Pub. 5 2014 Issue 4

winter 2014 21 West Virginia Banker A popular alternative, especially for banks interested in short term loans involves the purchase by the bank of short-term, cash-collateralized bonds incorporating an FHA insured mortgage loan. In such structures, an FHA lender will agree to fund an FHA insured mortgage loan to a project owner. The project owner often desires to utilize tax-exempt bonds in order to gain access to valuable low income housing tax credit equity. A bank can assist its clients by agreeing to purchase the short term bonds, with terms which are typically 2 to 3 years. The proceeds of the bonds are deposited in a project fund held by the bank and are released only when the FHA lender funds the FHA insured mortgage loan. Typically the FHA insured mortgage loan is funded in portions throughout the construction period. The funds provided by the FHA lender will be deposited in a collateral fund (also held by the bank) and, upon such deposit, a matching amount of funds will be released from the project fund to pay for construction costs. The sum of the project fund and the collateral fund will always equal or exceed the principal amount of the bonds issued. As such, the collateral for the bank will always be cash (or cash equivalents) in an amount equal to the amount of the bonds. Upon completion of construction, the project fund will be depleted and the funds held in the collateral fund will be used to redeem the bonds. This latest evolution and the use of the cash collateralized bond structure provides an opportunity for the bank to provide a valu- able service to its clients and generate benefits for the bank using a structure that is designed to offer a safe lending opportunity for the bank. If you have questions or would like more information on how to structure these affordable housing finance options, please contact one of our Dinsmore attorneys. In March, Dinsmore greatly increased our public finance capabilities through a strategic merger with Peck, Shaffer & Williams, which was consistently recognized as one of the top bond counsel firms in the country. Dinsmore has more than 525 attorneys with West Virginia offices in Charleston, Lewisburg, Morgantown and Wheeling. In ad- dition, it has locations throughout Colorado, Illinois, Kentucky, Ohio, Pennsylvania and Washington D.C. For more information, please visit www.dinsmore.com. n With over 18 years of experience, Sujyot Patel serves as bond counsel, issuer’s counsel, bank counsel and underwriter’s counsel in connection with the issuance of municipal securities for housing, economic devel- opment and industrial development. Lewis Diaz concentrates his practice on affordable housing and tradi- tional governmental finance. His practice is dedicated to the goal of ensuring good, safe, accessible, affordable housing for communities across the nation. Dave Thomas focuses on banking law, bankruptcy, commercial transac- tionsandcommercial litigation.Heassistscorporateclientsandfinancial institutions in a variety of commercial matters including loan structuring, workouts, collections, bankruptcy, and regulatory compliance. Make Your Shareholders happY! Use our C&I Program to instantly add loan growth and diversification. Contact your representative today or email to CI@centerstatebank.com 704.496.2612 5960 Fairview Road, Suite 400 Charlotte, NC 28210 www.csbcor respondent.com