FinanceAudit Committee Minutes 042010

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FinanceAudit Committee Minutes 042010

Adopted: May 18, 2010





    April 20, 2010

Committee Members

    Present: Philip Smith representing Robert L. Genuario, Secretary, State

    Office of Policy and Management, and Chairperson of CHFA

    Finance/Audit Committee

     Rolan Joni Young, Chairperson of the Board

     J. Scott Guilmartin

     Kimberly Neilson

     Howard Pitkin, Commissioner of Banking

Committee Members

    Absent: Meghan Lowney

Other Board Members

    Present: Michael Santoro for Joan McDonald, Commissioner, Department

    of Economic & Community Development

     Diane Randall, Chairperson of the CHFA Mortgage Committee

     Jeffrey Freiser arrived at 11:00 a.m.

     Joan McDonald, Commissioner, Department of Economic &

    Community Development, arrived at 11:15 a.m.

Mr. Smith called the regular meeting of the Finance/Audit Committee (the “Committee”), to

    order at 10:34 a.m. in the Board room of CHFA’s offices, 999 West Street, Rocky Hill,


    Mr. Smith asked the Committee members to consider the minutes from the March 16, 2010 meeting.

    Upon a motion made by Mr. Guilmartin, seconded by Mr. Dubno, the

    Committee members voted in favor of adopting the minutes from the March 16,

    2010 meeting (Ms. Young abstained from the vote).

    Mr. Smith mentioned that there were significant developments recently with regards to Goldman Sachs’ practices as they relate to the housing market which may make consideration of them as senior underwriter at this time inappropriate. Mr. Smith suggested that any appointment of Goldman Sachs as senior underwriter for new business should be deferred for six months. Mr. Craford mentioned that Goldman Sachs continues to be a remarketing agent on floaters.

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    Mr. Craford, Executive Vice President, discussed the request for proposal for investment bankers. The materials given were the same as last month to avoid confusion. In terms of senior managers, Morgan Stanley has consistently been a top performer in selling the Authority’s bonds and has hired some strong personnel. Therefore, staff would like to add

    them as senior managers. Citibank has been a co-manager for the last 12 years and have consistently done a good job but they are the weakest of the group and were not there when help was needed during the recent financial turmoil. Also, in terms of the floaters, they were behind the others. Mr. Smith inquired if we should revisit the situation in light of the action taken with regard to Goldman Sachs. Mr. Guilmartin wanted to make sure there was no appearance of negativity on the Authority’s part with regard to Goldman Sachs. Mr. Craford

    indicated that Bank of America Merrill Lynch is a strong manager as is J.P. Morgan. Therefore, along with Morgan Stanley, there are three strong managers. A standard rotation is used in selecting the lead manager. Another strong manager will not be needed for at least 8 to 10 months so the fourth spot can be left open for now. Ms. Neilson mentioned that she thought another senior manager was going to be added to the Special Needs Housing Bond Indenture and was informed that Ramirez & Co. had been added.

    Mr. Smith reiterated that it is just the appointment of Goldman Sachs as a manager for any new business which is being deferred until more information is available and that the situation will be reviewed in six months on whether to reappoint them or not. Mr. Craford commented that the SEC was split 3-2 on the decision to file a lawsuit.

    Upon a motion made by Mr. Guilmartin, seconded by Ms. Neilson, the

    Committee members voted unanimously in favor of recommending to the Board

    for consideration the resolutions regarding the Appointments of Bond

    Underwriters for the Housing Mortgage Finance Program and the Special Needs

    Housing Mortgage Finance Program for all appointees except for Goldman

    Sachs which appointment will be deferred for six months; that Ramirez & Co.

    will be added as a senior manager for the Special Needs Housing Mortgage

    Finance Program and that the Authorization to Issue Bonds under that program

    approved last month be amended adding the Underwriters and designating

    Ramirez & Co. as lead.

