The Riverway Apartments in Brooklyn, N.Y., are under construction. Wells Fargo helped finance the property with a HUD loan.
SKA Marin The Riverway Apartments in Brooklyn, N.Y., are under construction. Wells Fargo helped finance the property with a HUD loan.

Federal Housing Administration (FHA) action in the affordable arena is rapidly gaining momentum as low interest rates snag the attention of borrowers looking for a great deal.

Rob Hoskins, chairman of developer The NuRock Cos., says FHA financing is definitely the choice of the moment for most owners and developers and that the agency is pushing affordable deals over anything else.

“It has, by far, the cheapest interest rate with the longest amortization schedule,” he says.

The agency has been driving ac­quisition-rehab projects to the top of the list as it is eager to close those types of deals, Hoskins notes.

“I think the industry is recognizing the need to preserve that affordable housing structure,” he says.

And although FHA has a reputation for being a little difficult and time-consuming, borrowers are singing the praises of the Department of Housing and Urban Development (HUD) after watching the first few deals close through the Low Income Housing Tax Credit Pilot Program.

Under the program, FHA had closed three deals and had five firm commitments issued as of late May, according to a HUD spokesman.

The spokesman added the agency had another 42 deals in the pipeline as of late May.

One of the more recent deals, which closed May 30, processed in about 47 days, a stark difference to how long it once took to close a deal with FHA financing.

The once grueling process, which took months and sometimes more than a year to complete, now takes about 120 days, Denise Troeschel, chief underwriter at Washington, D.C.-based Love Funding, says.

Rave reviews

The speed of closing is sure to attract new deals with developers who may have been skeptical to work with FHA in the past, and hopefully they will stick with FHA for years to come, she says.

“Some of them will go back to the capital markets, but I think FHA has proved to a lot of developers that it’s not as bad as the rumors used to be,” Troeschel said.

The pilot program has given the FHA the boost it needed to get back into the game with borrowers.

“I think it’s been in the last two years that there has been a resurgence of the tax credits,” she says. “HUD has made it a priority.”

Love Funding is an exclusive FHA lender and expects to outdo its volume from last year, Jonathan Camps says.

Camps, senior vice president, says the pilot program is a great opportunity for FHA to diversify and stabilize its portfolio with more affordable projects rather than the market-rate transactions it has been focusing on over the last decade.

FHA is also growing as Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs), are being cut back.

“HUD used to be the lender of last resort,” Camps says. “But they were always there. They provided stability. That really rang true when everything fell apart in 2008. It really went beyond everyone’s expectations in terms of volume.”

Hoskins agrees, saying some borrowers may be looking for stability as the dialogue of cutting the GSEs out completely gains momentum.

“Given the turmoil with Fannie and Freddie and the uncertainty of where they’re going to be over the next several years, it’s nice to have at least one finance source that we know has been historically proven to remain in place and be one we can count on,” he says.

And as the industry watches what is happening with the proposed elimination of the GSEs, they’re also watching creativity flourish at FHA.

Using a single senior underwriter is one of the creative solutions HUD has introduced with the pilot program, says Catherine Pharis, Wells Fargo managing director and head of the FHA platform.

HUD is also sharing deals from one office to the next. When one local office is overwhelmed and cannot take on the underwriting for a specific deal, it is able to send it to another local office as long as HUD headquarters has approved it.

“I think they’re seeing the value of figuring out how to be smarter,” Pharis says.