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Canada-Ontario Affordable Housing Program Affordability Payment Handbook for Strong Start and New Program Projects

Prepared by: Ministry of Municipal Affairs and Housing October 2006

Preface

Intention of this Handbook This handbook describes the structure and requirements of the Affordability Payment to be provided to housing proponents by the Province of Ontario under the Rental and Supportive Housing components of the Affordable Housing Program. This handbook may be updated by the ministry from time to time.

Governing Documents This handbook is meant to supplement the program rules and guidelines combined in the following documents.

Affordable Housing Program Canada-Ontario Affordable Housing Agreement, 2005 Strong Start Program Strong Start Program Guidelines for 2005-2006 Project Funding Provincial Administration Agreement for Strong Start Program Provincial Contribution Agreement for Strong Start Program New Program New Program Guidelines for 2005-2006 Project Funding Provincial Administration Agreement for New Program Service Manager Contribution Agreement for New Program

Prepared by: Ministry of Municipal Affairs and Housing October 2006


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Background
The Government of Ontario is committed to ensuring that all Ontarians have access to safe and affordable housing. The governments objective is to assist households in need to access appropriate housing and reduce social housing waiting lists across the province. Through the Canada-Ontario Affordable Housing Program (AHP) the government is working to achieve these objectives. In 2005, the province signed a new Canada-Ontario Affordable Housing Program Agreement (Agreement) with the federal government in response to an identified need for additional affordable housing in Ontario. The AHP was designed to allow the federal and provincial governments to jointly contribute to four distinct categories of housing supports across the province, including the construction of 5,200 rental and supportive housing units (Rental and Supportive Housing component). Under the Rental and Supportive Housing component of the AHP, 4,000 rental units will be developed across the province. The supportive housing component of the project will deliver 1,200 units of affordable rental housing specifically targeted to serve vulnerable populations including victims of domestic violence, Ontarians living with mental illness and dual-diagnosis.

AHP Implementation: Strong Start and New Program The AHP was implemented in two phases over 2005-2006. While both the AHP Strong Start and AHP New Program fall under the Affordable Housing Program, both initiatives have slightly different administrative structures. Strong Start Program The Strong Start Program was launched soon after the signing of the new AHP agreement in April 2005. Strong Start was created to fast track affordable housing projects that were in the advanced stages of planning and were ready to go prior to the full program parameters of the AHP being in place. Approximately 1,500 rental and supportive affordable housing units were approved for development under Strong Start. Under Strong Start, the province holds project contracts (Contribution Agreements) with individual service providers. The province is responsible for funds disbursement for all Strong Start projects across the province.

AHP New Program The New Program was implemented as the second phase of the Affordable Housing Program and was designed to offer a streamlined administrative structure and innovative financing options for service providers. The New Program included the ministrys newly created financing clearinghouse named the Ontario Mortgage Housing Initiative (OMHI). The OMHI is a vehicle that facilitates the financing of affordable housing in Ontario by providing proponents with a roster of lenders, a streamlined mortgage insurance process and an online resource centre for project financing. Under the New Program, individual project contracts (Contribution Agreements) are held by service managers, except where an alternative arrangement is made. Service managers are responsible for project reporting, funds disbursement and compliance management for each AHP project in their respective service area. The service manager provides the province with project reports on an annual basis. Apart from the reporting relationships and the project financing vehicle (the OMHI) most aspects of the Strong Start and New Program initiatives are the same. The requirements regarding the affordability payment are parallel under both initiatives. As a result, throughout this booklet both initiatives are described together unless otherwise indicated.

Introduction to the Provincial Affordability Payment


The Province of Ontario will contribute its share of the funding for the Rental and Supportive Housing component over the 20-year affordability period for AHP projects. Provincial funding will begin to flow once housing proponents have entered into their takeout mortgage financing arrangements with a lender. The 20-year contribution to the Rental and Supportive Housing component of the AHP is named the Affordability Payment. The Affordability Payment will be flowed to affordable housing proponents on a monthly basis based on compliance with established program criteria. This design will ensure that government funding is directed only to units that meet the governments policy objectives each year for a 20-year period. The following illustration demonstrates the flow of provincial dollars to rental and supportive projects under the AHP Strong Start program.

