Compliance & Financial
Reporting
DCHFA & C&AM’s Role
• Who is DCHFA/C&AM?
• What does the Compliance & Asset
Management Department do?
• Why are we involved with your project?
DCHFA’s Role
• DC Housing Finance Agency established by D.C.
govt. in 1979 as quasi-independent instrumentality
• Tax-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
• 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 1992
• Risk 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.
C & AM’s Role
• 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 Agreement
• Land Use Restriction Agreement (LURA) or
• Tax Regulatory Agreement
• HUD Regulations:
• HUD Handbook 4590.1, 4350.1 & 4350.3 (Risk Sharing)
Compliance
IRS Tax-Exempt Bond Multifamily Program
Requirements
• Income limits for Private Activity Bonds
• Borrower 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 size
• Qualified Project Period*
• Ongoing compliance/annual recertification of tenants
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:
I.
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
II. The first date on which no tax-exempt private activity bond
issued with respect to the project is outstanding, or
III. The 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.
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 Section
Tax Regulatory Agreement
•
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.
ARTICLE II
TERM OF THE AGREEMENT
•
•
This 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]
Annual Compliance & Financial
Reporting
Annual Reporting
due by January 30th
 Current Rent
Schedule
 Current Utility
Allowance
 Annual Statement
from Borrower to
Issuer
Additional Annual
Reporting
IRS Form 8703
DRAFT due Feb 28 (March 31st)
Audited Financial
Statements
due 90 – 120 days after YR End
Proposed Budget
due November 1st
Financial Reporting – Audit
Cont.
What to Submit:
 The Audit, to include
 Financial Statements
(Balance Sheet, Statement
of Income, Statement of
Cash Flows, Changes in
Owner’s Equity)
 Notes
 Auditor’s Certification
and Opinion
 Owner & Management
Agent’s Certification
 Supplemental Data, to
include:
 Trial Balance & Adjusting
Journal Entries
 Accounts & Notes
Receivable
 Accounts & Notes Payable
 Bank Reconciliations and
Statements as of Fiscal YE
for Operating Cash,
Security Deposits, Escrows
and Reserve Accounts
Financial Reporting - Budget
 Final Proposed Budgets are due by November 1st
 Preparing the budget
 DCHFA Budget Format/HUD Chart of Accounts
 Budgeting Income and Expenses
 Line Item Comparison
 Line Item Narrative
 Additional/Supporting Information
 Budgeting Reference Guide (Chapter 4 of HUD Handbook
4370.2 Rev-1) Financial Operating and Accounting
Procedures for Insured Projects
Compliance Reporting
Rent Increases
 Rent Increase Frequency
 Submission Requirements
 Current Rents
 Proposed Rents
 Utility Allowance
 $ Amount and % of Rent Increase
 Market Survey
 Certification from Owner
 Timeline for Review & Notification
Compliance Reporting
Additional Annual Reporting Cont.
 Digital Assurance Certification (DAC)
Reports
due date varies by project
 Annual Disclosure Report
 Operating Data Template
 Annual Financial Information
Quarterly Compliance &
Financial Reporting
Quarterly Reports due on the 30th of April, July, October & January
 Management Operations Summary (MOS)
 Rent Roll (for each month within the quarter)
 Occupancy Report
 Exhibit C “Monthly Report to Issuer/Certification of
Continuing Program Compliance
 Financials: Balance Sheet, Cash Flow & Income
Statement, General Ledger, Aged Accounts Payable,
Aged Accounts Receivable, and Variance Report
PERFORMANCE ASSESSMENT AND RISK
RATING FOR DCHFA FINANCED
MULTIFAMILY PROJECTS
Compliance and Asset Management
PERFORMANCE ASSESSMENT
AND RISK RATING
1) Performance 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:
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.
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
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
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
PERFORMANCE ASSESSMENT AND RISK
RATING (CONT.)
2)
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.
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.
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.
PERFORMANCE ASSESSMENT AND RISK
RATING (CONT.)
3)
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;
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.
Compliance Contact
Information
ComplianceCoordinator@dchfa.org
QUESTIONS
DC Housing Finance Agency
We Make DC Affordable
District of Columbia Housing Finance Agency
815 Florida Avenue, NW
Washington, D.C. 20001
(202) 777-1600
wwww.dchfa.org