ICF INTERNATIONAL, INC. January 5, :00 pm ET

Transcription

1 Page 1 ICF INTERNATIONAL, INC. January 5, :00 pm ET Operator: Good day and welcome to the HUD Resale Recapture and Habitat Organization conference. Today's call is being recorded. If you would like to ask a question on today's conference, please signal by pressing the star key followed by the digit 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you find that your question has been answered, you may remove yourself from the queue by pressing the star key followed by the digit 2. At this time, I would like to turn the conference over to Ms. Jessie Handforth Kome with HUD. Please go ahead. Jessie Handforth Kome: Hi. Welcome to one in a series of our HUD Webinars on NSP issues. This one s on Resale Recapture and Habitat Organization and I'm not going to say much anymore. I m just going to turn this over to our presenter. Marsha Tonkovich: All right hi guys. This is Marsha Tonkovich with ICF and glad to have everybody with us this afternoon.

2 Page 2 We'll talk a little about our agenda in just a moment but before I do I want to introduce my copanelists here and then we'll talk about the process for you to ask us some questions because we certainly want you to ask us questions throughout this Webinar. So let me first introduce - and you've met Jessie who Jessie I believe you re the Deputy Director of OBGA? Jessie Handforth Kome: Yes for the Office of Block Grant Assistance. Marsha Tonkovich: Right, right. And so Njeri maybe introduce yourself? Njeri Santana: Hi. I'm Njeri Santana. I am a CPD Specialist and I am also - I also manage the NSP 2 Habitat for Humanity Grant. Marsha Tonkovich: Great. And Hunter? Hunter Kurtz: Hi. I'm Hunter Kurtz. I m a member of the NSP team here at headquarters and the Webinar guru also so hello everybody. Marsha Tonkovich: And Hunter is the one who kindly does the schedule for you guys as Webinars are going out. So if you have suggestions when you write your evaluation at the end of this Webinar please make suggestions for Hunter of future Webinars you might be interested in. David? David Noguera: Hi everyone. I'm David Noguera and I function as the co-team Leader for the NSP team.

3 Page 3 Marsha Tonkovich: Terrific, and Tera? Tera Doak: Hi. I'm Tera Doak. I m Assistant Counsel in the legal department for Habitat for Humanity International. I m working primarily with our NSP 2 developers but I'm available to answer questions for NSP 1 an NSP 3 recipients as well. Marsha Tonkovich: Great. Great, and so this is Marsha Tonkovich and I'm with ICF. And I've met many of you on other Webinars as well as at NSP conferences and clinics and TA and glad to be here with you today to talk about resale recapture for Habitat projects. So again just to recap how to ask a question, you want to do two things for us. If you'll notice in the top right-hand corner of your screen that you have a box that says Feedback and you'll see that there are differently colored boxes underneath that. And if you want to ask a question and you want to get in the queue please change that button to purple so that it shows that you have a question. So that'll just let us know how many are pending, how many we have in that queue. Then you need to press star 1 on your phone and that'll put you in the audio queue so that we can take the questions in the order they re received. If you do find that somebody else has already asked your question and therefore you don't need to ask it you can press star 2 and that will take you back out of the audio queue and then again change your button back to green so that we know that you no longer have a question.

4 Page 4 You also are permitted to write in questions as well. So if you look at the top of your screen on the Live Meeting you'll see that there is a section that says Q&A. And you can go into the Q&A and you can send in questions that way if that's easier for you. We want to definitely encourage questions. This is a complicated complex topic and we want to make sure that everybody has a chance to talk it through and ask their question. So that's how we re going to approach it. We talked about our agenda. So we re going to very quickly recap how Habitat typically develops NSP deals. And there s - there are many different models out there for how it's done, so we re going to boil it down to some simple ones. We re then going to talk about how resale and recapture overlay with those Habitat projects because there are some special things about the way Habitat finances and develops units which is different than some of the other NSP developers. So we re going to talk about that and talk about how you then implement those requirements, some issues related to how you implement the recapture, how you record it for the resale -- all of that program income, some of those questions. So we'll cover that. We will - the (notices) will be the entire presentation but we actually have a very long presentation and some of the slides I'll probably go over briefly in the interest of time but we wanted you to have then just for your own background information.

