The Federal Housing Administration (FHA) hopes to help facilitate the financing of small multifamily developments through a new risk-sharing program.

The Small Building Risk Sharing (SBRS) Initiative invites high-capacity lenders to partner with FHA to provide long-term fixed-rate lending products to multifamily property owners with mortgages of $3 million and up to $5 million in high-cost areas, according to the Department of Housing and Urban Development (HUD). 

A notice providing guidance has been published in the Federal Register. 

Projects must consist of five or more rental dwelling units (including cooperative dwelling units) on one site. Scattered sites can be considered so long as each site has a minimum of five units and can demonstrate it is one marketable and manageable real estate asset. In an initial notice, eligible projects consisted of either five to 49 units, or if the project consisted of more than 49 units the loan amount could not exceed $3 million.

The initiative was applauded by the National Association of Affordable Housing Lenders (NAAHL).

“The Small Building Risk Sharing Initiative is the most promising policy innovation to provide smaller loans for affordable apartments in recent memory,” said Benson “Buzz” Roberts, NAAHL president and CEO, in a statement. “For the first time, the local entrepreneurs who own most of the apartment buildings in many communities will have access to long-term, fixed-rate FHA mortgages that have generally been available only to large real estate investment companies.”

Roberts noted that one-third of all American households are renters, and more than half of them are rent-burdened, meaning they spend more than 30% of their income on rent.

Small projects can be challenging to develop because many of the programs used to finance affordable housing are better suited to large developments.

SBRS builds on the record of affordable housing lending under HUD’s existing risk-sharing programs with state and local housing finance agencies as well as Fannie Mae and Freddie Mac.

The notice invites “high-capacity” Community Development Finance Institutions (CDFIs), other nonprofit lenders, public and quasi-public agencies, and for-profit lenders approved as FHA Multifamily Accelerated Processing lenders to participate in the program.

“Communities across the nation are seeking ways to support affordable housing production and preservation,” said Ed Golding, principal deputy assistant secretary for HUD’s Office of Housing. “The risk-share initiative allows us to target our products to an important and underserved part of the rental market by partnering with CDFIs and other lenders who have on-the-ground relationships with small building owners in their communities. By offering FHA mortgage insurance and facilitating access to long-term fixed rate capital we can help preserve affordable housing for property owners and tenants.”

In return for assuming 50% of the risk, approved lenders in the program underwrite and service the loans subject to minimum standards which can reduce processing times relative to traditional FHA mortgage insurance programs. FHA’s willingness to assume half of the risk can free up lenders’ balance sheets and allow them to increase their lending activities without an additional federal subsidy or new regulations, said HUD.