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— Multifamily Properties Quarterly — May 2016
T
he Federal Housing Admin-
istration’s multifamily pro-
grams have undergone sev-
eral exciting changes that will
benefit borrowers and the
industry as a whole. The administra-
tion recently issued its new Multi-
family Accelerated Processing guide-
book, which takes effect May 28. In
addition to the new MAP Guide, FHA
released a waiver that outlined a
reduction in the mortgage insurance
premiums for multifamily properties
that meet certain affordability stan-
dards or green and energy-efficient
standards.
The FHA continues to transform
into a 21st century modern agency
via its Multifamily for Tomorrow
initiative. In 2013, the FHA decided
to simplify both its organizational
structure and processing methods
by consolidating more than 35 field
offices and program centers into five
regional centers that have one to
two regional satellite offices. They
adopted a single underwriter model,
which fosters greater efficiency and
effectiveness.
One of the more pronounced
logjams in the previous processes,
during the height of the financial
crisis and FHA heyday, was the
breaking apart of applications and
distributing applications across the
disciplines of it reviewers. The single
underwriter and workload-sharing
concept allows the department to
spread its work around the disci-
plines according to an application’s
risk and complexity.
The FHA successfully transformed
three of its five contemplated
regions. The Front Range now is
located in the West
region. Thankfully,
the Denver office
will remain intact
and will act as sat-
ellite for the San
Francisco regional
center.
Our region is
expected to be
fully transformed
by mid-September.
The FHA is proud
to report that it has
been meeting its
expected 45-day
and 60-day review
timeframes, according to Mark Feil-
meier, supervisory project manager
of the FHA Multifamily Regional
Center. Our region also is gearing up
for the expected influx of applica-
tions resulting from its improved
underwriting standards outlined in
the 2016 MAP Guide.
The issuance of the new guidebook
provided borrowers with several
improved underwriting standards
that allow them to borrow at higher
loan-to-value ratios and lower debt-
service coverage ratios with less bur-
densome reserves as compared to
the most recent standards modified
in 2010 and again in 2014.
Market-rate properties that have
been operating for at least three years
can borrow up to 85 percent of the
value for acquisitions or the retire-
ment of existing indebtedness or up
to 80 percent for cash-out transactions
through the Section 223(f) program.The
debt-service coverage ratios have been
reduced to 1.17 in contrast to the previ-
ous 1.2 ratio.
The bellwether FHA 221(d)(4) con-
struction to permanent loan pro-
gram now allows leverage up to 85
percent of replacement cost with
similar debt-service coverage ratios
for market-rate properties. The
replacement reserve escrow calcula-
tion for both the construction loan
and the permanent loan were modi-
fied to be less onerous for borrowers.
The new construction program will
move from an antiquated formulaic
approach to the ability to have an
independent review of the speci-
fication of materials to establish a
schedule with values for the ongo-
ing contributions to these escrows.
The 223(f) still will rely on a 20-year
schedule with a greater focus on the
first 10 years, similar to its agency
counterparts at Fannie Mae and
Freddie Mac – making this program
very competitive again.
Both the construction loan pro-
gram and the permanent loan
program increased the allowance
for commercial space. In some
instances, the FHA now will permit
221(d)(4) market-rate applications to
be submitted without 100 percent
completed plans and specs, as long
as both the general contractor and
architect are experienced with the
U.S. Department of Housing and
Urban Development. This must be
demonstrated clearly, and the devel-
oper must be HUD experienced.
HUD must to have confidence that
the project will close within 60 days
after the issuance of the firm.
The permanent loan program
expanded its definition of repairs
and the amount of repair allowed
under the program. Properties in
the Front Range will be allowed to
have a repair budget of up to $40,500
per unit as long as the repairs don’t
include the replacement of two or
more building systems. Additionally,
these repairs are not subject to Davis
Bacon prevailing wages like those
mandated on the construction loan
programs. In light of the increased
repair allowances, they will likely
need a detailed scope of work and
an independent third-party review of
this scope if repairs exceed $15,000
per unit.
The FHA furthered its commit-
ment to affordability by expanding
the PILOT program for streamlined
processing to the 221(d)(4) loan
program for new construction and
substantial rehab when used in con-
junction with low-income housing
tax credits. This program will further
reduce processing timeframes for
tax credit developers wanting to use
the nonrecourse construction money
for their projects.
The FHA is allowing borrowers uti-
lizing this program to use developer
fee and general contractor’s profit
in its replacement-cost debt sizing.
It also is allowing the borrowing
entity to make use of bridge debt
secured by the tax credits to bridge
the equity pay-in from the tax credit
investor.
Green Standards
On April 1, the FHA placed into
effect a waiver for the mortgage
insurance for most of its multifam-
ily programs in an effort to promote
sustainability, energy-efficiency
Scott Graber
Vice president,
multifamily and
senior housing,
Gershman
Mortgage, Denver
Lending