5 Page 5 So I probably will actually take a break in the middle of the slides probably between resale and recapture to take a chunk of questions. And then when we get to the end we'll take more questions. So please feel free to queue up whenever you have one or to go ahead and write it in when you have it. So let's begin by talking about how Habitat typically develops units under NSP. And again as I said there's many different ways of doing it. So there are two different sort of general tasks that we re seeing for how Habitat interacts with NSP. First we have a lot of state, local, county NSP recipients whether it's 1, 2 or 3 who are whether through local governments or directly funding Habitat affiliates to go out there and develop units. Those Habitats who are working for that local government or via a local government for a state may have been designated as either a sub recipient or a developer depending on what job the Habitat is doing, you know, what role they're playing and depending on the policies and procedures of the local government. So we have some Habitats who are sub recipients and we have some Habitats who are developers. And it does make a difference and some of what we re going to talk about today and we ll try to pull that apart. I will give a heads up I think to the grantees who are out there that if you're agreement with the Habitat is unclear about whether they are a developer or a sub recipient it is important to clarify that because it does make a difference as I said in some of these things.

6 Page 6 And they can't really be both in the same project. You could have different projects or different jobs they're doing whereas sometimes they re a sub recipient and then in a different instance a different project they re a developer. But for the same deal for the same project where they're doing a specific singular role they should be designated as either a sub recipient or a developer. So that's the first path and again it could be NSP 1, 2, or 3. The second path is that Habitat International has a national NSP 2 grant provided by HUD where the grantee is Habitat International itself. And Habitat is providing those NSP 2 funds to its affiliates across the country as developers. So Tera, just a quick word about your NSP 2 grant what you re doing with it? Tera Doak: Yes actually we have - our Habitat affiliates participate in that program are identified up front. So we have seven Habitat affiliates who are receiving the NSP 2 funds. And those are all treated as developers. We have a developer agreement between Habitat International and each of those seven. Marsha Tonkovich: Terrific and those seven are located across the country I understand? Tera Doak: Yes that's correct. Marsha Tonkovich: Perfect. Okay so that's the basic path. And so the way that it typically works in a Habitat model -- and again there are lots of different ways it's been done but this is just a general overview -- is that NSP is used as a portion but typically not all of the construction financing for the deal.

7 Page 7 And then there's other construction financing that comes in whether it's through the sweat equity of the buyer, whether it s donations or other financing that s in the deal. Habitat itself has money in the deal. And then once that's all done in the unit is constructed the final unit has a 100% Habitat mortgage when the unit is sold to the low income buyer. Some of those projects may or may not have closing cost assistance. And we ll talk a bit about some issues around that. But typically where the assistance comes into the buyer is that they're getting a zero interest affordable Habitat mortgage which came about because NSP was a portion of that construction as well as other construction sources. So here we have an example and I won't go through the details but the point is to show that there s a mix of these construction sources, the house is sold at the value and the Habitat mortgage is for 100% of value. And you'll see as we talk through this later that that becomes an important aspect of looking at resale recapture. So we have a couple of questions that this Webinar came about because Habitat had asked some questions of HUD about how resale recapture and how they do their mortgage. And so we sprinkled throughout this presentation some of those questions that we thought were important to share with everybody.

8 So the first one has to do with liening the property for more than it's worth. ICF INTERNATIONAL, INC. Page 8 So as I mentioned in many Habitat deals Habitat places a 100% mortgage on the value of the home on the sale price of the home. So on top of that then would be closing costs for the project. And if the homebuyer cannot afford the closing costs the question is who at Habitat lend those closing costs and then lien that against the property in addition to the 100% mortgage that would already be in place? And the answer is no. NSP has a very clear policy. And this is not just true for Habitat. This is actually true for all grantees but it s specific - it s particularly important here because of the 100% mortgage that you cannot lien a property for more than it's worth. And so if the value of the property is $100,000 and you had $100,000 Habitat mortgage and there was additional closing cost assistance and my example here is $3000 that $3000 could not be additional debt on the property because you d have 103% of value in your debt. So in order to address that either you have to grant the closing cost so that there's no debt that's being liened against the property or reduce the first mortgage so that the sum of the debt does not exceed in my example the $100,000 worth of value. So David anything you want to add on that because I know this has been a big topic for many grantees not just for Habitat? David or Jessie? Jessie Handforth Kome: Hey we re actually having a wrangle about this.

9 Page 9 Marsha Tonkovich: Okay. Jessie Handforth Kome: The deal is the reason we answer this question that we don't want any property of total debt that exceeds value is that there s a caution in the notice that we don't want basically seriously nonstandard mortgages unless there's a really good reason for it, and I mean a really good reason for it because most of these neighborhoods are not - they re not rising yet and may not for some time. And most of the people that are getting all home can't take - don't need to step into a place that's already underwater. There is not a flat ban on this but we will definitely look if you lien a property and it has total debt that exceeds value that's a major warning sign to us. That's you violating the warning in the notice that we don't want nonstandard mortgages that are the kind of mortgages they got us in this mess in the first place unless you have a very good reason. If you happen to - your NSP target area takes off and values are rising really, really rapidly and you want to have a piece of the upside and your buyer can handle it we might possibly sort of go there. But this is a very - this is an uncomfortable area, not one where we can give you a flat citation that it's a flat ban. David Noguera: We've also talked about the use of shared appreciation loans which would help protect investments that exceeds value that Habitat affiliates made in carrying out the loan.

