U.S. Department of Housing and Urban Development Developing NSP Projects with Habitat Organizations January 17, 2012 HUD Community Planning and Development
Speakers and Q and A Format Speakers John Laswick, HUD Njeri Santana, HUD Hunter Kurtz, HUD Marsha Tonkovich, ICF Tera Doak, Habitat for Humanity How to ask questions Change status in Live Meeting from green to purple Press *1 to ask a question through Premiere Conference Provide Name and Organization If question already answered, press *2 to remove from queue Change status back to green after question answered 2
Agenda Presentation on key topics: Brief description of Habitat approach to developing homes Options for funding Habitat with NSP Implementing NSP rules in Habitat projects organized around common questions Will do one half of presentation (approximately one hour) & take some questions, complete presentation & then take more questions Will do polls throughout 3
Typical Habitat Homebuyer Project Approach Many approaches used by local Habitat Affiliates Most common model: Public, private or foundation construction financing Remainder of construction financing comes from donations, volunteer labor, other programs Homebuyer participates and provides sweat equity Once complete, unit sold to low income buyer with 100% Habitat mortgage Closing cost assistance in some projects (more later) 4
Typical Habitat Homebuyer Project Approach (cont) Land may be acquired or donated Project may be rehabilitation or new construction May be in-fill housing or part of subdivision Some Habitat affiliates have: Used private mortgage financing for the buyer Allowed other forms of soft second mortgages Required a small downpayment 5
Using NSP $$ to Fund Habitats Funds may come from two different sources: NSP 1-3 $$ provided to state or local grantee; grantee funds Habitat to create units NSP2 $$ provided to Habitat International; HHI funds local affiliates Must have written agreement between grantee and Habitat spelling out obligations and requirements For more info see Policy Alert January 12, 2011 6
Common question #1: What role do Habitats play? Regardless of funding approach, key question when funding Habitat is role: Habitat affiliate may be designated as a subrecipient or a developer, depending on role and local program decision If assistance only to buyers and Habitat administers = subrecipient If assistance for acquisition/construction, Habitat may be subrecipient or developer Habitat must have site control Determined by grantee in written agreement 7
Common question #1: What role do Habitats play (cont)? If Habitat is subrecipient: Can get admin assistance, activity delivery costs but: Must comply with Part 84 and OMB circulars, including procurement A-133 may apply depending on expenditure level NSP portion of income is program income Cannot earn developer fee or profit on this project 8
Common question #1: What role do Habitats play (cont)? If Habitat is developer: Can earn reasonable developer fee but: No activity delivery costs or admin assistance Can charge actual, eligible soft costs of project (more later) Profits earned and retained from home sales not program income but must be reasonable (more later) Habitat can be a subrecipient for some activities and developer for others Agreements must clearly spell out requirements See policy alert dated 11/16/11 for more info: http://hudnsphelp.info/media/resources/nsppolicyalert_developers SubrecipientsContractors.pdf 9
Subrecipient Developer Neither Both Poll: If you are a grantee what role did you assign to your Habitats? If you are a Habitat, what are you considered? 10
Poll: If you are or have a Habitat subrecipient, what has been most confusing about those requirements? Establishing the proper level of admin or activity delivery assistance Tracking or determining program income Other financial management such as procurement, financial systems or records Complying with NSP rules on eligible costs, units or households Long term monitoring and compliance, including affordability period 11
Poll: If you are or have a Habitat developer, what has been most confusing about those requirements? Finding or acquiring eligible units/land Determining the reasonable level of developer fee Complying with cross-cutting federal requirements like environmental review or Section 3 Managing the construction, including inspections, standards, energy efficiency etc Funding or qualifying eligible buyers, including meeting the low income set aside Implementing resale/recapture 12
Common question #2: Where must Habitat units be located? Habitat projects must be located in area of greatest need identified by grantee in Action Plan Grantee may choose to amend Action Plan if new target areas appropriate Available target areas should be defined in agreements with Habitat subrecipients/developers Funded activity types must also be described in Action Plan 13
