ICF INTERNATIONAL, INC. Moderator: Marsha Tonkovich December 21, :00 pm ET

Transcription

1 Page 1. ICF INTERNATIONAL, INC. Moderator: Marsha Tonkovich December 21, :00 pm ET Operator: Good day and welcome to the Department of Housing and Urban Development hosted NSP Open Forum question and answer webinar. Today s conference is being recorded. If you would like to ask a question on today s webinar please press star 1 at any time. Additionally please change your feedback box to purple in the live meeting display. If you find that your question has been already asked, you may remove yourself from the queue by pressing star 2. Once your question has been answered please change your feedback box back to green. For today s opening remarks and introductions I would like to turn the call over to Miss Marsha Tonkovich, please go ahead ma am. Marsha Tonkovich: Good afternoon everybody, this is Marsha Tonkovich with ICF and glad to have you here with us on this almost holiday week and we re here for an open forum.

2 Page 2 We re going to start with a few remarks on some NSP3 and some mapping tool suggestions and ideas and then we ll move into the open forum where you can feel free to ask any question that you would like. I m going to introduce our speakers in just a moment but before I do let me recap again how you ask your questions. So there really are two different ways to do it, our first preference so that we can hear your question and you can provide us context and other follow up questions is that you go ahead and get into the queue to ask it verbally. So press star 1 and that will put you into the queue and we ll take them in timed order, so first come first served received. And then if your question is already answered, if someone else asks the same question and you no longer need to ask you can press star 2 to get out of the queue. If you don t have audio or if you would prefer to write in your question if you look at the top of your screen where you see that it says Q&A you can also in a question and I will verbally read them out to our presenters and they will answer those for you again in the time order that those are received. Finally later on in the call we may do a little bit of polling to ask for some feedback from you guys about what kind of webinars you d like to see in the future or other sorts of topics, so we ll let you know when we re ready to start that. So again star 1 to get into the queue. Also if you could please when you re ready to ask a question under feedback if you notice that there are green and purple buttons change your button to purple when you re ready to ask a question, when you re in the queue so that we can keep a track of the volume of questions that we have and know how many more we have to get through.

3 Page 3 Change yourself back to green when you ve asked your question. So with that let me go ahead and introduce our speakers, John and David, and many of you have met them many times before. They are the terrific team that s been doing all of these live conference calls and also the clinics around the country. So I ll let them introduce themselves to you and go ahead and kick off the presentation. John: Hi, thanks for joining us, we appreciate you taking the time on this week before the holidays start and we did want to make ourselves available one more time just to let you have a chance to ask some questions. We will go through some of the mapping again because people still seem to have some trouble with that. If you feel totally comfortable with the mapping and you want to come back in 15 or 20 minutes that s probably what we re going to be spending the first bit of time on. But we continue to get questions and we want to make sure that people get that down. We will though have another webinar on the NSP design and NSP3 design and some of the mapping issues on Thursday January 6 and Marsha will be - the design and the rules and regulations, right for a combined two of our workshop topics combined. And Marsha will be handling that and we ll be available probably for questions and so on. David: And it s specifically geared towards our newer grantees that didn t receive NSP1 or 2 funds directly.

4 Page 4 John: I think it will also be useful for anybody who s got a new staff person that s trying to kind of get some of the basics so I mean anybody s certainly welcome to listen in. But that s our target audience is the folks that are new to the program, whether it s a new grantee or just a new job or something like that. Marsha Tonkovich: Well I don t see anybody who s redesigning their program as well, if you found it hasn t worked and you re looking for some new ideas, it might also be helpful to you. John: That s true. Marsha just wants to get 600 people on. Marsha Tonkovich: I do, our record so far was 650, so. John: Okay. It s a little bit of TA and TA provider jockeying. Okay so let s start off and - with the first slide. Marsha Tonkovich: John do you want me to page down for you? John: Yes, would you mind? Okay, so just in terms of the context on this, so there s some key issues that you need to be thinking about with your NSP3 program or with the redesigned program from an earlier funding round. The first thing is to analyze the market so that you know what program types work in that market. So if you have a reasonable expectation that your market s going to come back, you re in the LA area for example, you know prices are down but nobody thinks it s going to continue forever then acquisition and resale is probably a pretty good program. If you re at a place that has you know lost major parts of its economy over the last 20 years, that probably isn t as good a choice for you, so just to pick two extremes, you know those are the kind

5 Page 5 of fit you - the kind of program you have really needs to fit the market that you re working in and there s different submarkets too. So you know it s not all - they don t all behave the same in every part of town. So you need to get to know what s going on out there or talk to your realtor s association, get to know some of the real estate people that are active in the program. Talk to lenders, particularly if you have some REO lenders in town, see what they re thinking, see what they think the patterns are. You don t have to do exactly what they re doing but they are looking at the same problem that you are looking at. Second point is to engage partners. So you may have CHDO or you may have a non-profit or you may have a for profit organization that could bring something to you either in terms of financial support or the ability to carry out projects at a lower overhead. So this would enable you to do more with the same amount of money and often times you will also be able to do things faster. And velocity matters in this kind of a program so that if you can get things - if you can get three things going at once instead of one thing and then another and then another chances are you ll establish - or you ve got a better chance at establishing sort of a beach head in some of these areas or creating some critical mass where things just seem a little bit - you know it s kind of dissolved at this point. And look around at other sources of funds, HOME funds work very well with this, CDBG work with this. Low income housing tax credits work with our programs.

