Proposed MHSA Housing Program Changes
Program Description
Original Term Sheet / Proposed Term Sheet / Problem addressed / Impact on program /Not Applicable / (new)
“Please note that this program is designed to be flexible. CalHFA is authorized to grant exceptions to MHSA Housing Program guidelines on a case by case basis if needed to make a development financially viable, conform the program requirements to be compatible with other funding source requirements, and/or to add more units for the target population. Exceptions will not be allowed for (1) funding for any form of leased housing, (2) deviations from serving the target population (3) deviations from the approved housing types. (See the exception process at the end of this document).” / Establish basic criteria for granting exceptions to program requirements / Continue to inform/educate counties and their development partners that both CalHFA and DMH will work with them for successful project development
Predevelopment Loans
1) Predevelopment loans of up to $200,000 for Shared Housing Developments
2) Rental Housing Developments with 100% of their permanent financing are eligible for $500,000.in predevelopment loans.
3) All pre-development loans were to be secured against the property
4) No site acquisition costs were allowed / 1) Shared housing developments are eligible for up to $500,000
2) Rental housing developments are eligible for a loan of $500,000 if they have 30% of financing, excluding tax audit equity.
3) Only predevelopment loans used for acquisition will be secured against the property.
4) Purchase option costs and costs associated with site acquisition are eligible costs for Shared Housing Developments but are not eligible costs for Rental Housing Developments / 1-4) Predevelopment funding is the most difficult funding to access; projects were stalled due to lack of funds for costs associated with early stages of project development. These changes provide increased availability/flexibility of predevelopment loan funding. / Increase in project development, particularly in localities with limited resources. Changes cause no increased risk.
Permanent Loans
1) MHSA funds may only be used for designated MHSA units / 1) Permanent loan limits will be based on the number of units restricted to MHSA eligible residents and the proportionate share of the manager’s unit and not on the total number of units in the proposed development.
2) Permanent loans, if funded during construction or rehabilitation may, at CalHFA discretion, be subject to a loan disbursement agreement. / 1) Inclusion of the proportionate share of cost for on-site manager’s unit is consistent with underwriting principles and integration of MHSA tenants in larger projects.
2) Needed to establish rules for how the funds would be distributed / 1-2) Corrects oversight in original Term Sheet
Loan Terms
1) Origination Fee: 1% of the MHSA permanent loan amount, due at MHSA Housing Program permanent loan closing, or predevelopment loan closing, whichever occurs sooner.
3) The interest owing upon loan maturity will be treated in one of the following ways for rental and shared housing developments.
· Accrued interest will be due and payable for a development that has received an allocation of low income housing tax credits.
· Accrued interest shall be due and payable for all developments with the following exceptions.
The development was used in accordance with the MHSA Housing Program regulations and the Regulatory Agreement throughout the term of the loan, and the terms of the loan and the Regulatory Agreement are extended for a term acceptable to
· CalHFA.
The development is sold at loan maturity and CalHFA determines that the sale proceeds are invested in another property that has like use, has a like number of MHSA units, is encumbered by a Regulatory Agreement, and is secured by a new note and deed of trust in an amount equal to or greater than the original MHSA Housing Program permanent loan. If applicable, the loan term for Rental Housing / 1) Origination Fee: 1% of the MHSA permanent loan amount. Half of the fee will be due at execution of the final commitment and half will be due at MHSA permanent loan closing, or MHSA predevelopment loan closing, whichever occurs sooner.
2) (new)When a project has a tax credit investor, and can demonstrate a need to make interest payments contingent upon annual cash flow or when applicable available sale or refunding proceeds, the unpaid interest will not accrue in those years where there is not available cash flow, sale or refinance proceeds to make residual receipts.
3) All of the interest information in item #3 (as highlighted) has been deleted from the revised Term Sheet. / 1) CalHFA has provided additional resources/staff time for the execution of commitment papers and final loan closing is years out, The request for ½ payment will fund these front-end staff costs.
2) Previously CalHFA reduced interest from 3% to 0; this change allows the collection of some interest if funds are available.
3) Correction was needed. The information was confusing, not appropriate for Term Sheet. ( It is an Intention, not a requirement.) / No impact - it is current practice but not previously articulated in Term Sheet.
Qualified Developers and Borrowers
Qualified developers include:
1) Developers with a track record of successful affordable housing development and a history of serving the target population. / 1) Redefinition of acceptable track record for Developers:
Rental: 5 years of affordable rental housing development and a demonstrated history in supportive housing or serving target pop.
Shared: stable and established organizations with a history of successful development and/or operation of a supportive housing development.
2) (new) Qualified property manager: property manager will need to show that the staff supervising the project has a history working with supportive housing projects and with the target population
3) (New) Qualified construction contractor/developer. Qualifications include a history of building at least two projects of a similar building type; a demonstrated familiarity with building affordable housing developments; a history of compliance with state and federal prevailing wage requirements, if applicable; and bonding capacity for the amount of the construction contract
4)(new) For very small counties, if there are no qualified developers, and property managers available, exceptions may be made to the Developer team qualification requirements by CalHFA on a case by case basis. / Corrects earlier language; needed to establish criteria for the basic organizational experience/capacity needed for this program in both the development and services arena. / (1-3) Weed out applicants who do not have demonstrated experience and capacity
4) Continue to work with small counties to support their participation in the program
Application Process
The first consists of Sections C (development partners) and Section D (30-day county review process documentation, request for COSR Service Plan, related materials), and along with a request for the loan and when applicable, a request for an operating subsidy. CalHFA and DMH will review the submittal and if approved, CalHFA will issue a conditional commitment letter for funding in advance of the site selection. This section of the application is subject to the 30 day local review process. This approval can cover multiple sites.
