The mission of the U.S. Department of Housing and Urban Development (HUD) is, in part, to bolster the economy by strengthening the housing market, protecting consumers, and working to meet the needs for quality affordable rental homes. To further this mission, the Federal Housing Administration (FHA) launched a pilot program in 2012 to streamline mortgage insurance applications for Section 223(f) Program projects with equity from the sale of Low-Income Housing Tax Credits (LIHTC). The Section 223(f) Program insures mortgage loans to facilitate the purchase or refinancing of existing multifamily rental housing.
This FHA pilot program was a success, and the FHA is now moving to build on that success. On February 21, 2019, the FHA expanded the pilot program to include new construction and substantial rehabilitation of multifamily housing under its Section 221(d)(4) and Section 220 Programs.
Section 221(d)(4) insures mortgage loans to facilitate the new construction or substantial rehabilitation of multifamily rental or cooperative housing for moderate-income families, the elderly and the disabled. Section 220 insures loans for multifamily housing projects in urban renewal areas, code enforcement areas and other areas where local governments have undertaken designated revitalization activities.
This expanded pilot program is designed to increase the speed and efficiency of processing mortgage insurance applications for low-risk LIHTC transactions. Currently, the average processing time for LIHTC deals is approximately 90 days. Under this expanded pilot, processing times are reduced by up to 60 days. This drastic decrease allows borrowers to lock in interest rates more quickly, an especially important tool in an environment with rising interest rates.
FHA multifamily transactions that include LIHTCs make up approximately 30 percent of the FHA’s total multifamily volume. This expanded pilot program, now covering programs under Sections 221(d)(4), 220 and 223(f), is expected to increase the amount of FHA-supported production and preservation of affordable multifamily housing.
In addition to encouraging investment in affordable multifamily housing broadly, the expanded pilot program will encourage investments in low-income urban and rural communities and support development in Opportunity Zones. Opportunity Zones are census tracts in low-income communities experiencing economic distress. This action represents one of a host of programs offered by the federal government to address the crisis in the shortage of affordable housing.