6 Page 6 So there are a variety of sources that you can use that may be out there and in fact some of these tax credit projects are you know kind of strung out these days because of the way the market has gone on the credits. So you may have something that they need as well and so you might find yourselves capable of partnering up on a low income housing project that helps you meet your 25% set aside and helps somebody use the tax credits that they re otherwise struggling to fill a gap with. And then you want to take some time and if you don t have a program from previous years, talk to some of your comparable communities and find out what they re spending for say acquisition rehab and resale. You know get an idea of what the average cost is. You also know that you re going to have 10% for general administration and you probably have a comparable amount or maybe even more for project administration which is all the things that you do to build - to buy and rehab and sell a house. All the inspections and all the application taking and all the financial assistance help that you put together, those are all project costs that go into the project line item. We re going to be coming out with some guidance on that hopefully soon and - but it s - so we ll take you through an example next time, but this is going to be important because in order for you to know how much you can do you need to be able to break it down roughly into sort of a number of units that you can deliver.

7 Page 7 So if you re buying a fix it up and selling houses it s going to be more expensive than if you re just demolishing units for example or - you know and so each component of your program will have a sort of range of cost associated with it. If you can get a sort of average cost and just kind of rough out a number for yourself then you know what ballpark you re playing in. And then what that will tell you is what to do with the map so let s go to the next slide please and we just have an example of that. So let s say your grant is $2 million and you re planning to - you may have more than one project open up for the sake of simplicity we re just going to pretend that you only have a single family acquisition rehab and resale program. And you know from your NSP1 program that your average cost per unit that you re leaving in the units is $40,000. So you - maybe you spend $80,000 buying it and fixing it up. But then when you sell it you get $40,000 back for the mortgage and you leave in some of the money as a soft second. So this is your net cost for per unit. And then you ve got let s say conservatively 25% general administration and activity delivery costs, project administration costs for a total of $50,000 per unit. Now if you divide the $2 million by $50,000 you see that you can get 40 units. Now if you reach around and find a partner and this partner has some additional resources it could bring to you, they might be able to do ten more units.

8 Page 8 You ll have your $2 million will allow you to do 50 units so that s kind of your scale. That s about you know maybe it s a little more, maybe a little less but that s the ballpark you re playing in. Now I m going to show you how the map kind of matches up with that scale of your program. So first I really recommend and Todd Richardson mentioned this to and he told me about it, this policy map and we ll take a look at it, shows you the whole town or the whole neighborhood, a bigger area so that you re not sort of going into the HUD mapping tool and trying to guess what the demographics are and what the foreclosure needs are and so forth. So what you do is you go to policymap.org, on the right hand side of the page there s this little orange button that says go to policy map and you press that and it takes you to another page that has this header on it. And as you see on the lower line there s a number of different categories of information that they have, real estate analysis, demographics, and etcetera. The one you want is towards the right, it s called federal guidelines. And when you hover over that or click on that it will give you a menu below that and the menu below that you want is NSP data, NSP3 data and then it will set off another sub menu and you want to go to foreclosure needs score. So they have the policy map people have the entire country mapped with all the foreclosure needs scores for the entire country. So - and then they have it broken down into ranges from 17 to 20 and different you know sort of groupings below that. So next slide please Marsha, okay so we re going to go visit President Obama s neighborhood.

9 Page 9 And what this - so we just typed in a zip code and it came up with this information. So what this - the key along the left hand side shows you that the lighter the purple the lower the foreclosure need score and the darker the purple the higher the foreclosure needs score. And the darkest one and the one which pretty much dominates this map is the really dark purple and that s 17 or more. And in many states that is the minimum score that you need to establish the eligibility of a target area. In some states it s lower than that. So now you can see here that there are some areas towards the north and towards the east that are a little bit less dark purple and so we re going to use two examples to show you what kind of information that you get. So now we re going to go to the HUD mapping tool and we re going to go to this website and you re going to see this information and we type in on the left hand side this - the zip code. And it pulls up - you can t see the whole thing but it pulls up this neighborhood and this area is one of those areas that was less purple than the really dark areas. So we re going to call this neighborhood one and we ve outlined by clicking on the draw tool this area. Now in order to draw on these maps you have to register which is a simple matter of putting your address in and picking a password for yourself. It takes no time at all and once you get that you can then draw maps to your heart s content and these maps don t have to match census areas. There is the ability to see census tracts on here. You can t draw the map, I don t believe at the same time that the census tracts are showing but the advantage of this system is that you can match your target areas to actual neighborhoods as opposed to census neighborhoods which are similar in many cases but not the same.