Diagram A Strong Start Affordability Payment: Flow of Funds From Ontario to Proponent Ontario
Annual Report on Program Annual Compliance Compliance Reports
Affordability Payment

Financial Institution

Affordability Payment

Principal + Monthly Interest Principal and Interest

Proponent
Mortgage Payment

Rents + Other

Tenant

The following illustration demonstrates the flow of provincial dollars to the affordable housing projects through service managers under the AHP New Program.

Diagram B New Program Affordability Payment: Flow of Funds From Service Manager to Proponent

Province

Affordability Payment

Annual Compliance Reports

Monthly Principal and Interest

Service Manager

Annual Compliance Reports


Affordability Payment

Affordability Payment

Monthly Principal and Interest

OMHI Qualified Lender

Proponent
Mortgage Payment

Rents + Other

Tenant

Purpose of the Affordability Payment The Province established the Affordability Payment to achieve the following key public policy and program accountability objectives: Consistency with how the province funds investments in its own assets. This approach funds each asset over its program life, which creates a more consistent basis for making capital decisions. Provide benefits to Ontario taxpayers by increasing the availability of affordable housing today, while paying for these facilities over the life of the project. Establishment of an accountability framework in which proponents will only receive funding based on compliance with established affordability criteria. Support for a funding structure that allows more accurate planning while delivering stable, financially viable affordable housing over the long-term. Provide an additional relationship and reporting mechanism between service managers and individual proponents to help ensure the delivery of a longterm program.

Structure of the Affordability Payment The Affordability Payment is capital funding. The funding will be flowed over the 20-year period that rental and supportive units built under the AHP are being operated as affordable housing. Under Strong Start, contributed funds will flow directly to affordable housing proponents from the provincial government. In response to a request by service managers for increased autonomy in the delivery of the AHP, the ministry incorporated a devolved delivery model into the New Program. This model gives service managers more flexibility and responsibility in the delivery of the program. Under this new model the Province protects federal and provincial interests by entering into Administration Agreements with service managers. Before entering into an Administration Agreement, service managers produce Housing Delivery Plans for provincial review. The Housing Delivery Plan is a statement of intentions for communicating service manager priorities to the community and project proponents. Service managers are responsible for selecting projects through an open process consistent with the Administration Agreement and the Province gives final project funding approvals based on council approved recommendations made by service

managers. In their new capacity, service managers enter into Contribution Agreements with project proponents and forward AHP contributions to proponents. Under the new program federal funding is forwarded to proponents during the development phase of the project, as projects reach key milestones.

Financing Arrangements
1. Provincial Per unit investment: The total provincial contribution over the 20-year period will be on average $43,400 plus interest per unit. Under Strong Start, the Affordability Payment will be flowed in monthly instalments to the affordable housing proponent. The schedule of the payments is intended to align with the proponents monthly mortgage payments. The proponent may assign the Affordability Payment directly to their financial institution. The service manager will be responsible for monitoring the proponents compliance with the funding requirements of the Affordability Payment. 2. Federal per unit Investment: The total federal contribution will be an average of $26,600 per unit paid as up-front capital, resulting in an average combined federal and provincial contribution of $70,000 per unit. 3. Monthly Affordability Payment calculation: The monthly payment to the proponent will be calculated in a manner similar to a 20-year mortgage for the provincial capital funding at the proponents cost of borrowing (see Appendix A for sample calculation). 4. Interest Rate (Strong Start): The interest rate used to calculate the Affordability Payment is fixed over the term of the loan. The interest rate used by the province for calculations will be adjusted at the proponents interest rate renewal date. The maximum interest rate that will be funded for long-term take-out financing under Strong Start is 5.5%. Actual Affordability Payments will be calculated based on a projects actual long-term take-out rate to a maximum of 5.5%, which is appropriate given current market conditions. The ministry will need to be consulted if a proponent is not able to secure financing at or below 5.5%. When mortgages are renewed, refinancing will be available through the Ontario Mortgage and Housing Initiative (OMHI). The province will fund the balance of its contribution at the applicable OMHI rate.

