NAHP Financial Management & Reporting Standards 3 — Questions and Answers
Question 1: What is the purpose of a replacement reserve fund in affordable housing financial management?
- To cover operating shortfalls during lease-up
- To fund long-term capital repairs and major system replacements (Correct answer)
- To provide security deposits for incoming tenants
- To repay deferred developer fees
Correct answer: To fund long-term capital repairs and major system replacements
Replacement reserves are funds set aside to cover future capital expenditures such as roof replacement, HVAC systems, appliances, and other major building components.
Question 2: In a LIHTC partnership, what is the significance of the 'qualified basis' calculation?
- It determines the total project development cost
- It is the eligible basis multiplied by the applicable fraction, determining the amount of credits available (Correct answer)
- It establishes the minimum debt-to-equity ratio required
- It sets the maximum rents that can be charged to tenants
Correct answer: It is the eligible basis multiplied by the applicable fraction, determining the amount of credits available
Qualified basis equals the eligible basis multiplied by the applicable fraction (percentage of affordable units), and this figure determines the total tax credits available to the project.
Question 3: Which federal agency requires the submission of FASS-MF (Financial Assessment Subsystem – Multifamily) financial data?
- USDA Rural Development
- HUD Office of Multifamily Housing (Correct answer)
- Federal Housing Finance Agency
- Treasury's CDFI Fund
Correct answer: HUD Office of Multifamily Housing
HUD's Office of Multifamily Housing requires HUD-assisted properties to submit annual financial data through the Financial Assessment Subsystem – Multifamily (FASS-MF).
Question 4: A property's effective gross income (EGI) is calculated as:
- Gross potential rent minus operating expenses
- Gross potential rent minus vacancy loss minus credit loss plus other income (Correct answer)
- Net operating income plus debt service
- Total revenues minus capital expenditures
Correct answer: Gross potential rent minus vacancy loss minus credit loss plus other income
Effective Gross Income (EGI) equals gross potential rent minus vacancy and credit losses, plus other income sources such as laundry, parking, and late fees.
Question 5: Under the HOME Investment Partnerships Program, what is the maximum period for which HOME funds may be committed before HUD recaptures them?
- 1 year
- 2 years (Correct answer)
- 3 years
- 5 years
Correct answer: 2 years
HOME funds must be committed within 2 years of HUD's obligation of funds to the Participating Jurisdiction, or they are subject to recapture.
Question 6: What does 'deferred developer fee' represent in an affordable housing project's financial structure?
- A fee paid to the city for development rights
- A portion of the developer fee not paid at closing, to be repaid from future cash flow (Correct answer)
- The cost of environmental studies deferred to post-closing
- Interest charges deferred to the end of the loan term
Correct answer: A portion of the developer fee not paid at closing, to be repaid from future cash flow
A deferred developer fee is the portion of the developer's compensation that exceeds available cash at closing and is recorded as a soft debt to be repaid from project cash flow over time.
Question 7: Which accounting standard governs the financial reporting of low-income housing tax credit partnerships under the flow-through method?
- ASC 323 – Investments: Equity Method and Joint Ventures (Correct answer)
- ASC 840 – Leases
- ASC 606 – Revenue from Contracts with Customers
- ASC 450 – Contingencies
Correct answer: ASC 323 – Investments: Equity Method and Joint Ventures
ASC 323 governs investments in partnerships and LLCs; the proportional amortization method (a variant) is used for LIHTC investments when certain criteria are met, but the equity method under ASC 323 is the foundational standard.
NAHP Financial Management & Reporting Standards 3
What is the purpose of a replacement reserve fund in affordable housing financial management?