10 Page 10 So we ve laid out target areas here from 47th Street down to East High Park Boulevard and along South Lake Park avenue on the east and almost Cottage Grove Avenue on the west. So this is neighborhood number one. Now when you draw this in it will ask you if you want to save this area. And if you say yes you want to save it then it will record this map and it will send you within about two hours the data for this area. I was doing this last night and I got it in maybe 45 minutes so it really hasn t been taking that long and so what you get then, can we go to the next one Marsha please, and this is an abbreviated version of the kind of information that you get but it takes you through all the scores of the neighborhood. And I didn t reproduce the whole - it s a couple of pages of data but if you look towards the bottom, three lines up from the bottom it says neighborhood NSP3 score, So it looks like Mr. Obama will not be able to buy the house down the street and get NSP financing for it partly because he s over income and partly because there probably isn t a foreclosed unit down the street from him. So the minimum score for the city of Chicago is 17. So of the 3540 units in this neighborhood, you know it s kind of at a moderate level of foreclosure needs. Not to say it doesn t have some. In a neighborhood like this might be combined with a highly stressed neighborhood or combined as a part of a larger one and still be able to be reached. But for the most part you won t be going into this neighborhood. Now on the next slide we have a different neighborhood and that is to the west and to the north of the one that we just drew.

11 Page 11 And this one is along 47th and Cottage Grove and 43rd Street and this is a much more stressed area as those of you who know Chicago are aware. Now actually this area has been coming back so this in general before the crash this neighborhood was starting to see some new investment and so this is the kind of place where you really might want to go because you ve got some momentum in there and you want to try to keep that momentum going and turn around the slide that s going down. So on the next slide we can see that this neighborhood scores so it will be eligible to be a part of the NSP program. And then towards the middle of the second page and I put it on the bottom here and it s in red is the estimated number of properties needed to make an impact in the identified target area. In this case it s 13 units, so we estimate that at least 20% of the REO properties need to be treated in some way in order for you to have some - to make some difference on the entire neighborhood. And so that s the area that we re asking you to work in, that s the zone that we re asking you to play in. Not to spread yourself and do two units in one area and three units in another area. But since this number is 13 and your program allows you to do 50 units, you can still go into another target area or two or three more target areas or expand this one till we get to the point where you ve got a total of 50 units that are needed to make an impact.

12 Page 12 Now you could go with fewer than that but we don t want you to go with more than that 50 units that you can actually accomplish and we want you to be doing that in an area where that collectively adds up to 20% of the total REO in all the neighborhoods that you re working in. So it s not complicated but there s a number of steps that you have to go through and I just want to really kind of stress the thought process, you know understand what s happening out there, figure out who your partners are and who your - you know whether you ve got any financial sources of support to expand the scope of your program. But at some point you will have expanded the program as much as you can in the time that - in the foreseeable future. And that number of units that you treat will become the number of units that is kind of your upper limit for your total target areas. So we can take some questions on that but that s basically the heart of the exercise. Let s save these for a little bit later Marsha and come back and maybe take some questions on this if we - do we have some people yet? Marsha Tonkovich: We do, we have about six calls on the line and then we have six questions written in. So Marvin why don t we go ahead and take our first caller please? Operator: Our first caller is Lisa Ahern with Rock Island Economic Growth. Marsha Tonkovich: Go ahead Lisa. Lisa Ahern: Hi there. I have a question about closing after you ve acquired a property in the HUD settlement statement and my question ties to the amount that we actually can be reimbursed for when you re looking at the HUD1 and I m wondering if say the property, the sales price was $75,000 and you had another $500 in closing costs.

13 Page 13 So your gross costs are $75,500 and then you re getting some credits from the seller for taxes and maybe some repairs, so my question is what are you entitled to be reimbursed for on the HUD? Is it the net that you actually write the check amount for or would it be the sales price and your closing costs? David: When you say reimbursed for are you referring to the money that you re going to draw down from your NSP line of credit? Lisa Ahern: Well in some cases it s going to happen both ways because for instance we administer DRGR and we also you know are participating in the grant by property. So we would draw our funds in advance in the closing, we may not always know what the net amount will be. And in other cases we have consortia members who already closed their deals and are just asking for reimbursement. John: Well I don t think either of us is expert at HUD1s but we struggled with you know how much you can - what your total development cost is and I guess that s what I m thinking is - and I m not sure if the HUD1 shows you in effect the total development costs. I think it would be net of the credits though because those are coming in from the seller and those are not - I mean that s not affecting the purchase price but it s affecting the total development cost.