10 Page 10 Jessie Handforth Kome: Right, that's a good point. There's - there are other ways to deal with a market that does start moving on you or one that you think will then to... Marsha Tonkovich: Yes and I think that's the point that John has made to folks on other Webinars on this topic is that there are other means of addressing rapid appreciation where you don't want to have a windfall although obviously you want a return to that buyer, you don't want a windfall to that buyer. This is probably not the way to deal with that issue. And I think Jessie I think... Jessie Handforth Kome: Right. Marsha Tonkovich:...it would be fair to say that if someone wanted to try to lien a property for more than it was worth they certainly should talk to the field office before proceeding. Jessie Handforth Kome: Yes. And you'll find a field office very dubious about it because we have our FHA brothers and sisters, you know, in the background going what, why would you do that? Marsha Tonkovich: All right. So I think that's a really important point because I know there's been some confusion about that out there. All right so obviously all the Habitat projects have to comply with all the NSP rules that everybody else does. So there's a list of them here and I won't go into them in detail. But of course it's important that - to know that some of these rules particularly the ones around program income and application of some of the OMB circulars and so forth do depend on whether the grantee has designated the Habitat is a developer or a sub recipient.

11 Page 11 But regardless of that status, developer or recipient the vast majority of the NSP rules will apply to the Habitat deal just as it does for everybody else. There is a very good, very clear policy alert the came out in January of last year that is specific to Habitat and recap these rules that apply and put some of this in context. So if you haven't had a chance to read that you can find that on the NSP Web site. So another one of the key questions that we have received is okay so how about using Habitat using NSP money to pay for the down payment and closing cost assistance? So let's assume that we've dealt with the issue of liening the property and we re not leaning it for more than it's worth can we go ahead and be the lender of the developer - the Habitat developer be the lender of the closing costs and down payment assistance? And the answer is if the Habitat had been designated as a developer itself, so that's the kind of agreement it has with the grantee then if you think about it, it s sort of a conflict of interest to be providing the down payment on the unit that you're actually building. And so with the notice that I just referenced from January says is the Habitat cannot provide that down payment or closing cost assistance to the buyers of units that there also the developer of. However that doesn't mean that that grantee or a sub recipient or the Habitat even in another role that it might have couldn't provide that assistance. It's just that as a developer on its own deal the Habitat cannot provide it itself. And David I think, you know, you helped on shaping this policy. Anything to add on that? Jessie Handforth Kome: David had to step away but I think you covered it.

12 Page 12 Marsha Tonkovich: Okay great. So on the other hand if the Habitat has been called a sub recipient, so it's not under a developer grant but it's under a sub recipient agreement then indeed that's one of the roles a sub recipient can do and it could provide down payment and closing cost assistance as a part of the development activity that they might be doing. So here's one of those places where the designation does make a difference. Again there are other ways of helping the home buyer though. So don't forget that even though if you may not be able to provide down payment or closing costs assistance, you know, the Habitat mortgage itself is affordable, there s construction assistance and so forth. Just as an aside if indeed the Habitat is acting as a sub recipient and is providing down payment assistance don't forget that they like everybody else in NSP if they re using NSP assistance is limited to half of the required down payment. So obviously when you put NSP money in a project and particularly a home buyer project or a rental project you trigger the affordability restriction. And the level of affordability restrictions will differ depending on how much money, how much NSP money goes into this individual unit. One of the places there was some confusion early on was that Habitat has its own affordability restriction that it puts on all of the units that it finances.

13 Page 13 And so the question from some grantees was well is that sufficient? It might be but for most grantees they have defined their affordability restriction as resale or recapture based upon the whole model. So it's possible in some places where there s a - if there happened to be a Habitat restriction that was more restrictive than resale or recapture that - and that was written in the action plan for the grantee that that could be used in lieu of resale or recapture but it would have to be at least as restrictive as resale recapture. And from what we re seeing across the country virtually everybody is using the home resale recapture restrictions as the basic way to go. Obviously regardless of whether - whatever general model you use there must be an affordability period if you've invested in the seed money in that deal. How do you sort of quantify that? There needs to be a written agreement. Sorry Jessie did you want to jump in? No okay. Jessie Handforth Kome: No not me. It wasn't me. Marsha Tonkovich: Okay. So there needs to be a written agreement between the home buyer and either the grantee, the grantee wants to be a party to that agreement or between the buyer and the Habitat or both. It could be a three party agreement. It could be two separate agreements. But we must have a written agreement with the buyer that spells out the expectations of the affordability period and what, you know, what their duties are, what they can expect from the grantee or from the Habitat, and that enables the grantee to enforce these restrictions.

