The Department of Housing and Urban Development (HUD) has announced an “express lane” for new-construction low-income housing tax credit (LIHTC) deals.
The program is open to 9% LIHTC as well as 4% LIHTC and tax-exempt bond deals insured under the Section 221(d)(4) program. However, it excludes projects with Section 8 project-based rental assistance.
Announced this month in Mortgagee Letter 2026-13, the express lane aims to reduce Federal Housing Administration (FHA) processing time for transactions sponsored by experienced LIHTC developers.
“The biggest impact is that FHA financing becomes a more practical option for a broader range of LIHTC developments,” says Paul Weissman, senior managing director and head of affordable housing production at Lument. “Faster processing and greater flexibility can make a meaningful difference when developers are trying to keep increasingly complex capital stacks on track.”
The strength of the development team is an important factor for eligibility.
“HUD experience is not required, but extensive multifamily and LIHTC experience is necessary,” according to Charley Conkling, senior vice president, head of FHA underwriting, at Walker & Dunlop.
Developers must be able to meet the liquidity and guarantee obligations imposed by the tax credit investor at the industry standard of $1 million liquidity and $5 million net worth through the financial strength of the active entity and individual principals alone, without relying on third-party guarantors.
“A review of their real estate-owned portfolio must evidence stability and minimal risk, with stabilized LIHTC portfolio debt-service coverage ratios above 1.15x, LIHTC portfolio occupancy above 93%, and a limited number of individual transactions below those operating metrics,” according to HUD.
General contractors, architects, and management agents also must meet certain experience requirements.
The express lane modifies several policies from the previous 2019 LIHTC pilot program to accommodate more new-construction projects, including:
- There is no unit cap as the maximum project size limit of fewer than 200 units has been eliminated;
- The Initiative now includes new construction of 4% LIHTC transactions with tax-exempt bonds, which were previously not eligible;
- The maximum loan-to-cost (LTC) of 65% to 75% is also eliminated, reverting to the standard 80% LTC allowed under the Housing and Economic Recovery Act;
- The requirement for a deferred developer fee of at least 25% has been removed, as HUD acknowledges there are sufficient economic incentives from LIHTC investors to secure developer commitment;
- Early submission of deliverables before application has been streamlined;
- The 30-day firm commitment decision timeline is maintained and reemphasized as internal HUD processes have been eliminated or reduced in scope; and
- Eligibility limitations for environmental risk factors have been reduced to two environmental compliance factors.
“The ‘express’ part doesn’t mean HUD is lowering its standards,” Weissman says. “This creates an opportunity for experienced developers and development teams that can demonstrate a strong track record and come prepared to execute. One continuing challenge that remains is the LIHTC equity pay-ins. While the program allows for a 10% initial installment, the construction loan will be the same size as the permanent loan so alternative structures to push future equity pay-ins further out may be needed.