Federal housing officials have announced updated requirements to several of their multifamily mortgage insurance programs.
They say “these updates increase financing flexibility for lenders and developers seeking to use the programs to create new or refinance existing affordable multifamily rental properties and create new or substantially rehabilitate properties that provide rental opportunities for ‘middle-income’ individuals and families.”
The changes seek to increase individual loan proceeds available to developers and decrease the cash needed to close for Federal Housing Administration (FHA) transactions. This will allow FHA transactions to be more competitive with today’s market needs while encouraging lenders and developers to provide affordable rental homes for those of modest means.
“We have an acute need for affordable rental housing nationwide,” said Adrianne Todman, head of the Department of Housing and Urban Development (HUD). “These changes to our underwriting rules will help create and preserve much needed homes.”
The changes involve two categories of transactions. The first is transactions that primarily help a property that offers or will offer rent-assisted affordable rental homes, which mean properties targeted to individuals and families with incomes at or below 80% of the area median income (AMI). For these properties, FHA is decreasing the required debt-service coverage ratios and increasing the maximum allowable loan-to-value/loan-to-cost ratios for mortgages it insures under its Sections 223(d)(4) and 223(f) programs.
In addition, FHA announced policies for a new category of mortgages on properties where at least 50% of the rental homes are targeted to individuals and families with incomes at or below 120% of the AMI. The creation of this new set of underwriting thresholds for the development of “middle-income” rental housing responds to market needs using the existing FHA 221(d)(4) loan program.
“These changes are part of a series of FHA initiatives aiming to meet the evolving needs of lenders, developers, and affordable housing providers as we work toward our shared goal of increasing the availability of quality affordable rental housing,” said FHA commissioner Julia Gordon.
The changes outlined in the Jan. 8 Mortgagee Letters are effective immediately for any FHA multifamily application that has not reached initial endorsement.
