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, the counter-cyclical role they played during the Great Recession, and the revenue it produces for the federal government prove 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 reorganization effort, HUD made significant strides to address the inconsistencies that FHA lenders and borrowers had experienced, and since the Transformation's completion, HUD has received generally positive feedback on its results. MBA recommends that FHA continue to improve their production timelines and provide MAP Guide instruction to train new staff hired, maintain consistency, and retain key staff at HUD through anticipated FY2018 budget cuts.

(2)  Regulatory or programmatic barriers inhibiting FHA-insured financing should be revised, updated, reduced or eliminated.

MBA has submitted numerous comment letters in recent months addressing concerns on various issues outlined below. In accordance with President Trump's Executive Order on Core Regulatory Principles, MBA encourages HUD to perform impact analyses and reviews on certain new rules and processes listed below that are due to take effect in the first half of 2017 in an effort to assess "efficiency, effectiveness, and the appropriate tailoring" of certain HUD priorities to production. MBA recognizes that HUD has several pending environmental policy priorities, but encourages HUD to defer their implementation, rigorously review their impacts, and revise them to limit the financial burden associated with these requirements. HUD should narrow the scope of specific regions where the risk of flooding, radon-exposure, noise or other environmental complications warrant more stringent mitigation standards. MBA also recognizes the important priorities of energy efficiency benchmarking and streamlining production data processing, these are two very important goals for the industry to pursue, but MBA encourages HUD to delay extensive process changes until a time when these new processes are proven to be more efficient and effective than the current procedures. The regulatory and administrative procedures for managing Davis-Bacon wage requirements need significant clarification and updating in order to minimize the disruptive impact on financing of FHA-insured new construction and substantial rehabilitation projects due to variability, inaccuracy, and unclear wage determination methodologies.

(3) 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 to provide recommendations as HUD develops a 221(d)(4) pilot LIHTC program to produce new construction and substantial affordable rehabilitation multifamily rental housing. MBA recommends that HUD approve and launch this pilot program and rapidly approve qualified lender applicants. MBA also recognizes that potential corporate tax reform may have critical implications for the LIHTC, including financing gaps and pricing discrepancies. MBA asks Congress to carefully consider the impact that lowering corporate tax rates will have on the LIHTC, and financing for low-income housing. MBA has supported RAD and acknowledges strong lender participation in the RAD program. MBA recommends that Congress increase or lift RAD's unit cap.

(4) Private sector lenders have produced the majority of FHA affordable rental housing.

The public-private partnership between FHA and lenders has produced over 10,000 existing multifamily loans and is a tremendous resource that must remain a priority. The success of the FHA program is reflected in the sustained strong performance of the FHA multifamily insured portfolio. MBA recommends that FHA maximize its network of FHA-approved private sector lenders to work as the preferred partners and the primary source for FHA delivery of affordable and workforce housing by the private sector.

(5) 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 to increase overall knowledge and promote consistency across offices and regions.   FHA policies and procedures should reflect the competitive landscape and economic trends in the housing market. MBA applauds the positive steps that the FHA took last year to strengthen multifamily and healthcare finance programs by launching two handbooks and many of the revisions were strongly supported by MBA during the process. FHA enhanced the partnership with its lenders, and supported the financing of multifamily rental housing and energy efficient housing. MBA believes it is appropriate timing for HUD to review Mortgage Insurance Premiums (MIPs) for residential healthcare loans.

Updated April 2017

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