An Overview of the HOME Program

1. The Big Four
HOME Investment Partnerships
Program

2. HOME Program
HOME regulations are located in:
Title 24 – Housing & Urban Development of the
Code of Federal Regulations
Part 92 – HOME Investment Partnerships
Program
The Big Is…….
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3. 24 CFR §92.250 (b)(2)
1. An assessment, at minimum, of the current
market demand in the neighborhood in which
the project will be located
2. The experience of the developer
3. The financial capacity of the developer
4. Firm written financial commitments for the project
AND…..
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4. 24 CFR §92.250 (b)(2)
Let’s break it down.
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5. 24 CFR §92.250 (b)(2)
An assessment, at
minimum, of the
current market demand
in the neighborhood in
which the project will
be located . . .
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6. How can the market demand be proven?
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7. Submit a market assessment documenting the demand for
additional affordable rental housing in the location proposed, the
supply of affordable rental housing, and other pertinent information
such as the location of employment opportunities and schools. If
your organization maintains a waiting list of individuals interested in
leasing a unit from your organization, indicate how many families are
on the waiting list. Explain the marketing plan and indicate who will
be responsible for marketing and leasing the units.
For projects requesting HOME funds with 1 to 4 units:
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8. Suggested sites to aid in the determination of
market demand:
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9. FFIEC (Federal Financial Institutions Examination Council)
Provides Census Tract information
https://geomap.ffiec.gov/FFIECGeocMap/Geoco
deMap1.aspx
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11. USA Location Information
Provides state, county, city statistical
information
http://www.usa.com/west-virginia-state.htm
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13. West Virginia Statewide Housing Needs
Assessment
Provides State statistical information
http://www.wvhdf.com/Housing-Needs-Study
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15. The burden of proof is on the developer.
Do not copy and paste statistical
information to prove the market demand.
Assimilate the statistical information in a
logical format to prove the project will achieve
full occupancy in a timely manner.
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16. How can the market demand be proven?
For projects requesting HOME funds with 5 or more
units:
Submit a professionally prepared, Project specific
market analysis.
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17. Why prove market demand?
§92.252
. . . If the housing is not occupied by eligible
tenants within six months following the date of
project completion, HUD will require the
participating jurisdiction to submit marketing
information and, if appropriate, submit a
marketing plan. HUD will require the
participating jurisdiction to repay HOME funds
invested in any housing unit that has not been
rented to eligible tenants 18 months after the
date of project completion.
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18. 24 CFR §92.250 (b)(2)
. . . the
experience of
the developer
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19. 92.300(a)(3) . . . To be the “developer,” the
CHDO must be in sole charge of all aspects of
the development process, including obtaining
zoning, securing non-HOME financing,
selecting architects, engineers and general
contractors, overseeing the progress of the
work and determining the reasonableness of
costs. At a minimum, the CHDO must own the
housing during development and for a period
at least equal to the period of affordability in
§92.252.
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20. 92.252 Rental Housing Activity
Rehabilitation or acquisition of existing Housing per unit amount of HOME funds:
AFFORDABILITY PERIODS
Under $15,000
5 years
$15,000 to $40,000
10 years
Over $40,000 or rehabilitation involving Refinancing
15 years
New construction or acquisition of newly Constructed housing
20 years
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21. Does the Developer have the
bandwidth to see the project from
application to completion and
through the affordability period?
Does the Developer have paid
employees with housing
development experience who work
on projects assisted with HOME
funds?
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22. Assessment of Developer Experience
• Performance of previous projects
• Timeliness of submissions
• Accuracy of submissions
• Includes review of CHDO Operating Expense
Grant performance
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23. • Tenure and experience of development staff
• Time organization has been established
• Time Executive Director has been with the
organization
• Time Executive Director has served in current
position
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24. • Number of programs organization operates
• Successfully completed projects?
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25. Why confirm developer experience?
92.205(e)(2)
If a participating jurisdiction does not complete
a project within 4 years of the date of
commitment of funds, the project is
considered to be terminated and the
participating jurisdiction must repay all funds
invested in the project to the participating
jurisdiction's HOME Investment Trust Fund in
accordance with §92.503(b).
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26. 24 CFR §92.250 (b)(2)
. . . the financial
capacity of the
developer
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27. General considerations for
financial capacity include
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28. Budgeting: The
organization should
conduct annual
budgeting of its
operations, all activities,
and programs. It should
track report budget
versus actual income and
expenses.
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29. Reporting: Financial reporting should be
regular, current and sufficient for the board to
forecast and monitor the financial status of
the organization.
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30. Cash Flow Management: The organization
should know its current cash position and
maintain controls over expenditures.
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31. Internal Controls: The organization should have
adequate internal controls to ensure
separation of duties and safeguarding of its
assets. There should be sufficient oversight of
all financial activities.
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32. Procurement/Conflict of Interest: The
organization should have a conflict of interest
policy governing board members, employees,
and development activities, particularly in the
procurement of contract services and the
award of housing units for occupancy.
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33. Insurance: The organization should maintain
adequate insurance, including liability, fidelity,
bond, workers’ compensation, property
hazard, and project.
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34. Financial Stability: The current balance sheet
and budget should indicate a sufficient,
diversified, and stable funding base to support
essential operations.