14 Page 14 Marsha Tonkovich: Well it s actually in the cash needed to close is what it really does, because if your cash needed to close is in your example $75,500 but then we have credits that take it down to $73,000 let s say, you really only need $73,000 to transfer title. Lisa Ahern: Right. John: Right, so we have a rule that you can t charge the buyer more than the total development cost and I think that same principle is true here. I mean you wouldn t be charging them or treating it for your purposes as a $75,500 deal if your net costs were $73,000. So I think you have to go with the net costs. Lisa Ahern: Okay, thank you very much. Marsha Tonkovich: All right, great, Marvin, our next caller please. Operator: Our next caller is Lindsey Haddock with New York City HPD. (Lindsey Haddock): Hi, how are you? Marsha Tonkovich: Good. (Lindsey Haddock): So we have a question, we re thinking about our NSP3 funds and looking to how we want to spend this. So there s a non-profit developer who s looking to buy a piece of property from a private owner. And they ve been able to successfully negotiate a price and this would be for the development of a vacant site and under eligible Use E, so this non-profit developer is looking to close with a

15 Page 15 vendor in January, February of 2011 before the environmental review would be complete in order to acquire this property since it s a third party owner to make sure they don t use the opportunity to redevelop it. And we would want to use NSP3 funds to fund the construction and/or acquisition of the property but we wouldn t be doing our closing of course until the environmental review is completed and we had the money in hand which won t be until - you know at least until after March of We re thinking it would close in October or December of 2011, so we were just a little bit concerned about whether it would be a choice limiting action if they went ahead and closed even though we haven t signed any contracts with the developer. We haven t - we don t have any binding agreements with him but if they acquire the property themselves with another lender before the environmental review was completed if that would be considered a choice limiting action. John: This is a good question, Marsha and I were just talking about this before, we are in the process of trying to get some clarification from our environmental staff. What we have said in the past and I m not sure it s 100% right is that if the property were acquired eligibly and if it s vacant it s still eligible. Now if it were a foreclosed property you would have to have some kind of an agreement with them to sort of maintain the eligibility of the property. So that s not the case here so in the case where you have to have an agreement up front you definitely have to do the environmental first.

16 Page 16 In this kind of situation we had thought that if the property were privately acquired and only rehabilitated or in your case built new with NSP funds that the project was new construction or the project was rehab. And therefore you couldn t reimburse the acquisition price but you could do rehab or new construction and in fact that s what the state of Massachusetts housing investment corporation is doing. But their project is just rehab. Now here s the problem. The definition of project in environmental terms is different from what I think a project is. I think of a project as a building or one of these - this type of development. Project for the environmental folks means virtually your whole program which makes it... David: So it s the activity. John: Right. David: So rehabilitation as an eligible activity and the environmental folks are saying it s your project. John: Right, but they seem to be saying that you can only be doing that and in most cases you know communities are doing multiple types of things. Now each activity stands alone but if you look at the way that the eligible uses are set up, you know most people are working inside B and then you ve got acquisition, you ve got rehab, you ve got resale. You know home ownership assistance, so what are you doing, is it really just rehab? I mean I m going to argue that you know a prior purchase of a property that s still eligible as a vacant

17 Page 17 property should have no effect on the city until it s - until the city gets into the development at which point as you say you could do the environmental review and so forth. David: However if you re using the NSP funds to acquire. Marsha Tonkovich: Or to reimburse the acquisition. John: Right, that s why we said you can t do the reimbursement. Now we said you could reimburse, you know you get reimbursed out of the sale proceeds or when they finance or you know when they put a permanent mortgage on it or whatever. So I mean I don t think we re hurting anybody in that sense but like in Massachusetts s case the developers will go out and buy the properties. Then they compete through an RFQ process so the state is not in any position to make a decision on the project until much later than the application was submitted. So what we want to do is kind of push that definition a little further in the direction that you d like to go. And all I can tell you today is that we aren t there yet. Lindsey Haddock: Okay is there any estimate on when there would be a definitive...? John: Well I m certainly shooting for as soon as possible in January, maybe mid-january. If we have to talk to the general counsel s office, it could be longer so you know I just can t say. But it s an important question; a lot of people are asking it. The current interpretations are too stiff in my opinion. And so you know hopefully we can argue for some flexibility on this definition

