FHA: A Critically Important Program for Financing Multifamily and Residential Healthcare Properties

BACKGROUND

The U.S. Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) is a vital component of the U.S. housing finance system for apartments and residential healthcare facilities. FHA's programs and the counter-cyclical role they played during the recent recession proved how valuable FHA is during periods of economic distress, as FHA provided needed liquidity and stability to the multifamily and residential healthcare markets. These programs have exhibited strong performance and have experienced very low delinquency rates. As a result, FHA is fulfilling its important and congressionally mandated rental housing mission while consistently producing revenue for the federal government.

RECOMMENDATIONS

(1)  Stable and sufficient resources at FHA to support workforce housing, affordable rental housing and residential healthcare properties. Through the FHA Transformation and restructure effort for multifamily housing loan production, HUD made significant improvements to address the inconsistencies that FHA lenders and borrowers experienced while HUD was running a national program through 50 different offices. The improved performance in HUD's three post-Transformation regional offices generated positive feedback from FHA multifamily lenders.  MBA recommends that FHA start a Transformation of FHA multifamily asset management operations which are still in approximately 50 locations. MBA recommends that FHA be granted authority to plan for and complete a corresponding Transformation to improve efficiencies for borrowers and lenders working with FHA asset management staff.

(2)  Training of FHA staff is critical to a successful, long-term Transformation. Adequate staff and expertise as well as equitable workloads are necessary in FHA's multifamily offices. MBA supports FHA staff training to allow new and seasoned staff to upgrade their skills in underwriting, risk analysis and asset management. In this regard, MBA has worked with HUD to provide a key educational resource, the FHA underwriter training program. Launched in 2013 and continued into 2016, the participation of over 45 HUD employees in the program is a resounding testament to its success.  MBA recommends continued support for training HUD staff.

(3)  FHA policies and procedures should reflect the multifamily competitive landscape and economic trends. MBA supports the positive steps that the FHA Office of Multifamily Housing Programs has taken recently to strengthen FHA multifamily programs, enhance the partnership with its lenders, and support the financing of multifamily rental housing and energy efficient housing. MBA believes it was appropriate timing for HUD to recalibrate Mortgage Insurance Premiums (MIPs) for multifamily housing finance. This was a reflection of the sustained strong performance of the FHA multifamily insured portfolio with its delinquency rate of less than one-quarter of a percent and because of the growing need for multifamily affordable rental housing. MBA supports HUD's change to lower MIPs for multifamily affordable and energy-efficient housing announced in spring 2016.  

(4)  Private sector lenders have produced the majority of FHA affordable rental housing. The public-private partnership between FHA and lenders that produced over 10,000 existing multifamily loans is a tremendous resource and should remain a priority. Based on MBA input, HUD revised its Small Multifamily Building Risk Share Initiative to expand the permitted lender participants from public, quasi-public and CDFI entities to include approved high-net-worth private sector lenders. Several private sector lenders have applied or are in the process of applying to participate in this Initiative. These lenders will positively increase the available capital for affordable rental housing.    MBA recommends that FHA continue to provide for approved private sector lenders to work in partnership with FHA in order to expand the delivery of affordable and workforce housing by the private sector.   

(5)  Expand HUD's targeted affordable multifamily housing programs including the Low Income Housing Tax Credit (LIHTC) program and the Rental Assistance Demonstration (RAD) program. MBA lenders have had productive meetings with HUD and helped to shape the program by providing recommendations as HUD develops a pilot LIHTC program to produce new affordable housing. The RAD program was designed to encourage the recapitalization and rehabilitation of public housing units. MBA encourages greater lender participation in the RAD program under its new congressionally authorized unit cap, which was increased to 185,000 units. Due to the RAD program's success, it appears to be on track to reach its capacity in 2016. MBA asks Congress to lift the cap from the private-public partnership RAD program in order to rehabilitate, finance and preserve this affordable housing resource.   

(6)  Regulatory or programmatic barriers inhibiting FHA-insured financing should be revised, updated, reduced or eliminated. The revised 2016 FHA multifamily underwriting handbook, known as the MAP Guide, included many positive revisions that MBA strongly supported. Changes include  enhancements to the important FHA LIHTC program, a revision of the Capital Needs Assessment requirements to better align HUD's programs with other multifamily capital sources, and, an update on the per unit amount of repairs which can be accomplished through a multifamily refinancing program.  

Unfortunately, certain requirements that should not apply to urban multifamily housing developments (sometimes focused on by offices in HUD other than FHA) have resulted in more frequently needed waivers from some regulatory barriers.  Some outdated requirements negatively impact production of needed workforce and affordable housing. MBA recommends a review of regulations to ensure environmental safety and soundness while considering modern building technology available to mitigate environmental impacts.

April 2016

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