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Third Party Credit Enhancement Program


Eligibility


Eligible Credit Enhancers

Banks, insurance companies, bond insurers, sureties, the Federal Housing Administration (FHA), the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Government National Mortgage Association (Ginnie Mae), and other Credit Enhancers acceptable to HFA.

Eligible Properties

Multifamily rental housing properties including acquisition and rehabilitation, and new construction. Financed properties may include assisted living, senior rental housing and state licensed senior housing. Please refer to the HFA Senior Housing Financing Program term sheet for more information on senior housing.

Eligible Borrowers

Single asset entities including general or limited partnerships, corporations, trusts, joint ventures, limited liability companies and 501(c)(3) corporations. Some of the criteria discussed herein, other than those specifically required by law or statute, may be modified or waived for 501(c)(3) borrowers/sponsors.

Eligible Loans

Proceeds of bonds secured by third party credit enhancers may be used to fund construction and permanent mortgage loans. There is no minimum loan amount. The maximum loan amount will be determined on a case by case basis using the criteria listed herein.

Bond Financing

Loans may be financed with the proceeds of fixed or variable rate tax-exempt private activity, tax-exempt 501(c)(3), or taxable bonds issued by HFA. All bond financed projects must meet the applicable requirements of the Internal Revenue Code (the Code) as well as the credit enhancer and entities providing subsidies.

  • Tax-Exempt Private Activity Bonds
    Tax-exempt private activity bonds require an allocation of private activity "volume cap." Volume cap allocations also allow HFA to allocate 4% low income housing tax credits (tax credits) subject to the requirements of Section 42 of the Code. Acquisition and rehabilitation projects must include a minimum of 15% of the loan amount for rehabilitation costs.

  • Tax-Exempt 501(c)(3) Bonds
    Tax-exempt 501(c)(3) bonds are tax-exempt bonds available to qualifying 501(c)(3) organizations based on their tax-exempt status. The bonds do not require an allocation of private activity volume cap and do not include tax credits. Qualifying entities must have a determination letter from the Internal Revenue Service regarding 501(c)(3) status.

  • Taxable Bonds
    Taxable bonds are available to for-profit and not-for-profit organizations and do not require an allocation of private activity volume cap. Taxable bonds may be used with 9% or 4% tax credits both of which require a separate allocation.

Affordability Requirements

All HFA projects financed with third party credit enhanced bonds must provide housing affordable to low, moderate or middle income people as follows:

  • Tax-exempt private activity bond and/or tax credit financed projects must meet the income targeting requirements of Sections 142 and/or 42 of the Code: (i) 20% or more of the units must be affordable to households whose income is 50% or less of the area median income as determined by HUD, with adjustments for household size or (ii) 40% (25% in New York City) or more of the units must be affordable to households whose income is 60% or less of the area median income as determined by HUD, with adjustments for household size.

  • Tax-exempt 501(c)(3) bond financed projects must also meet the affordability requirements of the Code, HFA and the credit enhancer.

Taxable bond financed projects must also include affordable units as required by HFA and the credit enhancer.

Bond Rating

Third party credit enhanced bonds must be structured in a manner that will permit the bonds issued to receive at least an "A" rating or its equivalent from a nationally recognized rating agency. Short term variable rate bonds must receive a rating in the highest short term rating category.

Bond Structure

HFA will issue either fixed or variable rate bonds. Generally, principal payments will be based on a 30-year level debt service schedule which will amortize the bonds directly or, particularly in the case of variable rate bonds, principal payments may be made to a Principal Reserve Fund (PRF) held by the Trustee rather than directly amortizing the bonds. If payments are made to a PRF they will accumulate until the total in the PRF reaches the maximum amount allowable by the Agency's tax counsel. Principal payments in excess of such maximum amount will be used to redeem bonds. At the maturity of the bonds, the funds accumulated in the PRF will be paid to the bondholders.

Equity Requirements

Minimum of 10% of Total Development Cost (TDC). The minimum cash equity requirements are discussed below.

Developer Fee

For projects in which 100% of the units will be occupied by households whose income is 90% or less of the area median, the maximum developer fee is 15% of the TDC, excluding the developer fee (adjusted TDC). The minimum cash equity requirement from the developer is 4% of TDC, which must be in the form of cash available prior to loan funding or as a deferred developer fee.