5. Interest Rate (New Program): With the OMHI in place the province will fund at the applicable OMHI rate. The applicable OMHI rate will be adjusted at the proponents interest rate renewal date. 6. First Instalment: The first Affordability Payment will be flowed to the proponent to coincide with the first payment against its takeout mortgage. 7. Mortgage Insurance: It is expected that all Rental and Supportive Housing component projects will obtain CMHC insurance for the first mortgage (this is a condition of funding under the Ontario Mortgage and Housing Initiative). There are certain exceptions, for instance, in the case where a municipality is providing the construction and take-out financing. The details of the indemnification provisions will be contained in the legal agreements for the program. CMHC mortgage insurance is available to AHP projects based on capital costs of the projects. CMHC insurance premiums will be waived for all units which qualify based on Level 3 Affordable Housing Initiative criteria.

Role of the Ontario Mortgage and Housing Initiative


Rationale The government committed to developing the Ontario Mortgage and Housing Initiative (OMHI) to provide competitive financing rates for non-profit, cooperative and commercial developers who want to build rental housing in Ontario. The OMHI is the vehicle that facilitates the financing of affordable housing in Ontario by providing proponents with a roster of potential lenders, a streamlined mortgage insurance process and an online resource centre for project financing. In a series of consultations with municipalities, commercial and non-profit affordable housing providers and other stakeholders, the government heard that accessing financing was a major barrier to developing affordable housing. Issues included high interest rates that did not reflect the benefit of CMHC mortgage insurance, unreasonable fees, time delays and a lack of information on procedures and documentation needed to access funding. OMHI Initiative The OMHI facilitates access to funding for approved affordable housing projects under the AHP. The OMHI will be available for projects funded under the AHP New Program.

Roles and Reporting Requirements


The disbursement of the Affordability Payment is dependent on the proponent meeting the provinces established criteria for funding under the Rental and Supportive component of the AHP. The release of the Affordability Payment in year one of the affordability period is dependent on the proponents successful completion of the construction phase of the project. The proponents occupancy report must be submitted to the minister. The release of the Affordability Payment in year two (and subsequent years) of the affordability period is dependent on the proponents compliance with the Provinces program criteria in the prior year. For each year of the 20-year program, the proponent will be required to provide evidence that the project is operating in compliance with the following criteria: Maintained affordable rent levels Affordable units are rented to target clients

Additionally, the compliance requirement includes that: Reporting must be submitted within agreed-upon timeframes Reporting schedule is as provided in the relevant contribution agreement

It is the responsibility of the service manager to appropriately monitor the status of the project relative to the Provinces criteria and to maintain a reporting relationship with proponents over the 20-year term of the affordability period. The service manager will report to the ministry on the status of the project on an annual basis. The proponent may also be held accountable to additional criteria as required by the service manager. It is also the responsibility of the service manager to notify the ministry of relevant risks, including significant changes to the proponents business structure or if the proponent may enter bankruptcy. It is the responsibility of the proponent to indicate to the service manager if economic, social, financial or operating pressures are inhibiting the proponents ability to comply with the Provinces funding criteria. Should the service manager receive such an indication, it will then be the responsibility of the service manager to either develop a plan with the proponent to resume compliance, or to contact the ministry in order to develop a compliance plan. Non-Compliance Should the ministry identify a proponent that is not operating in compliance with the ministrys funding criteria for the Affordability Payment, the ministry will follow the principles detailed in the Non-Compliance Under Strong Start protocol (see

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Appendix B). This protocol will also be followed by projects developed under the new program. At this point, the ministry will establish an investigation team and will work with the service manager and the proponent to investigate and identify the source of the non-compliance. The ministry team will work with the service manager and the proponent to develop a complete compliance plan, including options for compliance and a timetable. The ministry team will monitor the progress of the implementation of the plan. When the project is returned to compliance with the funding criteria, no further action will be taken. Although the ministry can suspend the Affordability Payment for a non-compliant proponent, the ministry will not suspend payments before a compliance plan is developed and implemented. The ministry will exhaust all reasonable efforts prior to suspending the Affordability Payment. Should a proponent not return to compliance within the timeframe detailed in the plan nor within a reasonable time period, the ministry will issue a notice of suspension of Affordability Payments warning that future Affordability Payments would be at risk. The letter will restate the options for coming into compliance with the funding agreement. A copy of the letter will be sent to Canada Mortgage and Housing Corporation (CMHC) and the lending institution that supplied the permanent financing. In the event of non-compliance after the period identified in the warning notification, the ministry will give 20 business days notice for suspension of Affordability Payments.