14 Page 14 So the key on this written agreement is that the grantee is going to be held liable by HUD for compliance with the restrictions during the affordability period. So if the written agreement is between the buyer and the Habitat and the grantee is not a party to that agreement they have to - the grantee has to make sure that they are still able to enforce the restriction, that there is some mechanism for them to do so if they're not a party to that agreement. Obviously we could have much longer affordability periods. And many grantees have in fact adopted longer than the minimum. So one of the things that people do get confused about is the difference between the mortgage or the note or the financing mechanism and that written agreement that I just talked about. And it is important that they be separate documents. That the financing mechanism, the mortgage, or deed of trust, or promissory note -- whatever it is -- deals with the terms of the loan and how it's paid back and whom it's paid back. And that might have some NSP clauses in it. But that's different from the compliance restrictions that are imposed on the home buyer, things like principle residence and whatever property standards the grantee may have chosen to impose and the need to pay back the recapture funds if it's recaptured or the terms of resale if it's a resale restriction. And so there needs to be both a financial document assuming there is a loan. There might not be a loan. But if there is a loan that mortgage document and a separate written agreement whether between the Habitat and the home buyer or the grantee and the home buyer or all three be separate sort of compliance agreements if you will.

15 Page 15 So the affordability period as I mentioned is indeed tied to the amount of assistance that s in the deal, the amount of NSP assistance. And I think everybody has seen this chart before. It s scaled, more assistance longer affordability period. Notice one of the things that people do get confused about on this chart is there is for rental a slightly different version of this chart which takes into account new construction and makes it 20 years. That new construction 20 year requirement is not for homebuyers. That's only for rentals. So if you did new construction with rental and you spent more than $40,000 of NSP money on the unit you'd be 15 years as a minimum although obviously as I said the grantee could choose to have a longer affordability period. So we know that there are many options for how to do the affordability period. Most grantees across the country have chosen the home rules as a Safe Harbor and have described those rules in their action plan. Anything else, any other alternate approach would need to also be written in your action plan and would need to receive HUD approval. Again most people are going to go with resale or recapture virtually all across the country so we re going to focus on those two models.

16 Page 16 The key thing with either model is that the grantee has to decide for every single home buyer up front at the time that they are ready to sell the home to the home buyer and they re going to execute that agreement with the home buyer whether they're going to do resale or recapture. It's not allowed to mix and match. So you can t have both together in the deal where you have both resell and recapture in the same unit because obviously that would not be fair to the home buyer to ask them to comply with both. So the policies of the Habitat or the policies of the grantee have to fill out we re going to use resale, we re going to use recapture, or you might have different homebuyers, some of whom get resell and some of whom get recapture. But you'd have to explain the circumstances under which home buyer group A is going to get resale and home buyer group B is going to get recapture. And typically when we see a program that, you know, has both options not in the same unit but in different units it's because they're doing different things with the program. So we see people who for example have a goal of trying to revitalize the neighborhood. And so they're going to use resale in that neighborhood. But they're doing citywide program or what they're providing is modest amounts of assistance. And so they're going to use recapture for that part of the program. So there needs to be a clear distinction about when they re using resale and when they re using recapture. And it shouldn't be buyer by buyer. It should be some programmatic difference because obviously you don't want to get into a situation where you have some bias or perceived bias in your program.

17 Page 17 Now again key point before we jump into resale recapture is if the recapture - the idea behind recapture is that you're collecting the money back from the individual homebuyer. In other words they have some debt that is owed back to the grantee or the Habitat and that direct subsidy is repaid if they were to sell it or some portion that if they were to resell it during the affordability period. If you don't have a direct subsidy to the homebuyer then there's no way to do recapture and the project must or that - the unit must use resell. So it's important to know your financing mechanisms and with these options are possible. So we re going to start with resale because it's common for Habitat projects and then we'll move into recapture. And again I'm going to move through the slides fairly quickly and we ll take a chunk of questions after we talk about resale. So what is resale? The idea behind resale is that you have made this property affordable for the entire affordability period and it will remain, that specific property will remain affordable and sold to another low income person throughout that affordability period. So you're constraining the price of the unit to keep it affordable. You're constraining who come by the unit during the affordability period. So it has to do with the unit itself and the price of the unit. It doesn't have anything to do with the benefit to the individual buyer or what kind of loan they got or anything or recapturing money from

