The Federal Housing Administration (FHA) will start a new pilot
program in the spring charged with getting affordable housing deals
done much more quickly.
The Tax Credit Pilot Program was originally mandated more than
three years ago by the Housing and Economic Recovery Act of 2008.
But a change in administrations and several bureaucratic holdups
have delayed its implementation. The program, modeled on the LEAN
program for health care loans, will expedite the processing of
deals using low-income housing tax credits (LIHTCs).
The FHA has made many programmatic strides in its desire to do
more LIHTC deals—essentially making its process
more borrower-friendly over the last three years. The agency even
included a chapter on tax credit deals in its latest revision of
the Multifamily Accelerated Processing (MAP) guide.
But processing timelines at the Department of Housing and Urban
Development (HUD) remain the biggest problem for affordable housing
developers, especially given the deadlines imposed by tax credit
financing.
“That's the main challenge
now, getting systems within each of the HUD offices to process
efficiently,” says Mark Beisler, chairman and CEO of
Columbus, Ohio-based MAP lender Red Mortgage Capital.
“They view the pilot program as important and
part of their mission, so that's certainly high
on the agenda. Tax credit deals should be a significant part of
their production, and they recognize that."
Given the aggressiveness and nimbleness of Community
Reinvestment Act-motivated banks, the FHA hasn't
captured much of the LIHTC market in the past. But
it's making incremental gains. The agency
processed about $560.5 million in firm commitments for LIHTC deals
in fiscal 2011, a 35 percent increase from the $416.7 million it
did the year before, which was nearly double the $224.1 million
done in 2009.
A look inside the numbers also shows a greater focus on new
construction or substantial rehabilitation deals using LIHTCs. In
2010, the FHA processed about $294.5 million in such deals, but
last year that figure bumped up 50 percent, to $441.5 million.
The agency has also made more progress in putting the
“UD” back in HUD, in financing more
urban deals. In the past, the agency's
requirements and processing timelines truly made it the lender of
last resort for more complex deals—such as a
high-rise on a site with environmental
issues—but that's beginning
to change.
“Five years ago, HUD
would've never been thought of to do a deal in a
downtown location,” says Beisler.
“Now they're stepping up and
doing them consistently."
Still, the numbers are a drop in the bucket compared with the
overall affordable housing market. And though
HUD's leadership is staffed with people who have
deep backgrounds in the LIHTC world, including Shaun Donovan, Carol
Galante, and Chris Tawa, there remains a wide gap between good
intentions and results. Transforming an agency like HUD is no small
task.
And the FHA has more business than it knows what to do with
these days. In fiscal 2011, the FHA saw about $12.4 billion in
multifamily volume, a new record for the suddenly popular agency.
And that glut of business has slowed the pipeline down, making the
need for an expedited process all the more apparent. Yet, some
affordable housing deals are being informally prioritized,
depending on which regional office you're
dealing with.
In the meantime
In the absence of the Tax Credit Pilot Program, many lenders say
that some FHA offices are expediting tax credit deals ad hoc.
For instance, Red Mortgage Capital is working on a $33 million
sub rehab in downtown San Francisco done through the Sec. 221(d)(4)
program. The deal needed to close by Dec. 1, and the agency got it
done—though the process still took about eight
months all told.
“We have definitely noticed a shift toward
favoring affordable housing, and most offices are putting anything
affordable at the top of their pipelines," says Tim Leonhard,
managing director of affordable housing debt at MAP lender Oak
Grove Capital. “They have the ability to be
incredibly competitive, but until they can centralize underwriting
and origination, which would facilitate more timely closing,
they're never going to be competitive from a
time perspective."
The agency aims to have the Tax Credit Pilot Program launched in
the spring, with the hope that the program can be fully operational
for the tax credit allocation rounds of 2012, according to a HUD
spokesperson.
In the meantime, the bottom line is that tax credit developers
should plan well ahead if they want to take advantage of the
FHA's generous rates and terms. New construction
deals using Sec. 221(d)(4) were seeing rates as low as around 5
percent (including the mortgage insurance premium) in early
December, a great rate for nonrecourse 40-year money.
If you're looking to break ground in early
2013, you may want to start the process now.
“All good deals have long entitlement
processes, so when you start that, start with HUD at the same
time,” advises Beisler. “It
doesn't cost you anything until you submit the
firm application, so you might as well keep them as an option."