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#2195638 - 10/17/18 02:20 PM CD Loan?
banker-12 Offline
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Joined: May 2007
Posts: 1,185
We have a combined construction-permanent loan of a multi-family apartment complex that is located in a moderate income tract. The proposed rents fall below HUDs fair market rents. The only thing that we do not know is if the tenants will be LMI until the units are rented out. We will not get credit without this information, correct?

At what point can we get credit for this loan? The construction will be completed until next year which is the time we can get the tenants information when the units are rented.

Thank You.

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#2196048 - 10/22/18 02:17 PM Re: CD Loan? banker-12
banker-12 Offline
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Joined: May 2007
Posts: 1,185
So I'm thinking that we will not get CD credit on these construction loans unless the loan were to get renewed during the permanent stage. Is anyone getting CD credit for these without knowing whether the tenants are LMI?

thanks,

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#2196089 - 10/22/18 06:11 PM Re: CD Loan? banker-12
mrogersfib Offline
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Joined: Aug 2018
Posts: 116
You can get CD credit for these--you just need to demonstrate that expected rents should fall below HUD FMR, and that a percentage of rents will fall below rent affordability thresholds. Say something along the lines of,
Quote:
"This development is located in a low-income census tract in XXXXX, XX and consists of 74 one-bedroom units, 107 two-bedroom units and 19 three-bedroom units with 85.50% of the actual rent rates below the 2018 Fair Market Rent for the area, and 95.00% of the units affordable to tenants earning between 34.78% and 73.62% of the 2018 area median family income of $69,000.00."

You discover the rent affordability threshold by taking the AMI multiplying it by 80% and then multiplying the result by 30% and dividing that result by 12. so
Code:
Y = (((X * .80)*.3)/12)
then determine how many units fall below that rate (95%). Then determine the lowest rent paid and the highest rent paid that is below the affordable rent threshold. For example the lowest rent rate was $600 and we would multiply 600 by 12 and multiply that result by .3, eg.
Code:
((600*12)*.3)=24,000/69,000=34.78%
.

Then in your write up quote the following statement from the Q&A:

Quote:
According to the most recent interagency Q&A under subsection .12(g)(1)-1, "For projects that do not yet have occupants, and for which the income of the potential occupants cannot be determined in advance, or in other projects where the income of occupants cannot be verified, examiners will review factors such as demographic, economic, and market data to determine the likelihood that the housing will ‘‘primarily’’ accommodate low- or moderate-income individuals. For example, examiners may look at median rents of the assessment area and the project; the median home value of either the assessment area, low- or moderate-income geographies or the project; the low- or moderate-income population in the area of the project; or the past performance record of the organization(s) undertaking the project. Further, such a project could receive consideration if its express, bona fide intent, as stated, for example, in a prospectus, loan proposal, or community action plan, is community development."


Then if your appraisal is attached they can utilize that document for the market analysis, or otherwise if your narrative document states why they used the rents they did that should be enough ammo for an examiner.

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#2196185 - 10/23/18 03:10 PM Re: CD Loan? banker-12
Pale Rider Offline
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Well done, Mr. Rogers!
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#2196222 - 10/23/18 05:50 PM Re: CD Loan? banker-12
banker-12 Offline
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Joined: May 2007
Posts: 1,185
Thank you. What if the property is located in a middle income tract? Can we still present the above rent affordability calculations? Can we get credit if not in an low or moderate income tract without knowing if the tenants are LMI?

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#2196228 - 10/23/18 06:34 PM Re: CD Loan? banker-12
mrogersfib Offline
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Joined: Aug 2018
Posts: 116
Yes, you can take credit regardless of location if you can demonstrate that LMI people are benefiting or are going to be benefiting from the project. A census tract designation is merely a measure of the median income--there are still low-income people inside of a tract regardless of the designation.

Quote:
§ll.12(g)—3: Does the regulation provide flexibility in considering performance in high-cost areas?
A3.