    Mr. Bannon, President-Executive Director, discussed the resolutions regarding Authorization to Sign Documents and Authority Checking Accounts. These resolutions update the previous resolutions with respect to the current job descriptions. Mr. Guilmartin inquired why there were so many people with the authority to sign documents. Mr. Bannon replied that the Authority deals with a great variety of organizations that have a variety of requirements for signing documents. Additionally, there is the need for flexibility for the occasion when a designated signer(s) is not available and the Authority needs the requisite number of signatures in order to conduct business. Ms. Young mentioned that she felt the resolutions were too broad, for example, with respect to deeds. She used CHFA’s building as an example of an opportunity for someone being able to convey the building without Board approval. Mr. Bannon indicated that the resolutions could be changed to fix that concern if it was a specific concern as opposed

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    Adopted: May 18, 2010

    to using it to illustrate a general concern. Mr. Bannon also mentioned that these resolutions are more restrictive than some other states’ authorities’ resolutions which were surveyed.

    Ms. Young inquired as to what is the business that is trying to be accomplished. Ms. Young inquired if certain language could be inserted such as: “all such actions being conducted in the ordinary course of business.” Mr. Bannon indicated that any qualifier would make the

    resolutions unusable for the work that CHFA does. Inquiries were made as to whether this many individuals who can sign is really needed, whether for non-financial matters is it necessary for the Treasurer to sign, and if the resolutions had been reviewed by the auditors and if they feel there are sufficient checks and balances. Mr. Pitkin commented that because of the type of agency CHFA is, it may need more flexibility. Mr. Smith indicated that the resolutions should be moved along to the Board of Directors. Mr. Bannon mentioned that he will bring to the Board the types of business conducted by the Authority and any comments the auditors might have. Ms. Young indicated that she wanted the scope of the resolutions looked at with the possibility of a worse case scenario in mind. Ms. Randall inquired about procedures and Mr. Bannon indicated that he will bring a proposal to the Board.

Mr. Risteen of BlumShapiro, CHFA’s Independent Auditor, reported on the 2009 Audited

    Financials and stated that the audit of the Authority had been completed. The Income Statement shows revenues and expenses about the same for 2009 as for 2008 while the Non-Operating revenues and expenses show a loss for the year. He noted several items: 1) in 2008, there was a large increase in fair market value of investments and this year there was a decrease; 2) the loss of value for Trumbull Centre more than offset the gain from the sale of Newbury Commons; 3) administrative expenses were higher because of high liquidity fees paid; and 4) interest costs were higher because more bonds were outstanding. Audit of the financial statements did not show any weakness in internal controls and did not need any adjustments. Mr. Craford mentioned that the Authority took the full loss from Trumbull Centre because of accounting rules despite the limited liability of the Authority. A clean report was issued for the federal single audit regarding Section 8 requirements; there was no weakness in internal control which was basically the same as last year. A state single audit report was done this year as well and included Assisted Living Program requirements. It was a clean report and the Authority is in compliance. In addition, the FAF audit which is required every three years was done this year and was clean. The Authority produced financial documents on a timely basis, the accounting practices being used are correct, no new policies were adopted, and there were no other changes except the change to the REO properties and the loan loss. No difficulties were encountered, no misstatements were found, no disagreements over accounting items, and the Authority met all applicable rules.

Mr. Bannon discussed the 2008 State Audit Report. There were no findings or

    recommendations to report. Any problems identified in the past have been corrected. Mr. Bannon acknowledged the efforts of Betty Vallera and Authority staff who contributed to the successful audit results.

    Mr. Myskowski, Investment & Debt Management Officer, reported that a Request for Proposal (RFP) for a Ginnie Mae Servicer was sent out to thirty firms that currently service the Authority’s single family mortgages and was advertised on the Authority’s website. Responses

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    were due March 3, 2010 and the Authority only received one response which was from US Bank, but he noted that it was a strong response from a strong provider. The RFP was then extended to March 30, 2010, advertised in the Bond Buyer, posted with DAS and sent to five additional firms servicing single family loans. No additional responses were received. US Bank previously had a contract with the Authority which was allowed to expire because there were more Ginnie Mae Servicers at the time than were needed. The Authority plans on entering into a contract with US Bank to act as the Ginnie Mae Single Family Loan Servicer for a period of up to three years.