For mixed income projects, the maximum developer fee is 10% of the adjusted TDC with a minimum cash equity requirement of 2% of TDC, which must be in the form of cash from the developer available prior to loan funding or as a deferred developer fee.

For projects with a financing structure that precludes developers from earning cash flow from operations and provides significantly deeper affordability than required under the Code (precluded projects), the developer fee would be 15% of adjusted TDC with a minimum cash equity requirement from the developer of 2% of TDC, which must be in the form of cash available prior to loan funding or as a deferred developer fee.

Developers of 100% affordable and precluded projects may also choose a 10% maximum developer fee and a 2% minimum cash equity requirement.

The following guidelines apply to developers seeking financing for Acquisition and Rehabilitation loans:

  • The standard HFA developer fee and equity requirements apply to hard and soft costs associated with the project. Regarding the acquisition costs, HFA's standard developer fee applies except that the developer is required to defer 50% of the acquisition portion of the developer fee as an additional equity contribution.

  • For acquisition/rehabilitation transactions, if the acquisition is through a related party, the HFA standard developer fee will apply to the rehabilitation costs. Regarding the acquisition costs, HFA's standard developer fee would apply but the developer is required to defer 75% of the acquisition-based developer fee as an additional equity contribution.

Adjustments may be made to the developer fee and the amount of the fee that may be financed with tax-exempt private activity bonds may be limited if there is an identity of interest between the general contractor and the developer.

No developer fee is allowed for a project refunding/refinancing.


General Terms and Conditions


Appraisal

HFA may rely on an independent appraisal prepared on behalf of the credit enhancer.

Environmental and Historical Review

All projects are subject to review under the State Environmental Quality Review Act (SEQRA), an Environmental Audit Report by an independent environmental/engineering consultant selected by HFA and review by the New York State Historic Preservation Office (SHPO).

Low Income Housing Tax Credits

Applicants can apply to HFA for tax credits as part of the mortgage loan application process. Any project financed with tax credits must comply fully with the requirements of Section 42 of the Code, including rehabilitation requirements for acquisition and rehabilitation projects.

If tax credits are to be syndicated, an executed syndication agreement must be submitted and reviewed by HFA prior to issuing bonds.

Subsidy Layering Review

The U. S. Department of Housing and Urban Development (HUD) requires that a Subsidy Layering Review (SLR) be conducted for all projects receiving government subsidies, in addition to HUD assistance, to ensure that a project does not receive excessive public funds. Such assistance includes, but is not limited to, low income housing tax credits. The SLR may be conducted by HFA or HUD.

Subordinate Financing

Subordinate mortgages, payable out of surplus cash flow, may be permitted with the prior approval of HFA.

Additional Subsidies

Subsidies in the form of gap financing may be available from HFA.

Public Hearing

A public hearing, as required under the Tax Equity and Fiscal Responsibility Act (TEFRA) must be held for any project to be financed with tax-exempt private activity or tax-exempt 501(c)(3) bonds.

Public Authorities Control Board

All bond financings must be approved by the New York State Public Authorities Control Board (PACB). HFA is responsible for submitting material to PACB.

Declaration of Official Intent

The issuance of a Declaration of Official Intent (DOI) is specifically for the purpose of qualifying eligible project costs for eventual reimbursement with tax-exempt private activity bond proceeds. Treasury regulations require that a DOI only be adopted if HFA has "a reasonable expectation" that the project will be financed. However, a DOI does not constitute HFA authorization for financing a project, nor does it indicate that HFA requirements for financing have been met.

Treasury regulations provide for a 501(c)(3) sponsor to adopt its own DOI to qualify costs for tax-exempt 501(c)(3) financing. However, HFA requires that it review and approve the DOI.

Conditional Commitment

A Conditional Commitment letter will be issued upon financing authorization by the HFA Members. Prior to authorization by the Members, a project must meet all applicable underwriting and financing criteria as required by HFA, the Code, the credit enhancer and all subsidy providers.

Addenda to the Conditional Commitment letter will address Affirmative Fair Housing, Equal Employment Opportunity (EEO), and Minority Business Enterprise (MBE)/ Women-owned Business Enterprise (WBE) requirements.

Regulatory Agreement

Borrowers will be required to enter into a Regulatory Agreement to ensure compliance with HFA policy and the Internal Revenue Code. The Regulatory Agreement must be executed prior to the issuance of the bonds. Requirements imposed by other loan and/or subsidy providers must be consistent with the HFA Regulatory Agreement.