The second part of the application will be submitted to both CalHFA and DMH once the property is selected, and subject to a purchase and sales agreement, and shall contain Section A (the Shared Housing Application) and Section B (supplemental property information), together with a letter from the county approving the site or sites. Upon receipt of the last two sections, CalHFA will underwrite the loan and subsidy request, and once it is approved, move quickly towards a loan closing. / 1) The Universal Application was not effective for Shared Housing Developments. Applicants reported that it was a barrier to project development. It was always a goal of the program to develop an application specific to Shared Housing and this goal has now been met. / 1) Shared Housing Application streamlines the application process, eliminates unnecessary forms, and allows counties to purchase homes in a more expedient manner. The new 2 step process allows counties to complete their services plan and local review process prior to identifying the actual property; an estimate of funds needed is included in this initial package. Once approved, counties can seek a property and make an offer within the approved amount. The loan would close more quickly like a standard home purchase.
Rental Housing Developments
2) Shared Housing Developments cannot be located in Rental Housing Developments
3) ) The MHSA Housing Program funds one-third of the costs of a Rental Housing Development up to the current allowable maximum per MHSA Housing Program unit. Two thirds of the costs must come from other sources. / 1) A minimum of 5 units in all Rental Housing Developments shall be set aside for MHSA eligible residents. The decision of how many units to set aside above the 5 unit minimum is a decision between the County and the developer.
2) CalHFA may approve a request that the bedrooms in a unit or units in a Rental Housing Development be rented as Shared Housing, provided that the unit design allows for such a use, and that owner has the experience and staffing necessary to operate the unit or units as Shared Housing, and addresses this use in Section D of the application. Each Rental Housing shall only be eligible for the MHSA loan amount authorized for one Rental Housing unit.
3) 1) This 1/3 ratio may be waived on a case by case basis by CalHFA. This exception is most likely to be granted to small developments, which do not have tax credits, and for developments in very small counties when other local funding sources are not available. / 1) Counties/developers requested flexibility on the 10%
2) Applicants requested an exemption to this policy, stating that setting aside a few units that could be rented as Shared Housing was an effective model for the target population and consistent with their local planning.
3) Funding from MHSA HP county allocation is not enough for project development and there are limited resources to be leveraged. (Particularly small counties.) / 1) Increase program flexibility, although this could result in fewer units developed for the MHSA target pop.
2) Allows projects to mix a few shared housing units into a larger rental housing development to increase flexibility in project configuration and adaptability to tenant preferences.
3) Flexibility in funding ratio will support small counties in their effort to put together a deal that works for their locality.
Shared Housing Developments
1) A Shared Housing Development may consist of a 2- to 4-unit building, provided that all units (bedrooms) in the building are targeted for use as Shared Housing.
Single-family homes, condominiums, and half-plexes may also qualify as a Shared Housing Development provided that they have a minimum of two bedrooms / 1) An applicant may apply for several Shared Housing Developments in the same application. In an application that includes several Shared Housing Developments, the sites may be geographically scattered. / 1) Additional information was needed regarding allowable models in Shared Housing Developments / Increased use of Shared Housing Option, ability to take advantage of current single family homes on the market and available local resources for project development.
Subordinate Financing
1) The MHSA Housing Program permanent loan may be subordinate, upon CalHFA approval, to other residual receipts/deferred permanent loans from
Federal and local sources, provided that those loans are twice the amount of the MHSA Housing Program permanent loan or larger.
2) All other loan documents, loans, leases, recorded use agreements, and recorded grant agreements must be subordinate to the MHSA Housing Program permanent loan documents and Regulatory Agreements. / 1-2) The MHSA Permanent Loan Documents may be subordinate, upon CalHFA approval, to other residual receipts/deferred permanent loans and regulatory agreements and use restrictions from federal, state, and local sources provided that those loans are equal to or greater than the amount of the MHSA Housing Program Loan.
3) Approved ground leases will be permitted provided that the ground lease is of a sufficient duration to protect the MHSA permanent loan.
When there is a public entity ground lessor, the MHSA loan documents will be recorded against the leasehold interest, but not against the fee interest, provided that no other lenders loan documents are recorded against the fee interest.
When there is a private entity ground lessor, the MHSA loan documents will be recorded against the leasehold interest, and may be recorded against the fee interest at CalHFA’s discretion. / 1)-2) Program has required MHSA loans and the Regulatory Agreement to have first priority regardless of the percentage of funds in the deal. This has been difficult to implement and has caused problems in loan closing when other funders have much more money in the deal. Other lenders have not been willing to agree to these terms. The proposed change would have the MHSA loan subordinate to other funders dependent on the percentage of funds in the deal.
3)When a locality is the Ground Lessor, they are only willing to put it on the lease and not on the fee (land) / Streamlines loan closing process to allow loans to close more quickly
Reserve Requirements