18 Page 18 without compromising the environmental laws which you know we don t write and we don t have any control over. Marsha Tonkovich: So John if Lindsey s non-profit has to act in early January should she consult with the environmental officer in New York City to get at least a temporary ruling? John: Well yes, she s got a good one there but I don t know if Therese can even tell her that. Yes, that s a good suggestion; you have one of the top environmental officers there, Therese Fretwell. But I mean this is something that s kind of being - it s been a point of active discussion for you know on and off for six months here. So we keep trying to bring it towards - in a direction of reality and we have made some progress. I ll have to say I mean I think Charlie Bien, our primary environmental officer on this has shown some willingness to be you know somewhat flexible on this. But we - you know if we have to go talk to their attorney it may take longer than the middle of January. I wish I could be more definitive but that s just the way it goes. Marsha Tonkovich: All right, thanks (Lindsey). So (Marvin) let s move on to our next caller please. Operator: And that s star 1 if you had a question at this time. Marsha Tonkovich: (Marvin) so are our phone lines clear then? Operator: Our phone lines are clear at this time. We just got a question from Ebony Baylor from Harris County.

19 Page 19 Ebony Baylor: Hi everyone, hi John, hi David. How are you guys? John: very good. Ebony Baylor: Good, I have a question about the mapping tool that you guys were just discussing and we are working you know and trying to identify areas in the census tracks that have been approved and one of the subdivisions, we kind of narrowed it down by subdivision just because the census track was so large. And we actually got a read out of zero, I didn t get a score, I didn t get any impact number or anything but on my - when I used the policy map that we just discussed the whole census track is purple. John: Now if you get a score of zero right away, but once the data gets processed, once the request gets processed through the system like an hour or two later you should come back with something. It should have data in it. Ebony Baylor: No, actually it didn t. I mean it looked just like the report that you showed on the screen and it just showed zeros for everything. And I mean we ve actually - it s a subdivision that we ve worked in before. Our on the ground data you know like our multiple listing shows that there s a lot of activity in that area and as I mentioned we purchased in that area before. But I guess my question is how do we justify wanting to work in that particular area when if the mapping data doesn t support it?

20 Page 20 John: Yes, it s possible that you ve picked an area that s smaller than a block group and that might be one reason that you re getting it, although Todd was saying that they actually do go down somehow. Ebony Baylor: Right, and I did put in, I ve had that issue as well, I put in a subdivision that was relatively small in size and it didn t even give me a report because it says there was no block tracts in that area. David: Can you me what you received back? Ebony Baylor: Sure. David: We can try to replicate it and figure out if there s a problem on our end or if maybe the boundaries were too narrow or something. Marsha Tonkovich: Well and I will tell you guys we ve had some ask a question questions on this topic and in some cases it s turned out that the predominant land use in the area that was defined was either you know park land or open space or some other type of zoning that s not residential. And so the system didn t recognize it as a residential neighborhood. Now that may not be the case in your area but maybe it s somehow misrepresented in the data or something like that. Ebony Baylor: Okay well what I ll do is I ll send the reports and also the pictures I guess, the mapping so you can see the area that was addressed. John: Let us ((inaudible)) about it and see if we can get back to you and if there s some kind of you know glitch that we can identify we ll post it as an FAQ too.

21 Page 21 You might want to in the meantime try drawing the map just a little bit bigger and see if you can get it to you know give you some figures and then you could always work in a somewhat smaller area. I realize it s going to change your base number a little bit but it might give you sense of whether there s just a hole in the data or what. Ebony Baylor: Right, and then the other piece to that that I wanted to ask again was the GIS mapping using the HMDA data from I guess what is between 2004 and 2007, and that you know as of to date again with the underground data that we have a lot of the profiles that are in the mapping tool I guess the profiles have since changed and where it s indicating on the map that there s not a whole lot of foreclosure activity, our to date data says otherwise. David: Is there some other data that you have that makes that point? Ebony Baylor: Well we have - I m sure in most cities they have a multiple listing and we re able to pinpoint an area, put in a zip code and pull up specifically foreclosures and we can get lists of hundreds based on our zip codes or a particular subdivision. We can put in a subdivision name and seek to see the foreclosures in that area and it would just isolate all of those you know rather than populating everything, we can just see what the foreclosures are in that area. John: Yes, we ve been reluctant to allow people to you know use their own data but obviously in a case like this something s not working right. David s going to go check right now but if we can t figure it out for you with the system then we might be able to allow an alternative.