Final Comments
The Affordability Payment allows to government to fund the AHP consistent with other government capital expenditures, and allows for a better accountability system. The Affordability Payment is applicable to both the Strong Start and AHP New Program projects. This method of payment will benefit service managers and proponents by ensuring the continuity of the funding and reporting relationships over the affordability period. Should you have any questions or concerns, please contact the ministry.

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For more information, please contact:


Market Housing Branch 777 Bay Street, 14th Floor Toronto ON M5G 2E5 General Inquiry: (416) 585-7544 Fax: (416) 585-7607 Delivery Branch 777 Bay Street, 2nd Floor General Inquiry: (416) 585-6437 Fax: (416) 585-6588 Facilitation Branch 777 Bay Street, 2nd Floor General Inquiry: (416) 585-6699 Fax: (416) 585-6588 Eastern Municipal Services Office 8 Estate Lane Rockwood House Kingston ON K7M 9A8 General Inquiry: (613) 548-4304 Toll Free: 1-800-267-9438 Fax: (613) 548-6822 Contact: Donna Simmonds Serving: Northumberland, Peterborough, Kawartha Lakes, Ottawa, Kingston, Hastings, Lanark, Leeds & Grenville, Lennox & Addington, Prescott & Russell, Renfrew, Cornwall Northeastern Municipal Services Office 159 Cedar Street, Suite 401 Sudbury ON P3E 6A5 General Inquiry: (705) 564-0120 Toll Free: 1-800-461-1193 Fax: (705) 564-6863 Contact: Cindy Couillard Serving: Parry Sound, Sault Ste Marie, Algoma,Cochrane, Manitoulin, Nipissing, Sudbury, Timiskaming Central Municipal Services Office 777 Bay Street, 2nd Floor 2nd Floor Toronto ON M5G 2E5 General Inquiry: (416) 585-6226 Toll Free: 1-800-668-0230 Fax: (416) 585-6882 Contact: Ian Russell Serving: Toronto, Peel, Durham, Halton, York, Simcoe, Dufferin, Hamilton, Muskoka, Niagara

Southwestern Municipal Services Office 659 Exeter Road, 2nd Floor London ON N6E 1L3 General Inquiry: (519) 873-4020 Toll Free: 1-800-265-4736 Fax: (519) 873-4018

Contact: Tony Brutto Serving: Waterloo, Wellington, Bruce, St. Thomas, Windsor, Grey, Huron, Chatham-Kent, Lambton,London, Oxford, Stratford, Norfolk, Brantford Northwestern Municipal Services Office 435 James Street, Suite 223 Thunder Bay ON P7E 6S7 General Inquiry: (807) 475-1651 Toll Free: 1-800-465-5027 Fax: (807) 475-1196 Contact: David Forester Serving: Kenora, Rainy River, Thunder Bay

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Appendix A Mortgage Drawdown


The following is a sample amortization table that demonstrates the contribution of the provincial Affordability Payment over the 20 year affordability period. The data used in this example is approximate and used for demonstration purposes only. Sample 1 assumptions: Proponents cost of borrowing: 5% Amortization period: 20 years Principal: $43,000

Sample 1 20-Year Affordability Payment Payment Number (month) Years 0-5 Years 5-10 Years 10-15 Years 15-20 Principal Remaining (period start) $43,400 $36,322 $27,125 $15,353 5-Year Cumulative Interest $9,898 $7,877 $5,291 $1,980 5-Year Cumulative Payment $17,112 $17,112 $17,112 $17,112 Balance Remaining (period end) $36,322 $27,125 $15,353 $0

Sample 2 assumptions: Proponents cost of borrowing: 5% Proponents cost of borrowing from 10-year interest renewal date: 7% Amortization period: 20 years Principal: $43,000