Yes, the flexibility of the performance standards allows examiners to account in their evaluations for conditions in high-cost areas. Examiners consider lending and services to individuals and geographies of all income levels and businesses of all sizes and revenues. In addition, the flexibility in the requirement that community development loans, community development services, and qualified investments have as their ‘‘primary’’ purpose community development allows examiners to account for conditions in high-cost areas. For example, examiners could take into account the fact that activities address a credit shortage among middle-income people or areas caused by the disproportionately high cost of building, maintaining or acquiring a house when determining whether an institution’s loan to or investment in an organization that funds affordable housing for middle-income people or areas, as well as low- and moderate-income people or areas, has as its primary purpose community development. See also Q&A §ll.12(h)–8 for more information on ‘‘primary purpose.’’

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#2196229 - 10/23/18 06:39 PM Re: CD Loan? banker-12
banker-12 Offline
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Joined: May 2007
Posts: 1,185
Thank you very much.

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#2196230 - 10/23/18 06:43 PM Re: CD Loan? banker-12
mrogersfib Offline
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Joined: Aug 2018
Posts: 116
You betcha!

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#2196281 - 10/24/18 12:46 PM Re: CD Loan? banker-12
dkcook Offline
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Joined: Apr 2017
Posts: 6
Mr. Rogers - AMI???

This is a little much for me to take in all at once but I understood most of it except the AMI acronym - actual monthly income?

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#2196327 - 10/24/18 05:08 PM Re: CD Loan? banker-12
mrogersfib Offline
100 Club
Joined: Aug 2018
Posts: 116
It's technically AMFI as Area Median Family Income, but the regulators designate it as AMI. Try searching your address at this location (https://geomap.ffiec.gov/FFIECGeocMap/GeocodeMap1.aspx), then click the drop down that says Census Demographic Data. The section that says 2018 FFIEC Estimated MSA/MD/non-MSA/MD Median Family Income is the AMFI, then you see the estimated income for the tract under 2018 Estimated Tract Median Family Income (TMFI). By dividing the TMFI by the AMFI you get the % which is used to determine if a tract is low-, moderate-, middle-, or upper-income. Greater than 0 and less than or equal to 50% is low-income, greater than 50% to less than or equal to 80% is moderate-income, greater than 80% to less than or equal to 120% is middle-income, and greater than 120% is upper-income.

Code:
Income-NA = (X=0%)
Low-income = (X>0% and <=50%)
Moderate-income = (X>50% and <=80%)
Middle-income = (X>80% and <=120%)
Upper-income = (X>120%)


Also here is a nifty list of terms: (https://center.stlouisfed.org/courses/common/glossary/glossary.htm@idproject=19.htm)

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#2220033 - 08/20/19 06:43 PM Re: CD Loan? banker-12
RookiE Offline
New Poster
Joined: Aug 2016
Posts: 15
So let's say I have a loan secured by a multi-family apartment complex in a middle income area. Monthly Rent is $855. AMI is $79,800. So doing the calculation Y = (((X * .80)*.3)/12) I get $$1,596.00 which seems high. But since FMRs for this particular county are at $760.00 this would NOT qualify?

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#2220066 - 08/20/19 10:00 PM Re: CD Loan? banker-12
Len S Offline
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Joined: Oct 2004
Posts: 1,859
Connecticut
This is an area (among many) that can be very confusing. Annually, the FFIEC releases a file that contains two income numbers. The first number is the 2015 MSA/MD Median Family Income and that number is used to determine tract income class (divide the tract's 2015 MFI by the above number). The second number is the 2019 FFIEC Est MSA/MD Median Family Income which is used to determine the income class of the borrower during 2019.

The income class of census tracts is calculated based on 5-year intervals adopted 2 years after the fact. Hence, the 2010 incomes were applied in 2012 and the 2015 incomes were applied in 2017. If a tract changes MSA or MD or leaves a MSA or MD the entire MSA/MD MFI must be recalculated for 2015 which is why they publish that first number. When MSA or MD's are changed it also can affect the statewide non-MSA MFI used for tract income class determination. In those cases the FFIEC will go back to the 2015 Tract MFI and divide it by the 2015 to determine the tract income class. They don't use the annual EMFI for that purpose. They use the quinquennial number adjusted as I have described.
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