22 Page 22 You know as you mentioned I mean some of the - I mean Todd is very confident that the data are predictive of conditions but they are estimates, you know it s not an actual count of you know foreclosure. It s more than just the number of foreclosed units so - and some of those things are you know somewhat imprecise but you know in total we hope they re pretty accurate. But we ll check it out for you. Ebony Baylor: Okay, I ll you the reports I got, thanks guys. Marsha Tonkovich: Thanks. I m going to go through some of the written in questions, we have about nine of them that are written in. So the first one comes from (Ellen Husa) and her question is please elaborate on the third paragraph under certifications on Page 9 of the instructions for completing the NSP substantial amendment of abbreviated action plans. Preferences for redevelopment of rental housing. I think she s asking about what you want. John: We just want you to say that you re going to have a preference for rental housing. We have not been able to divine what congress actually intended in a specific way there. David: That language was taken straight out from the statute. John: Yes, it is somewhat general, we recognize that. You know I think what they re going for is they don t want only owner occupied programs. I think most grantees in the previous couple of rounds ended up having to do rental housing to meet the 25% set aside requirement.

23 Page 23 There is no specific number that goes with it or no specific minimum, so we just want a statement that you will you know seek to maximize those opportunities and that s really it. David: Yes, and your plan should speak to how you re providing a balance of housing types for the population that you re serving. So however you arrive at that, we re more looking at the justification, the means rather than the end. It s no definitive number or percentage that you re going for. Marsha Tonkovich: Okay great. The next question is from (Juan Garcia), the impact scores of the max we are considering journeyed a high impact score and we are afraid if we create a small target area that it will make it much harder to find available homes that our partners can buy. How are the recipients dealing with this? John: Well they re dealing with it in a sequential fashion. We really can t approve a target area that s too large for you at this point. So there s a couple of things you can do. One of them is that you could look at a different target area. I mean maybe the target area that shows up on the map doesn t have a lot of properties and you could figure that out now and maybe shift it. Maybe you could propose a target area, do your best to treat it and then if you have pretty much exhausted your potential in that area, submit an amendment, come back in for another one. What we would rather have you not do is submit a bunch of target areas and say well we ll get - we ll go through these in order. We just don t have the capacity to approve something that s that open ended.

24 Page 24 Marsha Tonkovich: Okay. And (Juan) if you have a follow up to that feel free to call in. Okay from Bill Kingsbury from Gwinnett County Georgia, he has three questions written in so I m going to try to go through all three. A tiered approach is proposed. Three adjacent project areas have been selected. Focus will be placed on the first area, the area with the highest need. However if market conditions prevent NSP3 activities to be fully executed or if program income is greater than expected, the second highest score will be included in the target area and then the third. The ranking is based upon the number of REO properties s in each area. Is this allowed? John: Well as I just said you can submit a discussion of where you d like to go after your first target area but we re only going to be approving a target area that matches your resources and 20% of the units at a minimum to be treated in that area. Now if you go out and find you can treat actually 10% of the units because they re just not available or whatever we are very open to amendments. They are not complicated, they are not time consuming so - but you can t really submit three different areas and say well you know we ll get to one and then another. Because the way we record your action plan you know it s the target area, it s not this target area and then next year s target area.

25 Page 25 Marsha Tonkovich: Okay, question number two from Bill, we re an urban county that is an NSP3 recipient. We are working with a municipality within our county that is not a recipient. It has been proposed that the municipality through a public or non-profit housing authority establish a fund to purchase the foreclosed properties and then NSP funds pay for rehabilitation and home owners assistance. On the sale of properties eligible home buyer's program income will be less than the full investment to the property. It is proposed that the program income be used to fully reimburse the fund to purchase the house and then any shortfall come from grant funds. Is this allowed? David: I guess you need to take a step back. So if you plan to use NSP funds on any part of the project up front then you need to make sure that you have an agreement laid out if it s with a developer or if you re - housing authority or something of that nature. Other than that as you proceed with your project if you want to use another source of funds to carry out an NSP eligible activity and then use NSP funds to reimburse it, that shouldn t be a problem. The only thing here is making sure that anything that you intend the NSP funds to touch have gone through and the proper channels and have met the various requirements whether it be the environmental, the purchase discount, the day it was vacant, what have you. Marsha Tonkovich: Right, I think the key to Bill s question and again Bill call in if I m missing this but has to do with the shortfall issue and it s almost similar to the program I believe our friends in New York are doing.

26 Page 26 Which is that if there s a price to develop the home of let s say $100,000 but they can only sell it because of the market and demand and people s ability to afford for let s say $60,000 so there s a $40,000 gap between what they can sell it for and what it costs to develop. I think what they re saying here is can they reimburse the fund, in other words this is a fund that s a municipal sub recipient is going to set up for that shortfall. John: Yes well I think there s a couple things, maybe Marsha has some other ideas on this but I mean the general principle in CDBG is that program income is divided or excess revenues of any sort are prorated by the source of funds. However if you ve got a sub recipient agreement or a developer agreement, you can allow - well if it s a development agreement you could - there is no requirement to return the funds. If it s a sub recipient agreement, you can t allow the sub recipient to retain the funds for certain purposes. So I think there s probably a way of - to do this. Marsha do you agree with that? Marsha Tonkovich: Well it would be a sub recipient because it s a municipality as opposed to a private entity. I think you could certainly allow them to retain whatever program income, whatever proceeds came back from the sale you could allow them to retain those proceeds and again the NSP portion as John just said. David: Through more NSP eligible deals. Marsha Tonkovich: Yes, and put that back into the fund but I think - and again Bill I m not quite sure I m understanding the question so you may want to call back in or write back in.

