The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) have announced updates to several multifamily mortgage insurance programs. These changes, made during the Biden-Harris Administration, aim to enhance financing flexibility for lenders and developers involved in creating or refinancing affordable multifamily rental properties.
The updates are designed to increase loan proceeds available to developers and reduce the cash required to close FHA transactions. This move is intended to make FHA transactions more competitive in today's market while encouraging the development of affordable rental homes for individuals with modest means.
"We have an acute need for affordable rental housing nationwide," stated an official from HUD. "These changes to our underwriting rules will help create and preserve much-needed homes."
FHA's action targets two transaction categories. The first involves properties offering rent-assisted affordable rental homes aimed at individuals and families earning 80 percent or less of the Area Median Income. For these properties, FHA is lowering the required debt service coverage ratios (DSCRs) and increasing maximum allowable loan-to-value/loan-to-cost (LTV/LTC) ratios under its 223(d)(4) and 223(f) programs.
Additionally, FHA has introduced new policies for mortgages on properties where at least half of the rental homes target individuals and families earning up to 120 percent of the Area Median Income. This initiative addresses market needs through 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 Federal Housing Commissioner Julia Gordon. She emphasized that policy changes under this administration seek a dual objective: facilitating access for private partners while providing more safe and affordable homes for low-income individuals.
Deputy Assistant Secretary for Multifamily Housing Programs Ethan Handelman acknowledged stakeholder collaboration in developing these policy changes. "HUD worked closely with many multifamily lenders and other stakeholders in the development of these policy changes," he noted, expressing gratitude for their input via HUD’s Drafting Table.
The outlined changes in today’s Mortgagee Letters take immediate effect for any FHA Multifamily application not yet endorsed initially. The adjustments align with the Biden-Harris Administration's commitment to expanding housing supply by increasing both affordable and market-rate housing units.