Sample 2 20-Year Affordability Payment Payment Number (month) Years 0-5 Years 5-10 Years 10-15 Years 15-20 Principal Remaining (period start) $43,400 $36,322 $27,125 $15,991 5-Year Cumulative Interest $9,898 $7,877 $7,512 $2,922 5-Year Cumulative Payment $17,112 $17,112 $18,693 $18,693 Balance Remaining (period end) $36,322 $27,125 $15,991 $0

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Appendix B Non-Compliance Protocol


PROTOCOL FOR NON-COMPLIANCE UNDER STRONG START Protocol for Suspending Affordability Payments under Schedule C, Rental Protocol, Provincial Contribution Agreement, Strong Start Program Background Under the Strong Start Program, the Provincial Contribution Agreement would be between a proponent and Her Majesty the Queen in Right of Ontario as Represented by the Minister of Municipal Affairs and Housing (the Minister). The Ministry of Municipal Affairs and Housing (the Ministry) acting on behalf of the Minister administers the Strong Start Program and is responsible for ensuring the terms and conditions of the Provincial Contribution Agreement (the Agreement) are met. In particular, the Ministry would ensure that proponents meet the conditions listed under Schedule C of the Provincial Contribution Agreement. This protocol is set out in two parts: Part I being the Ministrys own operational guidelines which are not the subject of agreement between the Ministry and CMHC, Part II being an agreement between CMHC and the Ministry to support the insurance by CMHC of the permanent capital financing loans by NHAapproved lenders for projects in the Strong Start Program and Part III being service standards for underwriting of these files by CMHC for mortgage loan insurance. Part I NON-COMPLIANCE Basic Principles This protocol does not supersede the Provincial Contribution Agreement or the Service Manager Administrative Agreement, but should be seen as an enhancement to these agreements. In the event that a project is not in compliance with the Provincial Contribution Agreement, the Ministry will not arbitrarily suspend Affordability Payments prior to implementing reasonable measures to bring the project back into compliance. The Ministry will take into account the interests of the tenants. Compliance with the Provincial Contribution Agreement means that:

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All reports on rent levels and client groups are received from the proponent, via the Service Manager, within agreed upon timeframes; Reports demonstrate program compliance; and Municipalities party to the security on title report no issue with respect to the terms and conditions of the security.

The course of action that may be undertaken prior to suspending Affordability Payments include, but are not limited to, the activities listed below.

Step 1: Identification of a Problem Should the Ministry become aware of non-compliance through a report from a Service Manager, or by other means, the Ministry would assemble a team to undertake an initial review of the situation. Should it appear that the project is not in compliance, the local Service Manager and CMHC would be informed of the situation and invited to nominate representatives to the team (which may include the approved lender). The level of participation by CMHC would be at their discretion. The purpose of the team would be to: Review any actions of the Service Manager to bring a project into compliance; Work with the proponent to bring the project into compliance; Make other suggestions to the proponent to ensure ongoing compliance of the project; Monitor the situation; and Make recommendations to the Ministry on any further action that may be taken, up to and including suspension of Affordability Payments and other remedies outlined in Section 10 of the Contribution Agreement.

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Step 2: Investigation The team would investigate the situation, including requesting a statement in writing by the proponent certifying that the Agreement is in good standing or stating any defaults, as outlined in Section 12.13 of the Agreement.

Step 3: Communications with Proponent The Ministry would send a notice to the proponent with a copy to CMHC outlining the issues of non-compliance and requesting a response that would outline how the proponent would address the issue of non-compliance, including a timetable for the bringing the project into compliance. The team would then monitor the proponent and at the point where the project has returned to compliance with the Provincial Contribution Agreement, no further action would be taken. Where a proponent refuses to take steps to move towards compliance of a material obligation, including but not limited to refusing to respond to the Ministry, or where the Ministry has reasonable grounds to believe the proponent has wilfully breached conditions of the Agreement (e.g. indications of fraud), the Ministry after consultation with CMHC may bypass Step 4 and move directly to Step 5.