18 them or anything like that. It has to do with constraining the sale of that unit during the affordability period. ICF INTERNATIONAL, INC. Page 18 Now one of the things that people have gotten confused about is that think well if I do resale I can t have a mortgage because it's supposed to be about reselling the unit. Remember that financing is completely separate from resale recapture. So it is possible to have a resale restriction on the unit where we re going to constrain who can buy it and at what price they can buy it during the affordability period and have a mortgage on the unit at whatever terms and conditions -- preferred, forgivable, amortizing -- whatever -- that the home buyer is paying back and is generating program income if it's coming back to the grantee. And that isn't mixing and matching. That's not recapture because it's not going to necessarily have anything to do with what happens at the time the property is sold. So it's fine to have financing on a project that also has a resale restriction. Habitat grantees often may choose to do resale because it's very consistent with the existing kinds of Habitat restrictions that all Habitat organizations put in place when they do projects. And so we see many Habitat units across the country that are in fact resale. Now for the purposes of grantees who - or Habitats who are getting money from state and local county grantees across the country the option of whether to use resale or recapture is in the grantee s action plan. So the Habitat needs to go back and look at the grantee s action plan and look at that section on resale recapture and see how the grantee has decided what their policies are about whether resale or recapture are going to be done and then obviously it depends on the project ((inaudible)).

19 Page 19 So the affordability period for resale -- and make a note that this is very different than recapture -- is based upon the total NSP investment in the deal -- all sources, all types. It doesn't matter whether comes from the state and the local government, whether it comes from Habitat international plus the local government. All NSP money in a deal added together whether it goes to the developer, whether it goes to the homebuyer, all the money, all the cash in the deal we base that affordability period on that total NSP investment per unit and go back to that chart that we previously looked at. And depending on that total NSP investment gives us five, ten, 15 years as a minimum. And again of course they can be longer. So it's the total amount of that subsidy -- construction plus any homebuyer. As an aside by the way we have seen some deals, particularly some of the Habitat deals that also have home money in the deal. We have had the question of whether you had to add the home and the NSP assistance together to figure out the affordability period. That would not be the case. You could if you were to so choose to have a longer period. You might choose to do that. But the minimum rule is that you would have a home affordability period based on the home investment and an NSP affordability period based upon the NSP investment. But again be careful not to mix and match in terms of resale and recapture. So if you're going to do recapture for home then do recapture for NSP because you don't want the homebuyer to have to deal with it.

20 Page 20 So here s an example of how that might look for resale where you got developer assistance of the Habitat of $50,000 another $5000 of closing cost assistance from the grantee. So you've got $5000 to the individual, $50,000 going to the Habitat, total of $55,000 of NSP assistance and so a 15 year affordability period. So what has to happen then under a resale restriction when in fact there s a sale during the affordability period? How does it work? And so we have a menu here. And I'm going to actually dive into each of these in detail. But just to quickly recap first the new buyer has to be income eligible. And that income will depend upon how the Habitat categorize the unit, whether they counted it as an LH 25 or a low income set aside unit or whether it was just LMMI. And we'll talk about that in a moment. Secondly the new, the home, the sale price of the home has to be affordable to the new buyer, the person who s coming in during the affordability period. Thirdly that new buyer has to occupy the house as their principle residence. It can't be a rental or a lease or any of that kind of stuff. The old buyer, the original buyer has to get a fair return if the market supports that. Now we ll come back and we'll talk about what that means in a minute. And then finally the remaining resale restrictions, the balance of the resale period will apply to the new buyer.

21 Page 21 So if I'm, you know, eight years into a ten year affordability period they have two years left to go unless we provide them new assistance. And we'll talk about that in just a moment. So let's get into each of those. So the first thing is that the new buyer does have to be income eligible. Now the key thing here on for NSP and for those of you who work on homes this is going to be a little bit different. Under NSP if you originally counted the unit, Habitat or the grantee originally counted the unit toward their LH 25 or their 25% set aside where they are serving people at 0% to 50% of AMI then during the affordability period the new buyer of the unit also needs to be very low income or 0% to 50% of the median. So if it's counted as a low income unit it has to stay as a low income unit throughout the affordability period. If the unit was originally counted just as a regular LMMI, Low Mod Middle Income unit then the new buyer could be up to 120% of AMI. So again we re still restricting the income of the buyer. It's just after the 120 instead of the 50 depending on how the unit was originally designated. Now the next criteria as I mentioned is it has to be affordable. So when they sell the unit during the affordability period that either very low income or low mod middle income buyer it has to be affordable to them.

