New actions have been introduced to provide housing finance agencies (HFAs) more interest-rate predictability to the Federal Housing Administration’s (FHA’s) Risk-Sharing Initiative to support the construction of affordable homes.
The FHA and the Federal Financing Bank will implement a floor and a cap, called an “interest-rate collar,” on the benchmark Treasury rate to calculate the all-in rate provided to HFAs. This update to the Section 542(c) HFA initiative will make it easier to use the program, thereby increasing the number of new, affordable multifamily properties that can be developed using risk-sharing program financing, according to Department of Housing and Urban Development (HUD) officials.
The interest-rate collar will be available for HFA-originated mortgages used to finance new construction or substantial rehabilitation of multifamily affordable housing for low-income individuals and families. It will be provided when an application for FHA-insured mortgage financing is conditionally endorsed by FHA. The final pass-through interest rate for the transaction upon completion of construction will be calculated using the floor and cap benchmark Treasury rates referenced above and programmatic spreads determined by the Federal Financing Bank.
“Let’s face it—we don’t have enough affordable homes. Here at HUD, we are making changes to build new, quality, affordable homes like never before,” said Adrianne Todman, HUD acting secretary. “Today, alongside our colleagues at the Department of the Treasury, we are announcing a crucial move that will enable our partners to use our financing to build tens of thousands more rental homes for the families we serve.”
The move will increase the usefulness and reach of a program that has already developed thousands of new rental homes through collaboration among federal, state, and local housing resources, added Julia Gordon, assistant secretary for housing and federal housing commissioner.
The National Council of State Housing Agencies (NCSHA) applauded the changes.
“Today’s action, combined with the many other efforts this administration has made to support affordable housing development, will lead to the production and preservation of crucially needed rental housing throughout the country,” said NCSHA executive director Stockton Williams. “We thank HUD, Treasury, and the rest of the administration officials who worked on this for their support of HFAs and the risk-sharing program.”
The Section 542(c) Housing Finance Agency Risk-Sharing Initiative allows eligible HFAs to enter into contracts with HUD through which FHA insures multifamily mortgages originated by an HFA that are used to finance construction or rehabilitation of properties with affordable housing units. Under these contracts, HUD and the HFA share the risk of any potential loss resulting from a default of the insured mortgage. With the FHA insurance credit enhancement in place, the Federal Financing Bank will purchase the mortgage, enabling the HFA to recoup its capital and make other investments in their communities.
Treasury and HUD indefinitely extended the risk-sharing program earlier this year, after it lapsed under the Trump administration. The program has already supported more than 16,000 units since restarting in 2021 and is expected to help create or preserve tens of thousands of units over the next decade.
