other programs… counseling, Sec. 8 homeownership, nonprofit pipelines Product & Marketing 8

9. Lease Purchase? Conversion to HOME rental? Caution: Both require: Understanding of local market conditions Negotiations with all parties (thru local recipient?) Financial restructuring Different developer/owner skill sets Long term obligations/risks for all parties Repay HOME funds? What Are the Alternatives? 9

10. Technically homebuyer for HOME purposes But hybrid rental in practice 36 month limit; requires near-creditworthy buyer Not simply a “fall back” option if you can’t sell Must design program, policies, financing & supports NSP toolkit: http://hudnsphelp.info/index.cfm?do=viewToolkitsHo me&programtypeid=2 http://hudnsphelp.info/index.cfm?do=viewToolkitsHo me&programtypeid=2 Lease Purchase 10

11. 1.Budget for feasibility in all 3 stages – dev, l-p, sale 2.Select the right buyers: near-ready 3.Develop a lease specific to lease purchase 4.Establish asset management 5.Provide ongoing support to lease-purchasers 6.Prepare an exit strategy if sale not achieved Elements of Good L-P Design 11

12. Can be accomplished faster than LP Required by Act and proposed rule after 6 mos. But triggers all HOME rental rules Rent limits, leases, property inspections, reports Handout: Conversion Checklist Get HUD approval to amend wr. agreement, legal documents, IDIS And requires different ownership, management, budgets & permanent financing Rental Conversion 12

13. Need to replace sales proceeds with new source of permanent financing Lenders, other funding sources, more HOME? CHDO proceeds from other deals? Cash flow won’t support much hard debt Evaluate need for reserves Plan exit or reinvestment strategies 92.255: can sell to tenant during affordability period Repackaging the Financing 13

14. Who will own and operate it? Different skills & financial capacity Property management Who do you seek to serve? Different incomes levels; different marketing How will it be feasible? Rents, operating budget Financing What are the compliance requirements? Making Scattered Site Rental Work 14

15. IDIS re-setup: HOMEFacts vol 4 no 1 Affordability period: Deed covenant Period based on total HOME $, 20 years for new constr Ongoing compliance Annual income certification, updated rents/utility allowances, reports, inspections, etc. PJ monitoring process, schedule, capacity State or local recipient? Compliance 15

16. Markets/political environment changing First, is everything being done to sell (pricing, subsidies, amenities, direct financing)? Then, look at alternatives (rental/LP) carefully Assess capacity to implement alternatives Start over with underwriting and compliance review Always have multiple exit strategies in mind Final Thoughts 16

17. Final questions MLFranke@aol.com Watch for: Guidance on implementing 2012 Approp. Act Unsold Inventory Webinars Final rule Wrap Up 17