22 Page 22 And in the grantee s action plan they have to define what affordable means. So there's lots of different methodologies that someone could use and it doesn't have to be affordable. When we say affordable we don't mean affordable necessarily in that specific family. What we mean affordable to people in the income range that you are marketing this unit. If you're selling it to people at zero to 50 it's affordable to people at zero to 50. If you're selling it to people at zero to 120 it's affordable to people in that range. And so oftentimes people will look at something like the total housing costs, the property insurance and taxes, principle insurance and taxes is no more than 30% of income for people in a particular income range. It's sort of a way of sort of backing into how much this house could typically sell for, should typically sell for. So that's one way that people do it. There's lots of other ways of defining affordability but there has to be some procedure for that in the grantee s action plan. The second of the third criteria is that the seller, so the original owner of the property has to have a fair return when they go to sell it during the affordability period. And again in their action plan the grantee has to define what fair return means. The definition could just be based upon their original investment if the homebuyer had an investment in that unit which for Habitat might include the sweat equity.

23 Page 23 It could take - account for the fact that the homebuyer may have improved the home during the affordability period. You know, maybe they put in a new kitchen or a new floor and that creates more value for them. It could look at how much, what kind of a return on investment the grantee thinks is reasonable. So the grantee has to sort of define these procedures in his action plan. Now one of the questions we've had from grantees is well what if the market continues to decline or what if it does not improve? And so when they go to sell the home during the affordability period there isn't any return. There's no money left. You know, do we have to somehow take it out of our pocket to give them a return? And the answer is no. So if the market hasn't grown or in fact has further decreased and there's no money to return because of making the affordable, making the sale price affordable then there is no return to the owner. And that's what would be fair because that's what the market will bear. Now there is this trade-off because we mentioned that the price has to be affordable to the secondary buyer but we also have to do a return to the original seller. And so if you think about it those are kind of a push pull between those two right? The more affordable the price to the new buyer the less likely there is to be returned to the original seller. So you have to think about how to balance those two things.

24 Page 24 So it is important to record that resale agreement. And there are - because obviously you have to constrain who can buy it and at what price and so forth. So there are two legal ways that you can record the resale agreement. You can record it through some sort of deed restriction or a land covenant. So it s going to run with this property. So that when the buyer goes to sell it during the affordability period these restrictions are triggered and we are insured that the secondary buyer will meet the requirements we just talked about. If you have NSP money in the property you would want to separate that lien. There could be a lien for that to get that NSP money repaid if there is in fact NSP debt. But that's separate from the (restrictional) covenant. Again we have to make sure that the other compliance rules that we talked about, the principle residency and the recapture or if wasn t - well it s not recapture, this was resale, but the other requirements related to the resale are included in the written agreement and that that written agreement enables the grantee and the Habitat to enforce those compliance. So the process for sale obviously we could have two different situations. The ideal situation would be that it's a voluntary sale by the homeowner during the affordability period to another voluntary buyer. It could be the case that there is a foreclosure whether Habitat forecloses on the property or the grantee forecloses on the property because they're not making payments during the affordability period.

25 Page 25 It doesn't matter which one of those situations occur. If there is a title transfer whether it's through a voluntary sale, involuntary sale or any other kind of title transfer the resale restrictions are triggered. So one of the questions we've received a lot is whose job is it to track all the stuff at resale? So we were in the middle of the affordability period, ten years from now they're going to go and sell the home during the affordability period whose job is it? And so it depends upon the way the written agreement was developed between the Habitat and the grantee if there is a grantee, you know, depending on whether it's Habitat or national or through your local grantee it s in that written agreement. And so the grantee itself could take the responsibility because it's concerned about compliance. And as I've mentioned earlier, HUDs going to hold the grantee ultimately responsible so the grantee could decide that they want to take charge of finding the new buyer and setting the sale price and looking at the return to the seller or the grantee could make that task the job of the Habitat and make sure that the Habitat tracks that during the sale. Again though the bottom line is that if the grantee puts that responsibility on the Habitat they need to make sure that the agreement is very clear about that and it includes the spelled out responsibilities. And the grantee needs to know that if the Habitat doesn't comply with those requirements HUD is going to look to the grantee for ensuring that compliance. Now again the grantee could go back and obviously try to hold the Habitat accountable for their agreement. But bottom line is the grantee has to make sure this happens.

26 Page 26 So in terms of managing the sale we had to do all these tasks that are related to implementing those requirements that I just talked about. And I think we could recap what we ve already covered. Now one thing we hadn t talked about is so we just said that the new buyer has to either be very low income if it was counted towards LH 25 or low mod middle income if it was not. What if given the prices in my community those folks cannot afford to buy my house even at a fair price or they need assistance? It is possible in many markets to be the case. And so the grantee or the Habitat could decide if there s NSP program income or if it happens to happen in the next year when NSP is still ongoing to provide NSP assistance to the buyer of that unit. And if that is the case, if there's NSP assistance for the new buyer of the unit and assuming it s eligible, I would say that you have to make sure that it was actually an eligible activity to do depending on I think Jessie how you guys handle the closeout requirement. Jessie Handforth Kome: We re still making those out Marsha. Marsha Tonkovich: Okay so assuming it's an eligible activity to do then the affordability period would actually be based upon that secondary investment. In other words if I gave the new buyer $20,000 to help them to afford the house there would be a brand-new ten year affordability period based upon that assistance to the new buyer. Now that could be resale or recapture because now I'm providing buyer assistance and that would be up to the grantee to decide.

