CalHFA reports 11,600 units through Mixed Income Program; board raises questions on developer fees and program priorities

CalHFA staff told the Board of Directors on Feb. 20 that the agency's Mixed Income Program (MIP) has produced roughly 11,600 units since 2019 and driven roughly $1.3 billion in permanent loans and about $400 million in MIP subsidy. Staff released the MIP 25 term sheet and said they expect demand to again outstrip available subsidy and state tax credits.

"Since 2019, CalHFA has helped to build 11,600 units through this program and created a really strong CalHFA portfolio along the way," Director of Multifamily Programs Stephanie McFadden said in opening remarks. Steve Gallagher, CalHFA's housing finance chief and one of the program's architects, summarized years of incremental program changes, including the pairing of MIP subsidy with CalHFA permanent loans, CDLAC Mixed Income Pool use, and limits imposed in 2023 on per-project MIP amounts and sponsor exposures.

Why it matters: MIP is a major driver of CalHFA's multifamily portfolio growth and is the agency's primary subsidy lever for certain mixed-income developments. Directors asked staff to prepare a March strategic workshop to set program priorities, test trade-offs and examine how MIP fits into a changing funding landscape as SB 2 revenues fall.

Program trends and capacity

Staff presented a six-year program summary showing a step-up in production after AB 101 funds were added in 2020. CalHFA has supported projects across 22 counties; 74% of MIP-restricted units have been in the 50to 70% area median income (AMI) range and the portfolio's overall AMI sits near 57%.

McFadden and Gallagher emphasized that pairing MIP subsidy with CalHFA permanent loans has produced a growing, FHA-insured (risk-share) lending portfolio that will expand CalHFA's multifamily assets materially over the next five years.

Board questions: developer fee waivers, exceptions and local collaboration

Board members pressed staff on recurring underwriting exceptions that appear in many MIP deals: - Density-bonus agreements that subordinate local regulatory covenants to an earlier approval (staff said these are often mitigated by standstill agreements and recommended approval in the current rounds). - Residual-receipt allocation and repayment order (CalHFA's policy generally directs 50% of residual receipts toward MIP loan repayment, but equity investors commonly require priority to repay deferred developer fee to protect tax-credit basis). Staff said they typically require a general partner contribution if exit math prevents full repayment at maturity.

Directors asked for data showing the magnitude and frequency of developer-fee waivers and the cumulative developer-fee income captured by projects that used MIP subsidy. Director Sotelo asked staff to quantify the typical deferred developer fee magnitudes and how the repayment sequencing affects the agency's ability to recycle subsidy.

Several directors asked how MIP influences local engagement. Director Prince asked whether the program enabled projects to "bypass" local priorities and whether CalHFA should require more local collaboration. Director Russell cautioned that local outreach requirements can slow projects and urged a careful balance.

MIP 25 and near-term adjustments

Staff said MIP 25 term sheets were released in February. Changes for the current round include a temporary exception to the county cap for Los Angeles County to support disaster-recovery needs and an aggregated sponsor-exposure cap to broaden subsidy distribution. Staff removed a state-tax-credit leveraging bonus from the ranking because fewer state credits were available this year.

Directors asked staff to bring a March workshop that will include: a historical look at the MIP portfolio, unit-level affordability and gaps analysis (why projects needed subsidy), the relationship between the MIP subsidy and other capital (bonds, tax credits), and policy choices on developer fees and exceptions.

Bottom line: MIP remains a high-producing program for CalHFA's multifamily portfolio, but directors asked for more data and a strategic session to set clear priorities (for example, whether to prioritize deeper affordability, geographic distribution, or faster deal throughput) as SB 2 revenues and state tax-credit availability decline.