Does the retention agreement have to be printed on legal size paper?
You need to confer with your local recorder's office to see if they have any special guidelines. Generally,the font size requirement is no less than 10 pts and letter size paper is sufficient.

Our bank provided a downpayment grant for a household that is now facing foreclosure. What is the bank's responsibility?
The bank or its designee is required to make an appearance on behalf of the FHLBI to acknowledge that the lien is valid. If, after foreclosure, the bank is unable to recover enough funds from the proceeds from the Sheriff's sale to repay the grant, the grant is forgiven. The bank will be required to provide FHLBI with a closing statement or other documentation that validates that the proceeds at sale were insufficient to repay the grant.

Does a deed-in-lieu of foreclosure absolve the bank of a responsibility to repay a grant?
No, a deed in lieu of foreclosure does not mean that the subsidy is forgiven because it does not extinguish the liens on the property. The subsidy can be forgiven upon a foreclosure, but the member bank still has a duty to try to recover the subsidy amount in the property at a sheriff's sale.

Our financial institution provided downpayment assistance to a household two years ago. The customer is now refinancing their home with another lender. Do we have to subordinate the grant?
In the event that a customer refinances their home before the end of the 5-year retention agreement, the decision to subordinate the grant is up to the member institution. Obviously, if the same bank that provided the grant is doing the refinance, it's a much easier decision. If the refinance is with another institution and the bank decides to subordinate, the bank is still responsible for returning funds to the FHLBI if required. In addition, if a member subordinates and the customer refinances again prior to the 5 year retention, that originating member may be required to subordinate once more.

Our bank provided an FHLBI downpayment assistance grant to a household a year ago. They are selling the home to another income-eligible household. Can we still require the grant to be repaid?
The required regulatory language in the homeownership retention agreement states that, "in the case of a sale or refinance prior to the end of the Retention Period, an amount equal to a pro rata share of the direct subsidy that finances the purchase, construction, or rehabilitation of the property, reduced for every year the borrower has owned the property, shall be repaid to the member for reimbursement to the FHLBI from any net gain realized upon the refinancing, unless the purchaser is a low- or moderate-income household."

FHLBI recognizes that this language may be problematic in its implementation. First, it assumes that the sale and purchase of the unit is financed with the same financial institution, which in most cases, it is not. Second, even if both transactions were with the same institution, it would be more practical to allow the new homeowner to obtain a new grant for the maximum amount as opposed to "assuming" the remaining grant. Keep in mind, that the member financial institution can have more restrictive rules than our regulation may require. Some financial institutions require customers to sign an agreement acknowledging that the grant must be repaid in the event of sale or refinance. A Rider to Retention Agreement is available on our website under Grant programs forms.

We have a scattered site rental project and need to sell off two of the units. Do we have to repay the full amount of subsidy even though the units have remained affordable for eight years?
Unlike homeownership projects, by regulation the entire subsidy must be repaid for each unit sold. We believe that regulation may change in the near future, but for now it is a full recapture on units sold. In some instances it may be possible to modify the project to release some of the units.

Who is responsible for the release of the retention agreement?
The member bank is solely responsible for releasing the mortgage, whether partial or full, as well as any subordination.

We have been awarded a HUD 202 project, but we have a funding shortfall. Can we use AHP?
HUD Notice H 99-7 transmits a Memorandum of Understanding (MOU) between HUD and the Federal Housing Finance Board, which sets forth the policy for such financing, as well as the legal documents that must be used. HUD does not permit subordinate financing for such items as the minimum capital investment or items that would change the character of the project, but does allow items such as major structural repairs, excess land costs, etc. Specific documents have been drafted for these transactions, including the Rider to Lender's Deed of Trust or Mortgage. Please contact FHLBI or your local HUD representative if you are considering using AHP with a 202 or 811 project.

For purposes of basis, we would like to structure the AHP as a loan from the nonprofit to the partnership, can we do this?
Yes, however, section 951.13(d)(3) of the regulation states that “if a member or a project lends a direct subsidy to a project, any repayments of principal and payments of interest received by the member or the project sponsor must be paid forthwith to the Bank.” The FHLBI will require a copy of the executed note between the sponsor and the partnership verifying that no interest or principal will be repaid during the 15-year retention period.