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35. Portfolio Financial Condition: If the organization
has a portfolio of properties, they should be in
stable physical and financial condition.
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36. Strategic Plan: The developer needs to provide
the 3-5 year strategic plan.
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37. Will the proposed project add to the financial
stability of the Developer?
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38. Liquidity: Consideration is given to:
• Are there liquid assets available to cover
current expenses?
• Are funds available for predevelopment
expenses?
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39. Audited Financial Statement Review
The Fund will evaluate financial capacity by
reviewing the three most recent annual
audited financial statements, which must
include 2 CFR 200, if required.
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40. An ongoing concern or qualified opinion will
automatically disqualify an organization from
further consideration for funding until the
financial situation is corrected and the
organization obtains an unqualified opinion.
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41. Consideration will be given to the number
and/or severity of findings. Significant
weaknesses in internal controls relating to
federal funds management that remain
uncorrected will disqualify an organization
from further consideration until all findings
have been corrected.
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42. Trends in financial statements will be reviewed,
and a request may be made to explain any
fluctuations.
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43. Review of Debt Service Coverage Ratio
Minimum DSCR of 1.20 = Fiscal Soundness
DSCR < 1.20 = Can a reasonable explanation be
provided?
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44. Financial Ratios will be calculated to provide
insight of the Developer’s Financial Capacity.
Do the ratios indicate a healthy capacity?
How are the ratios trending?
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45. Financial Ratios
Current Ratio Return on Sales
Days Cash on Hand Return on Assets
Debt to Equity Ratio Return on Equity
Acid Ratio
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46. Financial Capacity of Developer
Current Ratio
Current Assets / Current Liabilities
Ratio indicates amount of current assets for
every $1 of current liabilities.
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47. Financial Capacity of Developer
Days Cash on Hand
Cash & Short-term Investments / Daily Cash
Required
[DCR: (Total Expenses less depreciation, non-
cash expenses, and pass-through expenses) /
365]
Ratio indicates number of days that expenses
can be paid out of current cash.
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48. Financial Capacity of Developer
Debt to Equity Ratio
Total Liabilities / Total Unrestricted Net Assets
Ratio indicates amount of liabilities compared to
unrestricted net assets.
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49. Financial Capacity of Developer
Acid Ratio
Cash + A/R + Short-Term Investments / Current
Liabilities
Ratio indicates amount of liquid assets (not
inventory) compared to current liabilities.
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50. Financial Capacity of Developer
Return on Sales (aka Operating Profit Margin)
Net Income (add back interest expense & non-
cash items) / Total Revenue
Ratio indicates percentage of profit that is being
produced from total revenue.
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51. Financial Capacity of Developer
Return on Assets
Net Income (add back interest expense & non-
cash items) / Total Assets
Ratio indicates amount of annual income
compared to total company assets.
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52. Financial Capacity of Developer
Return on Equity
Net Income (add back interest expense & non-
cash items) / Total Equity
Ratio indicates amount of annual income
compared to total company equity.
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53. Financial Capacity of Developer
Mitigating Factors
There can be mitigating factors for a less than
ideal financial statement.
The Developer has the burden of proof to
provide mitigating factors and reasonable
explanations.
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54. Financial Capacity of Developer
Why confirm Financial Capacity of Developer?
Limited cash flow can be an indicator of limited
ability to successfully complete project.
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55. 24 CFR §92.250 (b)(2)
. . . and firm
written financial
commitments
for the project.
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56. There must be firm financial commitments –
written – from all project funding sources
prior to the commitment of HOME funds.
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57. Anticipate
Plan
Intend
Going to
Subject to
Or any word other than
NOTFirm financial commitments
FIRM
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58. Firm financial commitments must be:
• Fully executed
• Dated
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59. Upon confirmation of Firm financial
commitments, project underwriting will
commence.
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60. Sources = Uses?
Project Costing: Reasonable and necessary?
Accurate Rent Restrictions?
Accurate Utility Allowances?
Net Tenant Paid Rent properly calculated?
Project underwriting involves:
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61. Project Annual Expenses: Reasonable and
necessary?
Replacement Reserves: Adequate?
Any debt service? Properly calculated?
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62. Pro forma will be completed for the HOME
Affordability Period.
Does the project cash flow?
On paper: Is the project viable?
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63. §92.210 Troubled HOME-assisted rental
housing projects.
(a) The provisions of this section apply only to
an existing HOME- assisted rental project that,
within the HOME period of affordability, is no
longer financially viable.
Why confirm Firm Financial
Commitments?
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64. 24 CFR §92.250 (b)(2)
An assessment, at minimum, of the current
market demand in the neighborhood in which
the project will be located, the experience of
the developer, the financial capacity of the
developer, and firm written financial
commitments for the project.
Reminder of the Big Four:
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65. 24 CFR §92.250 (b)(2)
The Big Four IS NOT a Fund
mandate.
The Big Four IS NOT a HOME
Department directive.
The Big Four IS NOT a
management rule.
The Big Four IS a HUD
regulation.
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66. The Big Four
Comments?
Questions?
Discussion?
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67. The Big Four
Cathy Colby
Managing Director of the
HOME Program
304-391-8663
ccolby@wvhdf.com
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