Compliance amp Financial Reporting Compliance and Asset Management Department Maria K DayMarshall Interim Executive Director amp General Counsel Risha K Williams Director Compliance and Asset Management ID: 1046116
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1. DC Housing Finance AgencyCompliance & Financial ReportingCompliance and Asset Management Department Maria K. Day-Marshall , Interim Executive Director & General CounselRisha K. Williams, Director, Compliance and Asset Management
2. Compliance & Financial Reporting DCHFA’s Role C&AM Staff & Role Compliance Reporting Financial Reporting Monitoring & Risk Rating
3. Who is DCHFA/C&AM?What does the Compliance & Asset Management Department do?Why are we involved with your project?DCHFA & C&AM’s Role
4. DC Housing Finance Agency established by D.C. govt. in 1979 as quasi-independent instrumentalityTax-Exempt Bonds finance multi-family residential housing developments in D.C., through the Section 142 (d) of the IRS Code. Bonds are bought on the bond market and bondholders repaid from revenue generated by the project.Interest earned by bondholders is exempted from federal and (usually) state income tax.DCHFA’s Role
5. Use of tax-exempt bonds permits automatic access 4% federal low income housing tax credits.Risk Sharing Pilot Program authorized by Section 542 (c) of the Housing & Community Development Act of 1992Risk Sharing Program allows HUD to partner with Housing Finance Agencies to provide federal insurance for loans.Agency is a Level II participant: HUD accepts 90% of risk, Agency accepts 10% of risk.DCHFA’s Role
6. Agency C&AM staff monitors financial and physical performance of a project and ensure compliance with bond requirements and HUD Risk Sharing Program.The Key Bond/Loan Documents that govern C&AM’s monitoring & asset management: Loan Agreement or Financing AgreementLand Use Restriction Agreement (LURA) orTax Regulatory AgreementHUD Regulations:HUD Handbook 4590.1, 4350.1 & 4350.3 (Risk Sharing)C & AM’s Role
7. Compliance
8. Income limits for Private Activity BondsBorrower Agrees to set aside Minimum of 20% units to be leased to persons whose income is 50% or less of area median income (AMI)Minimum of 40% units to be leased to persons whose income is 60% or less of area median income (AMI)Incomes adjusted for household sizeQualified Project Period*Ongoing compliance/annual recertification of tenants IRS Tax-Exempt Bond Multifamily Program Requirements
9. The Qualified Project Period (QPP) begins on the later of the first day on which 10% of the residential units in the project are first occupied or the date of issuance of the bonds and ends on the latest of:The date that is fifteen (15) years after the date on which 50% of the residential units in the project are or were occupied after acquisition, construction and equipping of the Project with proceeds of the Bonds, or The first date on which no tax-exempt private activity bond issued with respect to the project is outstanding, orThe date on which any assistance provided with respect to the project under Section 8 of the United States Housing Act of 1937 ,as amended, terminates.QUALIFIED PROJECT PERIOD
10. New Construction:Complete the QPP calculation form in accordance with the benchmarks set in the Bond Documents Substantial Rehabilitation:In many instances these projects are occupied during the construction period. Complete the QPP calculation form based on your occupancy at closing and continue completing the form with the appropriate benchmarks* Qualified Project Period is defined in the Financing & Regulatory, Tax Regulatory and Land Use Restriction Agreement in the Definitions SectionQUALIFIED PROJECT PERIOD CONT.