Financing Costs and Fees


The following represent the HFA fees associated with a third party credit enhanced financing. Not included are the credit enhancer's fees and expenses.

Application Fee


Mortgage Amount From Application Fee
$25,000,000 or less: $15,000
More than $25,000,000: $45,000

For all entities, the Application Fee is due upon HFA's receipt of a full application.

For fees related to the issuance of a Declaration of Intent ("DOI"), please see the application instructions by clicking here

Mortgage Origination Fee

80% of the Bond Funded Mortgage Amount plus

1% of the Mortgage Participation Amount, if applicable.

See Multi-Year Volume Cap Fees for additional information.


New York State Bond Issuance Fee

For principal amount of bonds issued:

From To Issuance Fee
$1,000,000 $5,000,000 0.336%
$5,000,001 $10,000,000 0.504%
$10,000,001 $20,000,000 0.672%
More than $20,000,000+   0.84%

Bond Underwriter Fee

Fee varies with the size of the transaction, but generally ranges from 1.25% - 2.0% of the bond amount.

Interest Rate

The interest rate on the mortgage will be based on the interest rate on the bonds. Rates will include an HFA servicing fee (see below). The ongoing fees of the credit enhancer will be charged to the borrower, as well as remarketing fees, if any.

HFA Servicing Fee:

Construction Period

Annually 0.125% of the bond amount.

Permanent Period

Annually .20% of the bond amount, less the redemption of any taxable bonds at conversion.

Servicing Fee is payable monthly in arrears with each mortgage payment.

See Multi-Year Volume Cap Fees for additional information.

Financing Advisor Fee

Fixed Rate Bonds/Variable Rate Bonds:

Bond Amount Fee
$20,000,000 or less $10,000
Greater than $20,000,000 $12,500

Negative Arbitrage

The borrower is required to provide a letter of credit to cover negative arbitrage prior to bond closing if bonds are sold prior to funding the permanent loan. The amount of negative arbitrage is based on the bond rate, reinvestment rate and when bond proceeds are advanced. Negative arbitrage applies to fixed rate, take-out financing only.


Multi-Year Volume Cap Fees

All tax-exempt private activity bonds require an allocation of volume cap. Beginning in 1998, the New York State Legislature approved the financing of multifamily rental housing with tax-exempt private activity bonds issued by HFA using future allocations of volume cap. This multi-year allocation is particularly designed to meet the financing needs of larger projects. Because of the special nature of these multi-year volume cap allocation financings, HFA has established the special fee structure which follows:

HFA Commitment Fee

The lesser of $50,000 or 0.2% of the total amount of the loan, payable at execution of the HFA Commitment.

HFA Financing Fee

Financing Fee will be calculated following the Mortgage Origination Fee outlined above. Payment of the fee will be due as follows: upon closing of the first tranche, 50% of the total financing fee, less the paid HFA Commitment Fee: upon closing of the second tranche, 25% of the total financing fee; upon closing of the third tranche, 25% of the total financing fee. The total financing fee shall be recalculated at each tranche and adjustments will be made accordingly.

HFA Multi-Year Volume Cap Processing Fee

$25,000, payable upon closing of the first year bonds.

HFA Servicing Fee

Shall be set forth in the servicing fee schedule outlined above.

HFA Out-of-Pocket Expenses

Upon closing of the first tranche, HFA pays its customary fees for bond counsel, printing, rating agency, and other out-of-pocket expenses from the Commitment Fee; upon closing of the second tranche, borrower pays fees for bond counsel, printing, rating agency, and other out-of-pocket expenses; upon closing of the third tranche, borrower pays fees for bond counsel, printing, rating agency, and other out-of-pocket expenses.

New York State Bond Issuance Fee

Upon closing of the first tranche, standard fee on the amount of the first tranche; upon closing of the second tranche, standard fee on the amount of the second tranche; upon closing of the third tranche, standard fee on the amount of the third tranche.

Financial Advisor Fee

Standard fee upon closing of first tranche; no additional fee for second and third tranches.


Application

For further information and an application package please contact:

Roger Harry
Assistant Vice President
Multifamily Finance
New York State Housing Finance Agency
641 Lexington Avenue
New York, New York 10022

Tel: (212) 872-0506
Fax: (917) 274-0506
e-mail: Roger.Harry@nyshcr.org