Step 4: Developing Options for Compliance Where a proponent is having difficulty complying with the terms of the Agreement, the team would have the mandate to meet with the proponent to assess and review the situation. The team would: Make recommendations and/or approve options for the proponent to implement to reach compliance; Develop a plan in conjunction with the proponent to reach compliance; and Monitor proponents implementation of the plan.

Where the management of a project is assigned to a new proponent, and the new proponent undertakes to bring the project into compliance, the Ministry would not unreasonably withhold approval of the new proponent, including making Affordability Payments to the new proponent. Step 5: Notice of Suspension of Affordability Payments In the event that the proponent does not move the project into compliance within a reasonable time period, a letter would be sent to the proponent warning that future Affordability Payments would be at risk. The letter would restate the options for coming into compliance. The letter would request a 16

response from the proponent outlining how the proponent proposed to move into compliance. A copy of the letter would be sent to CMHC and the lending institution that supplied permanent financing. In the event of on going non-compliance, the Ministry gives 20 business days notice of suspension of Affordability Payments. The Ministry would advise CMHC and the lending institution of the impending suspension of Affordability Payments. The Ministry would avail itself of all remedies listed in Section 10 of the Provincial Contribution Agreement.

Step 6: Suspension of Affordability Payments After reasonable efforts to return a project to compliance have failed and the measures set out in Part II of the protocol have been completed, the Ministry will suspend Affordability Payments. In the event proponent returns the project to compliance, the Affordability Payments would be re-instated. The Ministry would have the option of depositing suspended payments into a liability account for the purpose of making retroactive payments. Normal provincial accounting rules would apply to the length of time the funds could be held in the liability account and the ability to make retroactive payments.

FINANCIAL DEFAULT Ministry Position on Financial Default

The Contribution Agreement has built-in flexibility for permissible rent increases during the affordability period. Rental and Supportive Program initial rents are required to be set at 20% below CMHC average market rents (AMR) or at an otherwise Ministry agreed upon level for those areas not subject to CMHC AMR data. Permissible rental increases under the AHP program (maintaining program compliance) are as follows: o Initial rent plus Tenant Protection Act (TPA) annual guidelines increases; o Initial rent plus rent supplement (at or below CMHC AMR) plus TPA guideline increases; o Initial rent plus TPA annual guideline increases plus an above guideline increase from the beginning of the 11th year of the affordability period o Initial rent plus rent supplement (at or below CMHC AMR) plus TPA annual guideline increases plus above guideline increase after year 10; and

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o There is the option to allow rent increases for vacant units up to AMR in years 1 through 15. Proponents do have the capacity to request an above guideline increase beginning in year 11 of the program. Proponents must demonstrate in a business case submitted to the service manager and approved by the Ministry that the request is based on the need to address unforeseen capital repairs not achievable through the capital reserve budget for the project, or to offset excessive increases in energy costs. In the event that a proponent defaults on its mortgage payments (financial default), or there are indications that a proponent may default on its mortgage, the Ministry and the Service Manager will solicit the cooperation of CMHC, and shall make best efforts to prevent a permanent financial default, within the confines of the Provincial Contribution Agreement, failing which the Ministry will permit an increase in the rent within the terms and conditions of the Provincial Contribution Agreement. o The Ministry will not arbitrarily suspend Affordability Payments where there is a reasonable possibility that default can be avoided or remedied. Where a project does go into financial default, the Ministry will have the option of suspending Affordability Payments: o Affordability Payments will be maintained for a reasonable period of time should the permanent lending institution, on its own or in conjunction with any of CMHC, the Service Manager and MMAH, be making an active search for a new proponent that would maintain the financial viability of the project and be in compliance with the Agreement. o The Ministry will have the option of assigning the Affordability Payments to the Service Manager, permanent lending institution or CMHC. Should a rescue plan be implemented in a reasonable time period that would bring the project out of financial default, after the Ministry has suspended Affordability Payments, the Affordability Payments will be reinstated, with possibility of retroactive payments, subject to normal provincial accounting rules.