Refinance

Our company developed an apartment building that was rehabbed in '95 with an AHP award of $150,000. We have received an attractive offer from a buyer who wants to make it upscale since it's in an historic district? Is it okay to sell?
Yes; however, the full amount of the AHP subsidy will have to be repaid upon the sale of the building. On rental projects, the targeting commitments are made for the full 15-year term. If the project no longer provides affordable housing, even if this occurs in year 14 of the retention period, all of the AHP subsidy must be repaid.

Member Responsibilities with AHP projects

Members should review the implementation plan to understand their monitoring and underwriting responsibilities. The regulations require the member financial institutions (members) to perform certain duties, such as obtain and review monitoring reports. The member should also attend FHLBI sponsored training sessions to fully understand the process. The regulations require the member to secure a legally enforceable retention agreement with a proper legal description for each property receiving AHP funds. As long as the member complies with its responsibilities and conducts its best collection efforts, the regulation limits its liability.

Application
We ask that the member bank “underwrites” the project and the sponsor/owner to determine project financial feasibility and viability, and sponsor capacity to meet commitments made in the application.  Members typically have ongoing relationships with sponsors/owners and have done similar analysis in the underwriting of a bank loan. Members also have in-depth knowledge of the affordable housing and community development activities being undertaken in the community, as well as overall city planning activities.  This provides the member with more local capacity to evaluate project viability and whether the proposed project “makes sense” in the proposed community or neighborhood.  Other involvement or knowledge of the sponsor may come from board involvement or other relationships the sponsor/owner may have with the member bank. For new sponsor/owners this process may take additional time and effort in order for the member bank to assess these issues.   

Monitoring
The member bank is responsible for the administration of the grant, including periodic reporting. Often times we see that the member bank then devolves that responsibility to the sponsor. This means that the completion of the Semi-Annual, Completion Monitoring and other reports are completed substantially by the project sponsor/owner.  The member then reviews that information for accuracy, signs the report, and forwards to the FHLBI.  The member can ask for any additional information or provide any additional level of control it desires, i.e., site inspections, additional certifications or disclosures.  Generally, the existing banking relationship with the sponsor/owner will dictate the amount of additional information needed.  Significant loan or depository relationships in addition to board involvement with the organization may shore up some of the concerns the member may have. 

Long Term Monitoring
The member is required to do an exterior physical inspection for habitability once every three years.  Because most AHP activity is done in the members' local market area, this usually does not take significant effort.  Lastly, depending on the amount of the subsidy, the member must review sponsor's rent roll information (income sampling) prior to submission to FHLBI.  The FHLBI also reviews the sampling information in detail and will alert the member and sponsor to any inconsistencies or compliance issues. 

Disbursement
The member devolves the responsibility of assembling required documentation to the sponsor/owner.  The member then verifies the accuracy of the information, consents to the disbursement by signing the request, and then forwarding to FHLBI. Disbursement Requests ask for extensive information, including cost documentation, invoices, settlement statements, purchase agreements and other such information to justify the amount of subsidy being requested.  The member can ask the sponsor/owner for additional documents and will generally make checks joint with sponsor/owner and contractor to ensure proper payment.  When AHP subsidy is put into the project, the member is also required to execute a Retention Agreement which is a mortgage document. This will “protect” the subsidy and alert the member bank if the sponsor/owner attempts to sell or refinance the property prior to the end of the 5 or 15 year retention agreement.  Before disbursing funds, the FHLBI does extensive analysis to determine that the project is still viable and financially feasible.  We also rely on the member's analysis to assist us in the evaluation of these issues and work together to communicate any concerns that we might identify prior to funding.  We try our best to have open lines of communication and look out for the best interests of our member, the program, and the project.

Financial Distress
It is a fact that some projects may run into financial distress or be unable to meet the commitments outlined in the original application, despite the best efforts in underwriting and analysis on behalf of the FHLBI and member. We work diligently to attempt to solve the problem through project modifications or “cure periods.”  In the worst case scenario, the project may be forced into foreclosure or sold to another owner.  In that event, the member must make best efforts to recover the subsidy from the sale.  Please note page 10 of the Implementation, which states that “the member shall not be liable to the FHLBI for the return of amounts that cannot be recovered from the project sponsor or owner through reasonable collection efforts by the member.”