Mr. Ward, Administrator for Budgeting, Planning & Research, discussed the Authority’s

    Program and Budget highlights through March 31, 2010. Home mortgage activities and reservations were up; delinquency rates increased compared to the same period last year but remained lower than comparable lending in the Northeast region; CT FAMLIES mortgage volume continues to be low, however, program changes may bring about an increase. Emergency Mortgage Assistance Program loan approvals have increased, the pace of applications and level of interest remain steady. Home prices in Connecticut continue to be lower than previous years but are improving. CHFA’s home mortgage interest rates have

    stayed relatively flat over the past 6 months while conventional home mortgage interest rates have risen. Home sales activities in the first quarter are about the same as the first quarter of 2009 but less than the first quarter of 2007 & 2008. Activities in the multifamily area are running true to the seasonal rhythm because of the tax credits. Six commitments for Tax Credit Assistance Program funds were finalized committing 100% of the funds available before the February federal deadline. Four out of six developments receiving Tax Credit Exchange Program funding have closed and are underway. Low-income Housing Tax Credits application st for the 2010 round and 15 applications were received. With respect to deadline was April 1

    bond financing, two developments were approved for tax-exempt mortgage financing, processing continues on 8 applications and a Notice of Funds Available will be published in the second quarter. Four Next Steps Supportive Housing developments were selected to proceed under Round III. Lean Process review of the multifamily financing approval process has been initiated. Eight final and initial loan closings were completed and Windham House and the Willimantic YMCA properties were sold. CHFA issued over $300 million in tax-exempt and taxable bonds to support its debt management and program purposes. Staff worked on the Section 8 Performance Based Contract Administration Request for Proposal which was issued and a vendor selected. Information systems applications were deployed in multifamily Asset Management; development was initiated on web-basing the multifamily consolidated application and a new home mortgage loan origination system. CHFA’s new website was launched and the new employee performance evaluation system was completed. It will be implemented in the second quarter. The development of CHFA’s five-year Strategic Plan


    Ms. Lambert, Manager of Research & Analysis, discussed the April 2010 monthly tracking report showing that the Home Mortgage Program is ahead of last year at this time which was brought about by the change in single female homeownership and home prices settled down. In the multifamily area, three supportive housing projects for the Next Steps Program have requested funding in April and one request has been made for an ITA loan.

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    Mr. Craford discussed the delinquency report indicating that there was the usual slight seasonal improvement noted last month but that it does not appear quite as strong as last year. Delinquencies will continue to be watched.

    Mr. Craford reported on the budget projection. At the February meeting, Chairperson Young requested projections taking into account all factors including default rates and single family loans. The continued pressure on income in the immediate future is because short term investment rates continue to be exceptionally low. It is expected that if those rates show a little improvement, the Authority will do better. The projections still show basically a break even, with a small loss this year and a small gain next year. In response to her question, Mr. Craford indicated to Ms. Young that this detailed report was a tool normally used by the Authority.

    Mr. Craford also discussed the chart in the package showing prepayments and foreclosures. Because of the Authority’s almost complete FHA coverage of new loans, financially a default does not substantially differ from a prepayment. Because the Authority is covered for its losses, the impact is dependent on other prepayment levels. Since there is not a flood of prepayments at this point, the increased defaults do not add a significant burden.

Ms. Ciampi, CHFA’s Internal Auditor, reported on the Internal Audit Charter which documents

    the Internal Audit’s position within the organization authorizes access to records, personnel, and physical properties relevant to the performance of engagements, and defines the scope and responsibility of Internal Audit’s activities. The charter is a modified version of the model

    charter developed by the Institute of Internal Auditors and reviews of other state housing/finance authority charters. Upon a motion duly made and seconded, the Committee unanimously voted to approve the Internal Audit Charter.

    Upon a motion made by Mr. Pitkin, seconded by Ms. Neilson, the Committee

    members voted unanimously in favor of going into executive session at 11:20

    a.m. to discuss additional financial matters.

    The executive session ended at 11:27 a.m., and the regular meeting was immediately reconvened.

    There being no further business to discuss, upon a motion made by Mr. Rifkin,

    seconded by Ms. Neilson and unanimously approved, the meeting was

    adjourned at 11:30 a.m.

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