Subcommittee on Housing and Transportation

Oversight Hearing on "The Multifamily Assisted Housing Reform and Affordability Act of 1997"

I am presenting this testimony today as the President of and on behalf of Ontra, Inc as a Private PAE for Omhar. By way of placing this testimony in perspective for the Subcommittee please note that throughout its entire 16 ½ year tenure Ontra has been involved in the due diligence, asset management and disposition of over $8.5 billion in distressed mortgage and real estate assets in 45 states and Puerto Rico. The clients for whom Ontra has provided professional distressed asset servicing have included but are not limited to the Texas Housing Agency, FSLIC, FADA, FDIC, RTC and numerous Texas Banks and S&L’s. In addition Ontra has received "Above Average" ratings from all 4 Wall Street Investor Rating Agencies to facilitate its participation as the Special Servicer and equity partner in over $2.5 billion in distressed mortgage and real estate asset acquisitions with AIG, Citicorp, CS First Boston and Goldman Sachs. Approximately $1 billion of these acquisitions involved a partnership with AIG and the Federal Government through the RTC S and N Series disposition program.

Ontra commenced it’s contract with Omhar in July of 1999. Since contract inception Ontra has been assigned 120 Rent Restructurings (Lites), 118 Debt Restructurings (Fulls) and 22 Comparability Reviews. In the interest of time the following results are provided for the written record and I will address them in summary in the discussion regarding government savings below

For Rent Restructurings/Lites:

For Full Debt Restructurings/Fulls:

In order to provide the services for this contract, Ontra management historically dedicated 23 individuals to the delivery of the required services and currently has 16 staff members fully engaged in the process.

The remainder of my testimony represents the results of a canvassing effort in February of this year whereby I surveyed all of the 8 other Private PAE’s in response to a request from the GAO to participate in a panel discussion regarding the disposition of the M2M Program and Omhar’s operations.

The Program definitely experienced a slow start from the Private PAE’s perspective. There were 2 essential drivers of this situation as follows:

• For the first 12-18 months of the program the owners appeared disengaged and largely convinced that if they stalled, M2M would go away and in all fairness there was little incentive for an owner to participate willingly given the financial structure at that time. The Owner’s incentive package was introduced in September of 2000 and since January of 2001 there appears to be gaining momentum in the owner community to contemplate, comprehend and engage the program.

• The heart of the Restructure Transaction is represented by a 45-page model that includes all of the basic MAHRA business rules. In addition to 8 schedules providing standard real estate/mortgage analysis such as Operating Budget Analysis, Long Term Capital Reserve Analysis, Debt Sizing, Amortization, Claim Sizing and Net Savings it includes and additional 6 schedules to fully analyze Tenant versus Project based subsidies, IRP recaptures, Outyear HAP contract recaptures, affordability restrictions, exception rents and an analysis of the anticipated re-payability of the partial payment of claim all in one integrated proforma.
• The number of parties/stakeholders to a single transaction is significant and includes at a minimum 26 individuals for each single transaction including at least 4-5 individuals at Omhar, 2-3 At Hud and numerous others including Owners, Property Managers, Tenants, Otags, PCA Consultants and Appraisers and at least 4 different sets of Attorneys and Title Company personnel.
• There are 4 different and distinct closing scenarios the most common of which is a 223 (a) (7). A single transaction of this type involves 55 distinct documents with 8 signatories and 14 distribution parties.

However over the last 24 months, all of these bases have been effectively covered and the long awaited momentum is currently being achieved. By way of demonstrating this please note that the average time between acceptance and close date for a standard Full Debt Restructuring for this PAE has changed from 15 months for assets assigned prior to January 2001 to 7 months for assets assigned after January 2001 representing a 114% improvement in program implementation with time as the measure.

Based on Ontra’s portfolio the savings to date are provided for the written record below but in the interest of time is summarized as follows. A total of 119 transactions have resulted in approximately $106.3MM of which $63.8MM represents 79 completed Lites and $42.5MM represents the 40 closed & completed Fulls

Transaction Type	#Completed/Closed	20 year NPV Savings
Debt Restructures Closed	31	$32,473,446
Debt Restructures Completed	9	$9,976,894
Rent Restructures Completed (Includes Fulls to Lites and closed Lites)	79	$63,800,205
Totals	119	$106,250,545

One of the key benefits of this program is that it ensures that the assets are now being upgraded systematically. In order to put this into perspective, Please Note:

The program calls for the escrowing of funds to cure the "immediate repairs" within 12 months after closing. These repairs are what the industry traditionally considers deferred maintenance. The Rehab Escrow Repair numbers for Ontra’s 31 closings and 21 eminently pending (next 30-45 days) are as follows:

Total Rehab Escrow $	# Projects	# Units	Deferred Maintenance $
			Per Project	Per Unit
$5,294,790	52	4,683	$101,823	$1,131

We have found however that there is some skewing in these numbers with 5 inner city projects representing just over $3MM (60%) of the deferred maintenance. Therefore it appears that the deferred maintenance is not a major issue at least in this PAE’s portfolio.

For this same set of 52 assets (closed & pending), the program has allowed for set asides of approximately $57.5MM ($57,488,155) averaging just over $12,000 ($12,276) per unit to cover the 20 year long term capital needs of these projects. This represents an average of $614 per unit per year being set aside for replacements.

One of the more compelling statistics from this PAE’s closed and pending portfolio is that the average reserve deposit/unit/year was $309 pre restructure and $439 post restructure representing a 42% increase in annual reserve deposits to the replacement reserve accounts. These numbers seem to point to the fact that this program is providing a unique opportunity to reconfigure the economics and provide for the stabilization if not the rejuvenation of aged housing stock and thereby ensure quality affordable housing into the future

In summary, this entire testimony speaks to the fact that the program is very complex by nature, that there is definite, significant momentum at the current time, that the program is providing solid savings while at the same time capitalizing on a unique opportunity to "set the economics straight" for the nation’s FHA insured Section 8 housing stock and to ensure continuance, at least in this sector, of quality affordable housing.

Omhar has been integral in this process and despite the criticisms of the program and Omhar’s implementation of such it is my company’s opinion that Omhar has done an admirable job of juggling the priorities of the numerous stakeholders and parties to the transactions while at the same time developing well proportioned tools to manage the delivery of a very complex program.

Other issues of Interest/Concern/Potential Improvements:

Based on the February 2001 survey of the Private PAE’s the following opinions are offered for additional consideration by the subcommittee:

We are aware that Omhar has received significant criticism regarding the OPG, the Model and other policy and procedure vehicles that they have provided to the PAE’s. From our (Ontra’s) perspective given the complexity of the statute, the extensive program requirements and the complex nature of the issues involved, the tools provided by Omhar were an absolute necessity. It occurs to us that if the federal government wants to insure consistent and fair treatment of all the stakeholders, reliable underwriting to ensure that all owners are treated fairly and consistently, and that the result achieved is a fully accountable application of the statute, then the tools provided by Omhar, in our opinion , have been well proportioned to the task.

This topic was of major concern among the Private PAE’s. Although the program was competitively bid, the PAE’s did not have the same insight into the intricacies of the program that they now have. The program has not only turned out to be much more involved than originally estimated but as issues arose during the development of the program over the last 24 months the scope of work expanded quite substantially. Omhar is currently in the process of considering our concerns and we hope to see a solution soon. We have but one request that the whatever incentive compensation changes ensue that they be applied for all assets currently undergoing active restructure or at least make the changes effective as of January of 2001 for any assets not yet closed.

I would like to close by respectfully thanking the committee for the opportunity to present these views. Thank You

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