Several important changes have been made to the updated Multifamily Accelerated Processing (MAP) Guide, the source used by MAP-approved lenders when originating, underwriting, and closing Federal Housing Administration (FHA) insurance on multifamily housing properties.
Many of the big changes involve environmental standards, with energy and water conservation getting its own chapter in the guide for the first time.
Previously, multifamily housing property owners could reduce their mortgage insurance premiums (MIPs) to 25 basis points if their developments obtained green building certification and demonstrated continuing energy-efficiency performance. Under the updated MAP Guide, Energy Star for existing buildings is largely eliminated as certification for Section 223(f) and 223(a7) programs, according to Dan Frink, managing director and head of third-party administration at Greystone, a leading FHA lender.
There will be a two-year grace period allowing properties less than three years old to use Energy Star Existing Building certification; however, the Statement of Energy Performance score must be a 90, formally 75, says Frink.The change is notable because Energy Star has been the preferred certification for owners. It’s been the least onerous and the most cost-effective strategy, he says.
Owners will have to start using another of the approved certification programs, which are often more demanding and expensive. The new higher bar could mean that fewer projects will seek the green MIP benefit when refinancing Section 223(f) transactions.
“The vast majority of refinance deals that were done over the past three or four years have been through the Energy Star program,” says Chris Rumul, managing director at Walker & Dunlop, a top FHA lender. “Now, that option has been reduced but not eliminated. There are still some exceptions where you can use Energy Star, but it’s going to change matters for clients on their MIP rates for future business going forward.”
The Department of Housing and Urban Development (HUD) gave plenty of notice that this change was coming, he says.
The second big change calls for increased radon testing. Under the previous guide, HUD required 25% of the ground-floor units of a property in radon zones one and two, areas with high or moderate potential for elevated indoor radon levels, to be tested, says Frink.
The new guide calls for testing 100% of a project’s ground-floor units along with 10% of upper units in all three radon zones. This means owners face increased costs for the tests. In addition, many radon testers have a backlog of work, so there could be delays, says Frink.
A third change involves asbestos testing. In general, asbestos inspections were required on buildings built prior to 1978. Now, buildings built before 1989 must be assessed.
Other Key Changes
HUD also has revised its Section 223(f) three-year rule, which required applicants to have three years of operations after construction or substantial rehabilitation before refinancing. Now, deals will be able to get financed much sooner under the Section 223(f) program. This change opens up new financing options to borrowers.
“These are deals that should be in HUD’s wheelhouse,” says Rumul. “They are stabilized or about to be stabilized assets, with low risk.”
He adds that there was another notable change made separate from the updated MAP Guide. In a letter, federal officials addressed the issue of split wages.
The manner in which wage rates are applied is important for FHA financing of new construction or substantial rehab projects. To help alleviate the headaches that occur when a project has multiple wage decisions, officials recently increased the threshold from $1 million to $2.5 million.
Ideally, a project will keep as many wages in one scale as possible. However, there can be complexities when there is construction in a category that is different from the overall project.
For nonresidential living areas like a clubhouse or parking, HUD has now increased the threshold to $2.5 million before that work is moved up the wage scale, according to Rumul.
“It makes life dramatically easier for developers, for HUD staff, for labor staff, and the lender community to make it much more streamlined and efficient,” he says.