27 Page 27 Finally one last thing about recapture program and then we'll take a chunk of questions here for - I'm sorry for resale. There is under only resale -- this is not true for recapture -- only under resale there's something called the presumption of affordability. And what that says is that the grantee goes out and takes a look at the market in which it is developing these specific NSP units. And it could be the grantee in partnership with the Habitat. And it documents that the sale prices in this particular neighborhood -- and we re not talking citywide, we re talking about in the target neighborhood where you're working -- are affordable to the target income range of buyers and has been affordable historically. And you can - you would have to document that with census and other data to show that it was true, a market study that would show you that in fact that was affordable, that it s not trending up, that it's - that all the market data would indicate to you that for the foreseeable and I would say the intermediate and long term future this neighborhood is likely to remain affordable. If you can document that, that it s currently affordable and it will remain affordable then you can have what's called a presumption of affordability. And that allows you to actually assume you have a recent sort of like an implied resale restriction and not have to go through all of the other resale things that we talked about. Again this is only going to happen in those neighborhoods where you have documented evidence that it is affordable to low income buyers throughout the period.

28 Page 28 Now if you want to try this -- and it does free up a lot of paperwork -- it makes it administratively easier -- you would need, the grantee would need to document it in its action plan or in partnership with the Habitat so in the action plan and HUD would have to approve it. So you d have to have data that proves that in fact you - your market study shows that it's possible and it is, you know, historically and likely to remain affordable. Now if the market starts to change and that no longer is the case for any new units you develop in that neighborhood you wouldn t be able to use the presumption. All right so with that I think I'll take we have - I see we have 13 written in questions and I think we'll probably have some folks on the phone. So I'm going to take about 15 minutes of questions before we jump into recapture. So Brandy want - you can - do we have folks on the phone lined up? Operator: Yes. And as a reminder if you do have a question that is star 1 on your touch-tone telephone. We will go first to Charles. Marsha Tonkovich: Hi Charles. Charles: Hi. Hi this is Charles in the Miami affiliate. And I have a question concerning what I heard about that we cannot as a developer provide down payment or closing cost assistance. We have been asking our homeowners to come in with $1500 and... Marsha Tonkovich: Of their own funds?

29 Page 29 Charles:...that - of their own funds. And that doesn't even begin to cover even the pre-pays for the insurance, for the garbage collection, for the transfer and recording fees. So what is the alternative if we can t provide down payment assistance or closing cost assistance? Just ask them for money? Marsha Tonkovich: Well there's two alternatives. You know, and for many of the buyers I know you guys deal with that's probably not a possibility. I mean you could obviously try that but there are a couple of options. So option number 1 is that the grantee could provide that assistance. So you could go - you said you're in Miami? Charles: Yes. Marsha Tonkovich: Yes so you could, you know, whether it's Miami or Dade County or whichever jurisdiction you're working with the buyer could go back to those programs assuming they have a down payment or a closing cost program and could receive assistance from the grantee for those very same costs, eligible costs within your unit. It's just that you as a developer couldn't provide it. The second option -- and David I know that you have kind of talked about this with Karen and the folks at Habitat -- is there could be a separate agreement with the Habitat, a separate funding source, not the funding source for the development of this unit but a separate program coming from whether it comes from Habitat International, whether it comes from Miami-Dade County or whatever it is where you are acting as a sub recipient for that program, again not the development.

30 Page 30 And under that sub recipient relationship you are lending or granting a down payment and closing cost assistance as a sub recipient. And you have a separate written agreement for that program. That program is described in the grantee s action plan and you have - so you sort of have two concurrent hats that you have on. You're the developer of the unit with that funding source and all of that and then you're also the sub recipient running a down payment program. And I think I would ask David and Jessie this question. I think you'd have to make sure that that program wasn't just for your units. It might be problematic if it was just for your unit. But you - that might be a possibility. David did you - you ve thought about this. Did you want to jump in on that? Jessie Handforth Kome: I don't think it's problematic if it's just for their unit but it's not a real sticking point for us the way it would be in home. Marsha Tonkovich: Okay. So you'd - you guys would be okay if you had two separate agreements, one as a separate sub recipient doing down payment and one as a developer doing development? (Crosstalk) Jessie Handforth Kome: ((inaudible)) about when they would go deep on the down payment assistance or, you know, go in addition. Another way to do it is just not for closing costs but for a down payment assistance is just to define your down payment as the $1500 they bring in.

