Berkadia’s Terry Wellman on Affordable Housing and MBA’s New FHA Affordable/221(d)(4) Underwriter Training Program

MBA NewsLink interviewed Terry Wellman, FHA Chief Underwriter for Affordable at Berkadia, about affordable housing and MBA’s new FHA Affordable/221(d)(4) Underwriter Training Program.

Based in Irvine, Calif., Wellman joined Berkadia in February from PNC Bank, where he served as Senior Vice President – FHA Chief Underwriter and managed a team of six underwriters. He currently serves as the Chair of the MBA’s FHA Insured Committee and as the President for Western Mortgagee Advisory Council. He previously served on MBA’s FHA LIHTC Committee where he was instrumental in shaping HUD policy to better align it with industry norms and make HUD’s loan products more attractive to affordable developers. These changes included the pledge of GP interests for equity bridge loans, waiver of certain escrows, reduced first equity installment and longer terms for equity bridge loans.

Wellman has also been directly involved with the creation of MBA’s Affordable and 221(d)(4) Underwriter Training Course, which will launch in September 2021. He is an active speaker in the industry on topics related to Affordable Housing and FHA financing. He has also been an instructor of the MBA’s 223(f) Underwriting Training Course and has conducted nationally broadcasted training for HUD staff on tax-exempt bonds and Opportunity Zones. Wellman is a member of the 2019 MBA Future Leaders program.

MBA NEWSLINK: Why did you become involved in the financing of affordable housing?

TERRY WELLMAN: During particularly challenging or complex transactions, I ask myself that very same question! Kidding aside, the financing of affordable housing is a labor of love to be sure. The deals are certainly more difficult – some say “esoteric” – but there is greater sense of accomplishment when the deals close.

The COVID-19 pandemic has highlighted the importance of “home” – it became our workplace, our school and our shelter from the storm. So, the hard work of closing an affordable deal feels doubly sweet when you know that your efforts are providing high-quality affordable housing for those who need it most, when it is needed the most. I hope that my efforts play a small part in addressing a national affordable housing crisis.

NEWSLINK: When you were learning how to underwrite 221(d)(4) loans and project with low-income housing tax credits, was training available?

WELLMAN: It was not. Then, as now, one could piece together various training courses covering different aspects of affordable housing and affordable housing finance via online courses, webinars and attending myriad conferences. But, there was not, and is not, to my knowledge – a single course that offers the breadth of the underwriter training course that we are putting together for the MBA.

NEWSLINK: What was the motivation behind developing a comprehensive training focused on FHA’s Affordable and 221(d)(4) programs?

WELLMAN: The short answer is simple economics: there was demand, so we needed the supply! In 2019 at CREF in San Diego, when I was the Chair of the MBA FHA LIHTC Committee, several FHA lenders approached me separately about the need for a comprehensive affordable underwriting training. So, I began to think about course content and seek volunteers to help with course material and instruction.

That same year, for the Western Mortgagee Advisory Council, I co-chaired a one-day 221(d)(4) training course as part of its annual conference. We discovered that one day was not enough time to adequately cover all the material. After that training, one of the instructors suggested combining the affordable underwriting training course with a (d)(4) training since many affordable deals are (d)(4)s. That pairing seemed to be as logical – dare I say “delicious” – as combining chocolate and peanut butter!

And here we are now. It will be over two and half years from those from those first conversations when our course finally launches in September. It has been another labor of love.

NEWSLINK: Who are the industry professionals/companies involved in the development of the training?

WELLMAN: We have a fantastic group of volunteers involved in the development of the course. We have quite a few FHA Chief Underwriters, Deputy Chief Underwriters and Senior Underwriters from FHA lenders that are very active in the affordable space. We have folks that have worked at LIHTC syndicators and large affordable housing developers. We have lender counsel and bond underwriter counsel lending their expertise and knowledge. We have current and former appraisers, environmental consultants, and architectural/cost review consultants.

And we have some of the same instructors who helped create and currently participate in the MBA 223(f) Underwriting Course. In sum, we have a passionate and dedicated group of people that are working hard to help our little slice of the large affordable housing industry.

I would be remiss if I did not take the chance to offer a special public thanks to all the volunteers are involved, in addition to the Gail Griffith-Roch and MBA staff. All of the content has been created within the past 12 months, which has been challenging on many fronts. Of course, we have all been adapting to life during the pandemic, but FHA loan production is currently at an all-time high. Therefore, the volunteers have had to make the time of create the material. This underscores both how important and necessary we believe the course is.

NEWSLINK: What topics will be discussed throughout the program?

WELLMAN: There is a lot going on in an affordable transaction, in addition to loan. Therefore, we designed the course to provide a strong knowledge foundation of the affordable deal in its totality. We have a session on the history of HUD’s various financing programs and a brief history of nation’s effort to provide affordable housing. We have a session dedicated to rental assistance and all the various flavors of Section 8/HAP contracts.

While underwriting the tax credits and bonds is not the role of the lender’s underwriter, we will provide a LIHTC 101 session and tax-exempt bond 101 session, so that participants will have better understanding of the process related to the tax credits and bonds, as these are integral to the affordable deal.

We will discuss the technical issues involved as well as HUD’s requirements in underwriting a (d)(4) loan and the various reports required – appraisal, market study, environmental, architectural and cost review. We also cover legal issues that should be fully addressed during underwriting to ensure a smooth closing. We will provide take away tools for reviewing subordinate debt and ground leases. We also cover closing, the first draw, and construction loan administration.

Lastly, we hope to broaden the horizon of the participants by briefly covering the rest of the tax credit and affordable housing financing industry. We will touch on other tax credits (historic tax credits, new market tax credits), tax incentive programs (Opportunity Zones), and other debt sources that compete with FHA-insured financing (GSEs, direct bond purchase programs, and state housing finance agencies). Students won’t be tested on the foregoing, but we felt that an introduction to these was important for creating well-rounded underwriters.

NEWSLINK: What will participants take away from the four-month training?

WELLMAN: HUD and FHA lenders will play a crucial in addressing the national affordable housing crisis. To do that, both will need strong and knowledgeable underwriters. Affordable deals are not easy, and with their inherent complexity, a lot can go wrong to derail or slow down the transaction. Our goal is to arm the underwriters with enough knowledge to understand the many pieces of the transaction, properly underwrite and review the transaction, identify and help solve the issues, and get the deal closed – so that we can provide much needed affordable housing.

NEWSLINK: How will companies benefit from having staff participate?

WELLMAN: As more attention is paid to affordable housing, more borrowers and lenders are getting involved. For lenders to provide the best customer service to their borrowers, their staff will need a thorough understanding of affordable transactions. This course will lay the foundation for that success.  

NEWSLINK: Will the training content discuss changes in the updated MAP Guide and the impact to underwriting?

WELLMAN: Definitely! Thankfully, the 2020 MAP Guide was released in time to be fully incorporated into all of the training material.

NEWSLINK: Will the students be recognized for successfully completing the program?

WELLMAN: Yes, upon earning a weighted grade of 75% or better, a student will earn the MBA’s Certificate of Completion, similar to the MBA 223(f) Underwriting Training Course.