11. Tax Regulatory Agreement ARTICLE IITERM OF THE AGREEMENTThis Agreement shall become effective upon its execution and delivery and .recordation in the land records of the District, and except as provided in Section 7.9, this shall remain in full force and effect until the later of the expiration of the Qualified Project Period or the Tax Credit Compliance Period and all fees and expenses of the Issuer accrued and to accrue through final payment of the Bonds, and all other liabilities of the Owner accrued and to accrue through final payment of the Bonds under this Agreement and the Indenture and the Financing Agreement have been paid or provision is made for such payments pursuant to the lndenture and the Financing Agreement, it being expressly agreed and understood that the provision hereof may survive the repayment in full of the Bonds if such repayment occurs prior to the expiration of the Qualified Project Period. Upon the termination of this Agreement as aforesaid, upon request of any party hereto, the Issuer, the Owner, the Trustee and any successor party hereto shall execute a recordable document further evidencing and confirming such termination.Notwithstanding the the foregoing to the contrary, all representations and certification by the Owner to all matters affecting the exclusion from gross income of interest on the Bonds for purposes of federal income taxation and the provisions of Section 7.11 will survive the termination of this Agreement.[End of Article II]Land Use Restriction Agreement (LURA)Section 3. Recording and Filing; Covenants to Run With the Land. (a) Prior to or simultaneously with the disbursement of moneys under the Resolution, the Borrower shall cause this Agreement and thereafter shall cause any amendments and supplements hereto to be recorded and filed in the official land records of the State and shall pay all fees and charges incurred in connection therewith.The Borrower intends, declares and covenants, on behalf of itself and all future owners and operators of the Project Site during the Term of this Agreement, that this Agreement arid the covenants, restrictions and charges set forth in this Agreement regulating and restricting the use and occupancy of the Project Site and the Project (i) shall be covenants running with the Project Site, encumbering the Project Site, for the Term of this Agreement, binding upon the Borrower's successors in title and all subsequent owners and operators of the Project Site, including any purchaser, grantee, owner or lessee (other than tenants in the ordinary course) of any portion of the Project and any other person or entity having any right, title or interest therein and upon the respective heirs, executors, administrators, devisees, successors and assigns of any purchaser, grantee, owner or lessee of any portion of the Project and any other person or entity having any right, title or interest therein, for the Term of this Agreement, (ii) are not merely personal covenants of the Borrower, and (iii) shall bind the Borrower (and the benefits shall inure to the Agency and the Trustee) and its (their) respective successors and assigns during the Term of this Agreement.QUALIFIED PROJECT PERIOD CONT.
12. Annual Reportingdue by January 30thCurrent Rent ScheduleCurrent Utility AllowanceAnnual Statement from Borrower to IssuerAdditional Annual ReportingIRS Form 8703 DRAFT due Feb 28 (March 31st)Audited Financial Statements due 90 – 120 days after YR EndProposed Budget due November 1stAnnual Compliance & Financial Reporting
13. The Audit, to includeFinancial Statements (Balance Sheet, Statement of Income, Statement of Cash Flows, Changes in Owner’s Equity)NotesAuditor’s Certification and OpinionOwner & Management Agent’s CertificationSupplemental Data, to include:Trial Balance & Adjusting Journal EntriesAccounts & Notes ReceivableAccounts & Notes PayableBank Reconciliations and Statements as of Fiscal YE for Operating Cash, Security Deposits, Escrows and Reserve AccountsFinancial Reporting – Audit Cont.What to Submit:
14. Final Proposed Budgets are due by November 1stPreparing the budget DCHFA Budget Format/HUD Chart of Accounts Budgeting Income and Expenses Line Item Comparison Line Item Narrative Additional/Supporting InformationBudgeting Reference Guide (Chapter 4 of HUD Handbook 4370.2 Rev-1) Financial Operating and Accounting Procedures for Insured ProjectsFinancial Reporting - Budget
15. Rent Increase FrequencySubmission Requirements Current Rents Proposed Rents Utility Allowance $ Amount and % of Rent Increase Market Survey Certification from OwnerTimeline for Review & NotificationCompliance Reporting Rent Increases
16. Additional Annual Reporting Cont. Digital Assurance Certification (DAC) Reports due date varies by project Annual Disclosure Report Operating Data Template Annual Financial InformationCompliance Reporting
17. Quarterly Reports due on the 30th of April, July, October & January Management Operations Summary (MOS)Rent Roll (for each month within the quarter)Occupancy ReportExhibit C “Monthly Report to Issuer/Certification of Continuing Program ComplianceFinancials: Balance Sheet, Cash Flow & Income Statement, General Ledger, Aged Accounts Payable, Aged Accounts Receivable, and Variance ReportQuarterly Compliance & Financial Reporting
18. Performance Assessment and Risk Rating for DCHFA Financed Multifamily Projects Compliance and Asset Management
19. PERFORMANCE ASSESSMENT AND Risk RatingPerformance Assessment Performance assessment is to analyze a project’s operations and performance. A project’s performance can be rated on a scale of 1 to 5. Scale of 5 rated as the best and 1 as the worst. The specific criteria for the risk rating are as follows:
20. PERFORMANCE ASSESSMENT AND risk rating (CONT.)Debt Service Coverage Ratio (“DSCR”) DSCR represents a project’s ability to make mortgage payments. DSCR is the ratio of net operating income divided by debt service payments. Based on DSCR, a project’s financial performance is rated in the following scale: DSCR Performance Rating a. 1.30 or above 5 b. 1.20 – 1.29 4 c. 1.10 – 1.19 3 d. 1.00 – 1.09 2 e. .99 or below 1 * A well-performing project should have DSCR at least 1.10 or above the ratio projected by the underwriting pro forma.