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PART II Agreement between the Ministry and CMHC The Strong Start Program contemplates that the Provincial portion of the Contributions by Others under the CMHC Ontario Affordable Housing Program Agreement dated April 29, 2005 (the New AHPA) will be delivered to proponents over a 20-year period by way of monthly Affordability Payments which is a contribution toward the repayment of principal and interest under the permanent capital financing obtained by the proponent rather than by way of an up-front contribution. The Ministry has requested that CMHC insure approved lenders providing the permanent capital financing loans for projects under the Strong Start Program. In consideration of CMHCs agreeing to insure permanent capital financing loans by NHA-approved lenders for Strong Start Program projects, the Ministry and CMHC agree as follows for each such project: 1. The Ministry consents to the assignment by the proponent to the lender or CMHC (as the case may be), as additional security for the loan, of the Provincial Contribution Agreement, and to any direction by the proponent to pay the Affordability Payments directly to the lender or CMHC effective in the event of default by the proponent under the insured mortgage. The Ministry shall act reasonably in approving any form of assignment documentation presented by the insured Lender, provided that in the event of any inconsistency between the form of Lender assignment and Part II of this Protocol, as between CMHC and the Ministry, the terms of Part II of this Protocol shall prevail. CMHC acknowledges that the Service Manager may obtain an assignment of the Provincial Contribution Agreement in its capacity as second mortgagee, which assignment shall be subject to the first mortgage and security and the assignment agreed to herein.

2. The Ministry will provide CMHC with 20 business days written notice of any proposed reduction suspension or termination of Affordability Payments, together with a statement of the non-compliance and reasons justifying the proposed action.

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The Ministry agrees that while it may take other steps against the proponent in the event of non-compliance by the proponent with the Provincial Contribution Agreement, it will not consider reducing, suspending or terminating the Affordability Payments on the basis of noncompliance with non-material obligations under Provincial Contribution Agreement. The Ministry recognizes that non-material obligations may include failure to provide reports on a timely basis and default under security or agreements with others including the municipalities. 3. The Ministry agrees that during any Enforcement Period it will not reduce, suspend or terminate the Affordability Payments, subject to the Service Manager, approved lender or CMHC observing and performing, to the extent possible, the obligations of the proponent under the Provincial Contribution Agreement. Enforcement Period means a reasonable period of time during which substantial efforts are being made to remedy non-compliance, to enforce the lenders or CMHCs rights in relation to the loan, to develop and effect a workout for the project, or to find and put into place a transferee for the project who agrees to assume the Provincial Contribution Agreement. The lender, CMHC and a transferee will not be: (A) subject to any set-offs or defences that the Ministry might have against the proponent; and (B) required to remedy any non-compliance by the proponent. 4. The Ministry will agree to not unreasonably withhold approval for the assignment of the Provincial Contribution Agreement to any transferee of the project resulting from any workout or enforcement steps or proceedings provided the transferee agrees to assume the Provincial Contribution Agreement. 5. The Ministry will agree to the increase of rents in the project to the extent reasonably necessary to maintain or restore the financial viability of the project, at the request of the lender or CMHC but only within the terms and conditions of the Provincial Contribution Agreement 6. CMHC will not be bound by any change in or termination of the Provincial Contribution Agreement between the proponent and the Ministry without the consent of CMHC, acting reasonably.

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7. This agreement applies between CMHC and the Minister notwithstanding any rights the Minister may have against the proponent. Part II of this protocol is agreed to and executed on behalf of CMHC and the Minister by their duly authorized officers this __4__day of May, 2006.

Canada Mortgage and Housing Corporation

____original signed by_____ Per: Peter Friedmann General Manager (Authorized signing officer)

Her Majesty the Queen in Right of the Province of Ontario as represented by the Minister of Municipal Affairs and Housing

____original signed by_______ Per: Doug Barnes Assistant Deputy Minister Housing Division (Pursuant to delegated authority)

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PART III CMHC Underwriting Service Standards

CMHC will give a preliminary response in respect of the application for mortgage loan insurance for Strong Start Project within five (5) business days of receipt of such applications. CMHC will provide a complete response to the applicant within twenty five (25) business days of receipt of substantive documentation as set out in the attached checklist, eighty percent (80%) of the time.

Part III of this protocol is agreed to and executed on behalf of CMHC this __4__day of May, 2006.

Canada Mortgage and Housing Corporation

____original signed by_______ Per: Peter Friedmann General Manager (Authorized signing official)

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