31 Page 31 Marsha Tonkovich: And not require anything additional down? Jessie Handforth Kome: Right. David Noguera: Right. Jessie Handforth Kome: I mean part of it is how you design your lending products. David Noguera: Right. Marsha Tonkovich: Right. David Noguera: And you as the developer have the flexibility to set the terms of the resale. So you could define it. You can set the down payment to 1500 if that's what makes sense. Marsha Tonkovich: Okay. Tera Doak: This is Tera. Charles: It does some confusing because I thought that we as the developer could not provide closing cost assistance and now I'm hearing that we can. So I'm still as lost as I was up front but I'll let other people here at Habitat set me straight. Marsha Tonkovich: You wouldn't be providing it is a developer. What you d be providing it as is a sub recipient. (Crosstalk)

32 Page 32 Charles: But I thought that we were one of the seven. We were one of the seven and we were definitely called a developer. Marsha Tonkovich: But they could - Habitat could choose -- and then I'll let Tera jump in here to have a separate written agreement with you under a separate program where you are also a sub recipient providing down payment assistance. Charles: Oh okay. Well I'll let the people who are much more familiar with it then iron that... Tera Doak: Yes. Charles:...out. Tera Doak: And I'd also like to point out we re talking about using NSP funds for this to make a program work for your home buyers Charles. I mean you may have other funding sources. I mean are you specifically talking about using NSP funds for the closing costs or you can still - correct me if I'm wrong everyone at HUD but there's nothing the prohibited prohibits the Habitat family from assisting their families in other ways but, you know, just not with NSP funds. Charles: Oh okay. Well that was what I needed to have cleared up. I thought it was... Marsha Tonkovich: That's exactly right Tera. This is - we re only talking about NSP funds here. Charles: Okay.

33 Page 33 Marsha Tonkovich: Does that help? Charles: Yes thanks. Marsha Tonkovich: Okay great. All right so Brandy our next question. Operator: And as a reminder that is star 1 if you do have a question. We will go next to Mary Margaret. Marsha Tonkovich: Hi Mary Margaret. Mary Margaret: Hi. This is Mary Margaret I'm Innovative Network Concepts. I do design work. I'm applying for a grant for a home that we inherited. We inherited an area that my mom had donated actually. You know, we still have to pay taxes on it. This is my thing. We had to pay taxes on it and surprisingly we found out that there were things that done - my mother had already taken care of most of the taxes. But one of my sisters, one of my family didn't pay up to it. What I'm talking about is when we start trying to develop a place if it's even our own and even though we re going to revitalize the community we ll be trying to put up like a small community center but like a patio. And the problem is is that I want to know is there any way that we can get HUD funding for this because... Marsha Tonkovich: Okay.

34 Page 34 Mary Margaret:...it is under urban development? Marsha Tonkovich: Okay so this program that we re talking about here might not be the best fit because it's related to foreclosed, abandoned or vacant units. Mary Margaret: Well you see this is what I'm afraid of. I'm afraid of last year we could have gone into where it would have been abandoned, recognized as being abandoned unless we had stepped in to go ahead and pay the back taxes. This is my thing. The house is in dire need of reconstruction. Marsha Tonkovich: And there are - so there are lots of other - so this is - this may not be quite the right HUD program but there are lots of others that might be. So what you want to do I think is go on to the HUD Web site so and then go to Community Planning and Development. That's the major program area. And then within that you'll see a number of different HUD programs described and you'll see some listings of HUD grantees. And you particularly want to look at the Community Development Block Grant program and the HOME program. And you'll see in those programs the descriptions of what they can do. And you'll also see the contact people for your local grantees in your - I don t know what community you're in but in your local community, you'll see the names and phone numbers and addresses. Mary Margaret: ((inaudible)).

35 Page 35 Marsha Tonkovich: And I think you'll want to contact them and they can tell you about what kinds of programs they run because it differs community to community. But specifically ask them about their CDBG program or their HOME program and whether they offer rehabilitation assistance. Mary Margaret: Well they did. And they suggested I come on and check you guys. Marsha Tonkovich: Okay. Well yes this probably might not be on the right source but again I would send you back to your local grantee as the best place because we at the national level can't tell for sure, you know, what resources you would have locally. HUD folks anything else to add? Jessie Handforth Kome: No. We re still back wrangling the question before this. Marsha Tonkovich: Okay. Mary Margaret: Thank you. Marsha Tonkovich: All right, next question please Brandy? Operator: And there are no further questions at - from the phone lines. Marsha Tonkovich: Okay. So we have 17 written in. I'm going to try to go through and recap and go through some of them. We probably won't get through all of them and then I ll go into recapture.