ARCH PORTFOLIO & PROGRAM RECOMMENDATIONS JULIE BRUNNER, HOUSING - - PowerPoint PPT Presentation

ARCH

PORTFOLIO & PROGRAM RECOMMENDATIONS

JULIE BRUNNER, HOUSING CONSULTANT APRIL 20,2020

INTRODUCTION and AGENDA

 JULIE BRUNNER, HOUSING CONSULTANT  TODAY’S AGENDA

 ARCH FEES  PRICING + RESALE FORMULA CHANGES  EXPIRING UNITS

Fees

RECOMMENDATION

ADOPT the following PROGRAM FEES

◼Application Fee = $100 ◼Resale Fee = 1% Seller Paid Fee ◼Amend Covenants w/o Fee Language (~100) ◼Explore RE Brokerage Services

STEWARDSHIP OBJECTIVES

 Long term success  Program guidelines and set up for success  Screening and orienting buyers  Overseeing resales  Monitoring + compliance  Support homeowners success

COST OF STEWARDSHIP

 Current staffing levels = 0.03 FTE/Transaction  Basic program administration  Compliance monitoring  Recommend at least add’l 1 FTE = 0.04 FTE/Transaction  Increased buyer support/orientation  Foreclosure interventions  Intervention in units that are expiring/lost affordability

COMMON FEES

 Fees to support stewardship

 Monthly Fees

◼ New buyers ◼ Collect monthly

 Buyer fees

◼ Application fees ◼ One time fees at closing ◼ No impact on ongoing affordability

 Resale Fees

◼ Seller paid fees ◼ RE Commissions

COMMON FEES

 Fees to support stewardship

 Monthly Fees = $50 - $100/MONTH

◼ New buyers ◼ Collect monthly

 Buyer fees

◼ Application fees ◼ One time fees at closing ◼ No impact on ongoing affordability

 Resale Fees

◼ Seller paid fees ◼ RE Commissions

 Fees to support stewardship

 Monthly Fees

◼ New buyers ◼ Collect monthly

 Buyer fees

◼ Application fees = $50 - $250 ◼ One time fees at closing ◼ No impact on ongoing affordability

 Resale Fees

◼ Seller paid fees ◼ RE Commissions

COMMON FEES

 Fees to support stewardship

 Monthly Fees

◼ New buyers ◼ Collect monthly

 Buyer fees

◼ Application fees ◼ One time fees at closing ◼ No impact on ongoing affordability

 Resale Fees

◼ Seller paid fees = 1% – 6% ◼ RE Commissions = Up to 6%

COMMON FEES

POTENTIAL REVENUE

THE NUMBERS

◼APPLICATION FEE =$100 X 60 to120 = $6K – $12K ◼RESALE FEE =1% Seller Paid Fee =$45 - $183K ◼Low Estimate based on 2011 sales ◼High Estimate based on 2019 sales ◼Average Sale Price = $394,000 ◼Average Fee = $3,940 ◼TOTAL Revenue = $51,000 - $196,000

RECOMMENDATION

ADOPT the following PROGRAM FEES

◼Application Fee = $100 ◼Resale Fee = 1% Seller Paid Fee ◼Amend Covenants w/o Fee Language (~100) ◼Explore RE Brokerage Services

PROGRAM ADJUSTMENTS

❑ RESALE FORMULA ❑ INITIAL PRICING

RECOMMENDATION:

FORMULA: ADOPT THE HUD FORMULA FOR ALL UNITS

 No existing homeowners are impacted  Use HUD for all new units

Switch to HUD for future buyers of current units

PRICING: Change The Interest Rate Assumption:

Interest rate = Greater of current rate + 1% or 5.5%

RESALE FORMULAS

WHAT MAKES A GOOD FORMULA? ◼Maintains affordability (PASS) ◼Seller equity/wealth creation ◼KEEP IT SIMPLE!!!!

RESALE FORMULAS

WHAT MAKES A GOOD FORMULA? ◼Maintains affordability (PASS) ◼Seller equity/wealth creation ◼KEEP IT SIMPLE!!!!

CURRENT FORMULA COMPARISON

50 100 150 200 250 300 REI (281) REI/HUD (231) FIXED RATE (131) HUD (33) HALF REI/HUD (12) OTHER (5)

230 78 75

FAIL PASS

INITIAL PRICING

 Initial pricing determines all future affordability  ARCH pricing is part of the challenge  Leaves no room for increases in interest rates  Even with conservative resale formulas poor pricing

policies can lead to unaffordable housing

INITIAL PRICING

 Initial pricing determines all future affordability  ARCH pricing is part of the challenge  Leaves no room for increases in interest rates  Even with conservative resale formulas poor pricing

policies can lead to unaffordable housing

HUD RESALE FORMULA

$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Price Median Income can Afford Price 90% AMI Can Afford HUD AMI Formula (Current Pricing)

HUD FORMULA – Increasing Interest

$50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Price Median Income can Afford Price 90% AMI Can Afford HUD AMI Formula (Current Pricing)

HUD FORMULA WITH REVISED PRICING

$50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 HUD AMI Formula (Current Pricing) HUD AMI Formula (Revised Pricing)

REVISED PRICING

$50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Price 90% AMI Can Afford HUD AMI Formula (Current Pricing) HUD AMI Formula (Revised Pricing)

SELLER RETURN – 80% AMI

INITIAL PURCHASE = 2020

Market Value = $560,960 Affordable Price = $300,000 (80% AMI) Down Payment (10%) = $30,000

RESALE = 2028

Formula Price (HUD) = $375,300 Closing Costs (6%) = -$22,500 ARCH Fee = -$3,750 Payoff = -$227,700 Cash at Closing = $121,350 Seller’s Return = $91,350 (304%) Average Annual Return = (38%)

RECOMMENDATION: FORMULA

ADOPT THE HUD FORMULA FOR ALL UNITS

 No existing homeowners are impacted  Use HUD for all new units  Switch to HUD for future buyers of current units

✓ Existing ARCH Formula ✓ Easy/inexpensive to implement ✓ 100% Pass Rate = maintains affordability ✓ Seller return is reasonable

RECOMMENDATION: PRICING

CHANGE The Interest Rate Assumption:

Interest rate = Greater of current rate + 1% or 5.5%

Expiring Units

Expiring Covenants (2023 - 2025)

21% of the portfolio

 120% AMI = 80/135  100% AMI= 51/255  80% AMI = 12/289  <80% AMI=0/14  Total Portfolio = 143/693

RECOMMENDATION

EXPIRING UNITS - AT RESALE

 Amend covenants at resale to extend term

SUMMARY RECOMMENDATIONS

 Adopt and implement fees  Adopt HUD resale formula moving forward  Revise pricing to increase interest rate  Re-record covenant at resale to extend term

FUTURE MEETING

▪ Strategies to address units that have lost affordability