21. PERFORMANCE ASSESSMENT AND risk rating (CONT.)Mortgagee/REAC Inspection Score If a project is subject to REAC inspections, the REAC score is an indicator whether the project is in decent, safe, and sanitary condition: REAC Score Performance Rating a. 90 – 100 5 b. 80 – 89 4 c. 75 – 79 3 d. 60 – 74 2 e. 0 – 59 1
22. PERFORMANCE ASSESSMENT AND risk rating (CONT.) Percentage of Uncollected Rent (POUR) POUR is the percentage of revenue that is not earned due to vacancy and poor collection. It measures effectiveness of property management in terms of leasing and rent collections. Based on POUR ratio, a project is given the following performance rating: Percentage of Uncollected Rent Performance Rating a. 4% or below 5 b. 5% 4 c. 6 – 8% 3 d. 9 – 10% 2 e. 11% or above 1
23. PERFORMANCE ASSESSMENT AND risk rating (CONT.)Operating Expense Level Assuming that a project does not have separate security contracts and is not paying more than 25% of utilities for the individual units, performance rating for the project based on its operating expense is as follows: Operating Expense Level (PUM) Performance Rating a. $400 or below 5 b. $401 - $450 4 c. $451 - $500 3 d. $501 - $600 2 e. $601 or above 1
24. PERFORMANCE ASSESSMENT AND risk rating (CONT.)Risk Rating After the above review and assessment, a project can be placed in one of the following categories:A Category Projects in this group are well performing. The risk for mortgage default is low. Debt service coverage is at or above the ratio projected in the underwriting pro forma. For the most recent two years, there are no history of monetary or covenant defaults; the project (if applicable) has received a REAC score of 75 or above.
25. PERFORMANCE ASSESSMENT AND risk rating (CONT.)Risk Rating (Cont.)B Category Projects in this group have no immediate risk for monetary default, but need more frequent monitoring and oversight. Projects in this group are underperforming in one or more areas such as debt service coverage below the ratio projected in the underwriting pro forma; some history of covenant defaults although the defaults have been cured; less than 75 REAC score.
26. PERFORMANCE ASSESSMENT AND risk rating (CONT.)Risk Rating (Cont.)C Category Projects in this group have serious performance deficiencies and have a high probability for mortgage default. The projects exhibit one or more of the following characteristics: debt service coverage ratio below 1.0; some history of monetary defaults although the defaults may have been cured; REAC score below 60; POUR is 11% or more; trade payables are more than two months of rental income; delinquent in payments for utilities.
27. PERFORMANCE ASSESSMENT AND risk rating (CONT.)Watch List Criteria Based on performance review and risk rating analysis, the high risk of underperforming projects will be placed in the Watch List. This List shall cover all projects in the C Category as well as some projects in the B Category. In summary, a project exhibiting any of the following indications will be placed in the Watch List:A DSCR of 1.0 or below;REAC score of 60 or below. If not subject to REAC, the project failed inspections by DCHFA or another government or regulatory agency;POUR is 9% or above;
28. PERFORMANCE ASSESSMENT AND risk rating (CONT.)Watch List Criteria (Cont.)Operating expense, adjusted for utilities and security contracts, is above $600 per unit month;Any history of mortgage defaults;Project rents are abnormally low and the Owner has not implemented adequate rent increases;Repeated failures in submitting reports required by DCHFA;The project’s outstanding trade payable is more than two months’ rental income;Serious findings are reported in the audited financial statements;Other indicators as determined by DCHFA.
29. ComplianceCoordinator@dchfa.orgCompliance Contact Information
30. Questions
31. District of Columbia Housing Finance Agency 815 Florida Avenue, NW Washington, D.C. 20001 (202) 777-1600 wwww.dchfa.orgWe Make DC AffordableDC Housing Finance Agency