ARCHPORTFOLIO & 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

0

50

100

150

200

250

300

REI(281)

REI/HUD(231)

FIXEDRATE(131)

HUD(33)

HALFREI/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

$450,0001996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Price Median Incomecan Afford

Price 90% AMI CanAfford

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 Incomecan Afford

Price 90% AMI CanAfford

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 CanAfford

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