Common question #3: What properties and NSP activities are eligible for Habitat? Only three possible property types can be acquired or redeveloped by Habitat under NSP: Foreclosed Abandoned Vacant All five eligible NSP uses are possible but: If Habitat is developer, Habitat cannot provide NSP downpayment or closing cost assistance to those buyers 14
Common question #4: What rules apply to Habitat s acquisition of property? Several acquisition requirements apply: If foreclosed: Must do appraisal no more than 60 days before final offer Must buy at 1% discount Tenants must receive tenant protection notice & may be covered by URA Property owner must receive voluntary sale notice Must also comply with environmental rules before purchasing 15
Common question #5: How can the grantee structure Habitat NSP assistance? Many options for investing in Habitat units: Grantee acquires foreclosed, abandoned, vacant land/units and donates to Habitat Provide funds to Habitat for acquisition Lend construction financing and get repaid at sale Grant construction assistance and remain in deal as homebuyer subsidy Provide mortgage, 50% downpayment, closing cost assistance to buyer 16
Common question #5: How can the grantee structure Habitat NSP assistance (cont)? Given Habitat model of 100% homebuyer mortgage, must evaluate total debt before committing NSP $$ NSP does not allow any property to have total debt that exceeds value Example: Property value: $100,000 Habitat mortgage: $100,000 $3,000 in FHLB closing cost loan Closing costs would need to be a grant OR Habitat would need to reduce its mortgage to $97,000 and have second loan of $3,000 for closing costs 17
Poll: How does your grantee provide NSP assistance to Habitats? Construction loan repaid to the grantee Construction grant Donated land/units Acquisition assistance Homebuyer downpayment or closing cost Homebuyer mortgage Other 18
Common question #6: What property standards apply to Habitat units? NSP imposes mandatory safety, quality, and habitability standards Must comply with local codes, laws, requirements NSP2 and NSP3 also mandatory green rehabilitation and new construction standards Must meet Energy Star standards Grantee may impose additional requirements Grantee must review Habitat work specifications and inspect units in order to ensure compliance 19
Common question #7: How does the Habitat sweat equity approach to construction affect NSP? Sweat equity is allowed but: Final unit must still comply with local codes, laws, requirements May affect timeliness of program NSP imposes strict expenditure deadlines In some grantees, Habitat construction approach has resulted in delays Grantees need to work with Habitat affiliate to manage and track deadlines 20
Common question #8: What cross cutting federal rules apply to Habitat projects? Several key other federal requirements may apply to Habitat NSP projects: Environmental review URA and tenant protections Lead based paint Fair housing and equal opportunity, including Section 504 handicapped access requirements and possibly Section 3 Applicability depends on project Under NSP3 must also comply with vicinity hiring requirement 21
Common question #9: What income caps apply to Habitat buyers? Depends on agreement with grantee: NSP caps at 120% AMI Many Habitats cap at 80% AMI Many Habitat projects are used by grantees to reach low income targeting requirements These buyers must be 50% of AMI or less Habitat or grantee must document income of buyer using grantee s chosen methodology 22
Common question #10: What admin and activity delivery costs are eligible? If Habitat is subrecipient: Grantee can elect to pay for some admin costs (capped) such as: Public information/outreach Fair Housing compliance Monitoring of projects/programs Can also charge activity delivery costs such as: Appraisals Work specifications Construction inspections and oversight Underwriting Relocation, environmental reviews, etc. Assess all costs for eligibility, reasonableness & tie to NSP Timesheets required for labor costs 23
Common question #10: What admin and activity delivery costs are eligible (cont)? Habitat developers cannot charge activity delivery Can charge actual project costs soft costs such as: Appraisal Market study Permits Architectural Builder s general requirements or overhead Assess all costs for eligibility, reasonableness 24
Common question #11: What rules apply to the sale of a Habitat unit? Homebuyer purchase price must be affordable as defined in grantee Action Plan Sale to assisted household cannot exceed Habitat cost to acquire, redevelop, rehab Can include direct and activity delivery costs Can also include cost of donated professional services and materials Sweat equity & non skilled labor not counted Donated materials counted at fair market value Cannot include maintenance costs in sale price, unless rehab done 25