27 Page 27 But if I m understanding your question Bill if you could - I don t think you could draw down additional funds. So in other words if a program income that came back in was the $60,000 that you could sell the house for, and you know somehow they had other costs they wanted to reimburse or something I think you [d have to make sure those were eligible part of the total development costs and they were eligible expenses. You d need to be careful about this idea of sort of making them whole. I think what you want to make sure you re paying for are eligible development expenses and whatever portion of those get reimbursed by way of the program income get reimbursed. But maybe we re missing part of your question so John and David would you agree with that? David: Yes, I mean the program whether it be program income or your line of credit is not intended to make you whole after the fact, right? You as the grantee may want to make some decisions up front as to when you are making a decision on which source of funds to use for the acquisition or for the rehab. You might want to consider, okay, where am I going to take a loss? All right, and I can afford to do it with the NSP funds, I may not be able to afford to do that with this other source of funds. Marsha Tonkovich: And the only thing I would add is I think that s a little different than the program that New York is running and if those guys are still on they may be able to jump in and ((inaudible)) for folks. But - which is sort of a loan loss guarantee pool that they are doing so that private lenders who are lending amount of development costs, banks are guaranteed that they will get reimbursed for the amount as it s sort of like a loan guarantee.

28 Page 28 That s a different structure. David: Yes, the difference is that that s a mechanism. Financing mechanism that s been set up to serve that purpose and the banks have required the funds to be used in that way. John: Right, as I heard the question it was about you know the revenues, sale proceeds and could they in effect give you know all the money to the seller that brought the land into the deal before they got anything from NSP. And I think that - I think if that s the question the answer is there s probably a way to do it by way of the agreement. Marsha Tonkovich: Okay. So the next question from Bill and last one was are - as related to establishing a project area of the proper size to have significant impact do we consider the number of houses we can purchase and rehab with just grant funds or with grant funds plus program income? John: Well I think it s reasonable that - to think about program income but what we re asking you to do here is just to look at the grant funds because we think that you know the 20% is really kind of the lower end of the range anyway and you may by the time you get two years into this project you know your hot neighborhood may be two census tracts over. So you know we don t want to ignore that and we certainly hope you can maximize it but it s kind of a variable. It s a little hard to you know really count on that so you can say oh well we re going to get an extra million bucks so we re going to do 20 more houses and therefore we can have a larger target area. You know I just don t see... David: You can adjust your target area as time goes on but what you submit up front will be based - should be based on the initial allocation you re receiving.

29 Page 29 Marsha Tonkovich: Okay, question from (Michael Pondra), regarding impact guidance on foreclosed and abandoned properties. He s asking whether we can also count other non-foreclosed properties in the target area where there are other federal or state investment towards the impact. John: Well - okay so our number is generated by taking 20% of the REO from the last 12 months, so that s kind of a - I mean there s already a lot of property out there and we recognize that. You know you re not limited to REOs that have been come on the market in the last 12 months, but you are limited by that number as a sort of - as a minimum level of treatment or suggested level of treatment. So when you go out there you know you ve got a house that just came on the market last week and you ve got one that s been sitting there vacant for two years. They re both eligible. If the question is not that then you should let us know. David: So I think that the other piece to it that I heard was that there are other sources of funds coming into the market aside from NSP and they are not targeting NSP eligible properties. But they re targeting other types of vacant properties let s say, can those be counted to achieve that 20% threshold? Marsha Tonkovich: I believe that was the question, yes. David: Right and I think the answer is no. So work within our confines of the definition. The way the tool was structured to identify the types of properties NSP funding was designed to address.

30 Page 30 So if these other sources of funds you have in your community are being used to target these NSP eligible properties, then great, that means that that s less work for you to do with your NSP funds. But if these other funds are doing other types of properties then that s not really getting to the source of what we re trying to attack. John: You know it s great that - if that s happening in terms of the chances of success but we re just kind of looking at what we can do and compare to that 20% number. But that 20% is you know probably a much smaller percentage of the total number of units that needs to be treated in an area. Marsha Tonkovich: Okay. The next question comes from (Kim Stands). If a site acquired by the city land bank is not blighted can it be counted as leverage for NSP2? David: We had a definition for leveraging. John: Well so if it s not - so it s being acquired with another source of funds I assume. And if it s not - you know we didn t really limit it. David: I don t think that the NSP2 NOFA specifically said that blighted properties have to be targeted to count it as leverage. John: The only thing that would really prohibit it as I recall is you know end loan you know first mortgages, you know mortgage money for the people that are buying the house is almost everything else is covered.

