The Federal Housing Administration (FHA) announced that it is removing temporary COVID-19 underwriting mitigants for multifamily transactions insured under Section 223(f) of the National Housing Act, effective immediately for all insured transactions that have yet to reach endorsement.
The temporary requirements calling for nine months of debt service reserves, 250% repair escrows, and limits on cash-out refinance transactions were originally put in place in April 2020 to counterbalance potential financial effects resulting from the COVID-19 pandemic. In the almost two years following implementation of the policies, the FHA multifamily portfolio has proven to be consistently resilient to significant COVID-19 impacts, remaining at a less than 1% default rate, according to FHA officials.
The announcement was made Monday during the Mortgage Bankers Association Commercial/Multifamily Finance Convention & Expo in San Diego.
“Through actions taken under the Biden-Harris administration to help the nation recover from the pandemic, including the historic American Rescue Plan, mortgages in FHA’s multifamily insurance portfolio experienced fewer challenges than expected,” said Lopa Kolluri, principal deputy assistant secretary for the Department of Housing and Urban Development’s Office of Housing and FHA. “Because of this, we are in a position to unleash multifamily development capital by lifting these underwriting safeguards.”
This change allows lenders to return to using standard Multifamily Accelerated Processing (MAP) Guide policies going forward, which require fewer capital reserves to be held for debt service, a lower percentage of capital to be held in repair escrows, and more flexible requirements for the treatment of cash-out refinance transactions.
“FHA multifamily mortgage insurance helps to create much-needed rental homes in communities nationwide,” said Ethan Handelman, deputy assistant secretary for multifamily housing. “Returning to our normal underwriting safeguards will put more capital to work for affordable housing.”
Officials added they plan to make updates to the MAP Guide annually rather than every three or four years. For instance, they are looking at policies around “reserves for replacements” to see if there’s an opportunity to delegate some of that processing to lenders without coming to FHA for individual approval.