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."