31 Page 31 But you know that question sounds like it s probably got some context to it that maybe if this answer is not meeting your needs why don t you just write into us and we ll try to expand on that. Marsha Tonkovich: Well and there s actually more from (Kim) so here s more context in her next one. So if it s not blighted then it sold to a private developer who chooses to demolish the existing site with non-nsp funds and then rebuild on the site with NSP funding in excess of $40,000 per unit then that s going to be the affordability period. What is the appropriate affordability period? Fifteen years is reconstruction or 20 years as new construction. David: Oh it s going to be based on the new construction. Marsha Tonkovich: Well it would depend on whether it s home buyer or rental because for home buyer, 15 is always the max, there is no 20 years for home buyer. So if it s - if it s rental you d have to look at whether it met the definition of reconstruction which is a fairly narrow definition. David: So the first piece of the question is that they re demolishing a non-blighted property with non-nsp funds. Remember we addressed that when we were in Detroit, that s fine, right? Second part of it is once it s demolished and they want to use NSP funds to put a new structure on it, what s the affordability period? And what you re saying Marsha is it depends on how it s being used. If it s used for rental it s 15 years, right?

32 Page 32 Marsha Tonkovich: Well probably 20. It depends on whether or not it s truly reconstruction. The CDBG definition of reconstruction is you re putting back the same number of units as you took down and it s approximately the same size. It doesn t have to be the same footprint, it doesn t have to be the same square footage but approximately the same size and the same number of dwelling units coming back. If that s the case and it s home buyer then - and you re going over $40,000 then it would be 15 years. If it s rental again you d have the same definition of whether it s reconstruction or new construction, if it s new construction it would be 20 years for rental only. John: Here s what I say about the reconstruction versus new construction is that if you have to go to eligible Use E to make this work as a piece of vacant land, then I think you re in new construction territory. You know if you could have done it under B, you might make a case for reconstruction but you know I mean I really think you ve got a new construction project when you play by those rules. But the only time it makes a difference is for the rental housing. So you know. Marsha Tonkovich: So 20 years for rental, 15 for home buyer. David: You can take a look at the regs, the tables are right in the home regs, it s Marsha Tonkovich: Okay another question from (Kim), if a project is funded with NSP2 funds and other loan funds by a consortium member with the NSP funds acting as the sole development subsidy and affordability subsidy can the developer take a developer fee based upon the percentage of other loan funds to the total development cost.

33 Page 33 So this is the one question I think you guys mentioned recently about when you have a mixed financing project and the developer is a consortium member can you take a fee on the non-nsp portion? John: Okay, the answer is yes but they can take the fee that you negotiate is a common fee for your area so let s say it s 12%. You can take 12% of the non-nsp portion. You can t take - so let s say you have a third of the funding is NSP and two thirds is private funds. So you know you can take 12% of the two thirds but you can t take 18% of the two thirds and kind of make yourself 12% of the whole deal. So you ve got to - you know it s 12% of you know it s the developer s fee which is common in your area applied to the balance of the funding that is not NSP funding. In other words you can t load an entire developer fee into the other part of the deal. Marsha Tonkovich: And John I imagine in the files you guys would be looking for some sort of cost analysis that would show how the costs were allocated to NSP. John: Have to do a cost analysis for all of these, so you know if you re underwriting it or however you do this. Marsha Tonkovich: Okay, one last one from (Kim) and then I think we ll move on. If that is done can a developer take a project delivery cost based on a proportion of the NSP funds to the total, in other words take product delivery on the other half.

34 Page 34 John: Yes, now so that s what a developer for profit or not for profit can do is they can get all of their costs, all of their hard costs, all of their soft costs that are directly related to the project. So you know the inspections, the appraisals, the land development, the construction itself, the materials all that stuff is part of the development cost. And it comes out of the project budget and is not part of - not what we would consider part of a developer fee which is profit and overhead. So all they re giving up is profit and overhead on that portion of the project. Marsha Tonkovich: And I would say it s not really based upon a proportion, you re not going to calculate the project delivery cost as some sort of mathematical formula but rather what you re going to look at are those actual costs, the kinds of costs that John just referenced. Okay the last one was can shop - self-help housing funds provided for habitat or to habitat be counted as leverage for NSP2? John: I think so, yes. Marsha Tonkovich: Well it s federal money. Shop comes from it s out of the home office. David: I haven t looked at that. John: Let me look at the NSP2 regs. I don t think - it s been a while. Let s see. Non-federal we did, nonfederal, non-nsp, non-cdbg and non-federal resources.