Recharged FHA a Big Plus for Multifamily

June 1, 2001

It was good news when HUD announced in early spring that it would push for a 25 percent increase in FHA multifamily mortgage loan limits this year.

Under that increase, badly needed apartment buildings with units affordable to moderate-income households could, for the first time in years, be built in high-cost areas such as Boston and parts of the San Francisco Bay area. NAR is a big backer of the increase.

But there’s more to the good news than the increase, which analysts say has a strong chance of passage with HUD aboard.

Over the past several years, HUD has been working with apartment lenders to refine the way FHA multifamily mortgage applications are processed. About one year ago, HUD launched a procedure that lenders say has been an unqualified success in speeding FHA application processing.

The new procedure, called multifamily accelerated processing, puts responsibility for processing FHA mortgage applications in the hands of lenders--not HUD, which now acts as a quality-control reviewer.

It also commits HUD to meeting a specific timeline for its reviews, and lets HUD offices around the country tap processing resources from other HUD offices on an as-needed basis. That way a short-staffed HUD office won’t slow down application reviews.

Lenders say the result is that FHA development financing is now not only the most attractive financing available--it offers nonrecourse 40-year fixed-rate loans--but is also becoming competitive with conventional lending in terms of processing time frames and paperwork headaches.

“In some FHA offices, multifamily application processing is magnitudes quicker than it used to be,” says Michael Berman, president of Continental Wingate Capital, Needham, Mass., an FHA-approved lender. Berman’s company is credited with obtaining the first loan approval under the MAP procedure last year.

The speedier processing is showing up in FHA volume figures. FHA made commitments on almost $3.7 billion in apartment loans in fiscal 2000. That’s a little less than in the previous year, before the new program rolled out. But the figure still represents a success, lenders say, because last year’s volume was hampered when HUD ran out of credit subsidies (required loan-loss reserve funds) halfway through the fiscal year.

To be sure, a key reason for the quick depletion of credit subsidies last year was the growing popularity of FHA financing of nonprofit-sponsored apartment building development, which requires larger allocations of credit subsidy funds.

This year the new procedure is clearly behind much of the surge of interest in HUD’s FHA multifamily loan programs, Berman says.

What does this improved processing mean for practitioners? It means more business in high-cost areas, because the higher loan limits by themselves would never have attracted some developers to the program, lenders say.

“There’s no doubt that many more borrowers today consider FHA financing because of MAP,” says Berman.

What happens next? Congress will look at the proposed loan limit increase as part of HUD’s fiscal 2002 budget proposal. If the increase is enacted, as industry analysts widely expect, the current loan limits will go up by about $10,000û$16,000 a unit--to $45,000û$81,000 a unit from about $35,000û$65,000 a unit today. The actual per unit amount depends on the area, the FHA loan program, and the building type.

That will make a difference for projects in areas most in need of moderate-income rental housing, says Berman.

FHA multifamily volume

FY 01*
FY 00 FY 99
142 loans 574 loans 656 loans
($1.073 billion) ($3.681 billion) ($4.183 billion)

*through 1/31/01

Source: HUD

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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