Common question #12: What affordability period rules apply to Habitat units? Triggered for all Habitat projects funded with NSP, regardless of whether affiliate imposes other Habitat affordability requirements Written NSP agreement with homebuyer specifies length of affordability period Agreement may be between buyer & Habitat or buyer & grantee Agreement must enable grantee to enforce affordability restrictions Grantees or Habitats can require longer affordability periods 26
Common question #12: What affordability period rules apply to Habitat units (cont)? HOME rules are safe harbor Can use alternate approach but must get HUD approval HOME affordability periods are minimums NSP grantees can set longer terms For each homebuyer program, UP FRONT, grantee or Habitat must select compliance approach during period of affordability Two options: Resale or recapture Cannot mix recapture and resale; must choose one or other If no Direct Subsidy to homebuyer, grantee or Habitat must select Resale 27
Common question #12: What affordability period rules apply to Habitat units (cont)? Resale Affordability period based on total NSP investment If there is resale requirement, when home is sold: New buyer must be income eligible Home must be affordable to new buyer New buyer must occupy house as principal residence Original buyer must receive a fair return Remaining resale restrictions apply to new buyer 28
Common question #12: What affordability period rules apply to Habitat units (cont)? Recapture Affordability period based on direct homebuyer subsidy, does not include development subsidy If NSP construction financing remains in deal & rolls over to permanent mortgage, that is part of direct homebuyer subsidy If sale during affordability period, homebuyer may sell home: To any willing buyer At any price At any time Grantee or Habitat must collect part or all of NSP assistance from the net sale proceeds (if sufficient) 29
Resale Recapture Other Poll: What affordability mechanism do you use for Habitat projects? 30
Common question #13: How do the program income rules apply to Habitats? Depends on whether Habitat is subrecipient or developer Program income must be tracked, reported & used before requesting additional NSP funds from grantee PI is funds received back to grantee/subrecipients due to NSP investment Grantee may allow Habitat to keep PI or require it be returned PI must be used in accordance with all NSP rules Receipt in DRGR 31
Common question #13: How do the program income rules apply to Habitats (cont)? For sales proceeds: If subrecipient, NSP portion is program income Example: NSP portion of TDC $50,000; Habitat portion of TDC $150,000 25% of the sales proceeds to Habitat are NSP program income subject to all NSP rules If developer, not program income but grantee must decide what is reasonable 32
Common question #13: How do the program income rules apply to Habitats (cont)? For homebuyer mortgage payments: If subrecipient, NSP portion is program income Example: NSP portion of mortgage $40,000; Habitat portion of mortgage $60,000 40% of the mortgage payments are NSP program income subject to all NSP rules If developer, not program income but grantee must decide what is reasonable 33
Common question #13: How do the program income rules apply to Habitats (cont)? For recaptured funds earned during affordability period sale, answer is the same whether Habitat is developer or subrecipient Recaptured funds must be used for other eligible NSP uses Grantee determines what happens to these funds & spells out in written agreement with Habitat Habitat to re-use for NSP-eligible projects Habitat to repay grantee Regardless, receipt and use of these funds must be tracked & reported 34
Common question #13: How do the program income rules apply to Habitats (cont)? Important that grantee written agreement with Habitat be explicit about: Whether Habitat is subrecipient or developer What happens to initial sales proceeds? (Program income? Who keeps? How can be used?) What happens to homebuyer loan repayments (Program income? Who keeps? How can be used?) What happens to net sales proceeds if sell during affordability period (Who keeps recaptured funds? How can be used?) Required tracking and reporting provisions for NSP $$$ 35
Common question #14: What documentation & reporting is required for Habitat affiliates? Should be described in agreement with grantee but must include items such as: Expenditures and use of NSP draws Unit quality inspections Income documentation of buyers Tracking of program income (if applicable) Verification of affordability period compliance Grantee likely to require periodic reporting of unit status, households assisted, program results 36
Poll: What type of future webinars are needed? Financial management/program income/drgr Accessing credit & creating partnerships with lenders Other federal requirements (Davis Bacon/URA/LBP/enviro review/fair Housing etc) Affordability period requirements (resale/recap, rental etc) Construction management Underwriting Marketing/advertising/sales of units 37
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