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Produced by Hanley Wood Strategic Marketing Services, sponsored by PNC Real Estate.

A Look at Recent Changes to Federal Programs

As mid-year 2015 approaches, affordable-housing professionals around the country are keeping cautious eyes on critical pending legislation affecting federal programs that help finance production and preservation of subsidized apartments.

Many are awaiting proposals to boost per-capita allocations to the most effective affordable-housing production tool—the Low-Income Housing Tax Credit—and to set permanent floors on its credit rates. Likewise eagerly anticipated is a formal funding mechanism for the National Housing Trust Fund, along with action on proposed rules covering NHTF funds distribution.

With another election year looming, however, advocates witnessing the increased political polarization in DC over the past couple decades aren't holding their collective breath as they await final actions.

Nevertheless a number of notable enhancements to federal programs green-lighted over the past few calendar quarters provide considerable, ahem, comfort—literally and figuratively. As we'll detail, many of these adjustments are aimed at more effectively aligning Federal Housing Administration mortgage-insurance and Government-Sponsored Enterprise loan-origination programs with LIHTC practices and procedures.


We'll start with some of the Department of Housing and Urban Development's latest tweaks of its ongoing efforts to boost volumes of FHA-insured loans supporting LIHTC projects since the launch of the FHA LIHTC Pilot in 2011. FHA- insured LIHTC project lending essentially doubled last year, from roughly $900 million to $1.8 billion. Plus, the new policy adjustments and organizational streamlining will presumably help generate further gains as they are incorporated into HUD's Multifamily Accelerated Processing (MAP) guidelines.

One notable change here is that some LIHTC project developers tapping FHA-insured debt can seek lender underwriting of their developer fees amounting to 15 percent of total development costs—up from the previous 10 percent limit—and the fees can now be treated as mortgageable costs. The LIHTC Pilot is also expanding from just the 223(f) insurance for permanent loans to also include 221(d)(4), which combines permanent debt with construction financing.


HUD's recent clarifications of its LIHTC mortgage insurance programs also bring its practices regarding allowance of bridge debt (as temporary substitutes for hard equity) more in line with those of conventional lenders and tax-credit investors, and consistent across HUD offices. This essentially means developers utilizing properly collateralized FHA-insured loans can comfortably rely on bridge-type debt as an acceptable substitution for LIHTC equity until one year after IRS Form 8609 is delivered to the tax-credit investors.

The adjustments likewise liberalize policies toward subordinate debt secured by LIHTC projects subject to FHA-insured mortgages. As long as lenders execute HUD's standard subordination and standstill agreements, subordinate debt – including seller financing critical to make some deals happen—can represent up to 100 percent of project costs.

The tweaks also allow for greater combined equity and debt investments in LIHTC projects by some of the giant MAP lenders that also invest tax-credit equity. More specifically these institutions can both invest 25 percent or more of the equity, and hold FHA-insured debt, in up to 10 LIHTC projects annually that double the previous limit.

Also noteworthy here is that as HUD continues streamlining underwriting of these LIHTC-related mortgage insurance products at regional hubs around the country, it is also assembling dedicated teams involved with ever-increasing activity in HUD's promising new Rental Assistance Demonstration program.

RAD recapitalizations help mostly public-housing projects convert to private and public-private ventures participating in long-term, project-based Sec. 8 Housing Assistance Payment contracts. Activity volume is predictably burgeoning following the substantial recent increase in the program's conversion cap from 60,000 to 185,000 units.

Activity to date under the three-year-old RAD program suggests that that one third to one half of converted units will end up subject to FHA-insured financing under restructured ownerships—some of it coupled with LIHTC equity. To help handle the increased activity, HUD is dedicating RAD underwriting teams in four of its hubs and regional centers: Chicago, Atlanta, Ft. Worth, and Seattle.

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Meanwhile affordable multifamily officials at the GSEs Fannie Mae and Freddie Mac got some relief when the regulator under their federal conservatorship, the Federal Housing Finance Agency, adjusted their respective strategic plans last year. FHFA higher-ups opted to exclude the GSEs' targeted affordable housing activities from their annual multifamily production caps—effectively removing limits on those activities and hence freeing them to exceed corresponding loan-purchase goals as market demand dictates.

And those goals were adjusted for the coming three years with Freddie's new low- and very-low-income (VLI) targets pushing for higher production, while big-sister Fannie's corresponding goals continue apace.

Annual production goals for Fannie's Multifamily Affordable Housing program remain at 250,000 low-income units and 60,000 VLI units. With Freddie's Targeted Affordable Housing program, the low-income goal rises by 10,000 units annually (to 230,000) through 2017, while the VLI goal rises by a total of 10,000 units (to 50,000) over that period.

In mid-May FHFA further tweaked qualifications for excluding all or parts of loans the GSEs purchase from their respective annual multifamily caps.

The adjustments include:

  • Boosting the affordability level for units excluded from the caps to 60 percent of area median income; excluding assisted-living units affordable to seniors earning 80 percent of area median income
  • Boosting affordability thresholds qualifying for exclusion to 80 percent of AMI in high-cost markets and 100 percent of AMI in very-high-cost markets
  • Modifying the methodology under which exclusion levels for mixed-income communities are calculated

Fannie also continues enhancing its sustainability efforts in its affordable pursuits. Its Green Multifamily Financing Business initiative includes a pair of acquisition and refinance loan programs offering borrowers a 10 basis-point discount on the all-in interest rate—with one also allowing for up to five percent greater loan proceeds.

With the new Green Preservation Plus program, which replaces the former Green Refinance Plus program, affordable communities aged 10 years or more are eligible for the pricing discount along with up to five percent greater proceeds (85 percent loan-to-value vs. 80) than would be the case absent the qualification—as long as the additional proceeds are invested in eligible energy- or water-conserving improvements.

Under Fannie's new Multifamily Green Building Certification, affordable or conventional properties qualify for the pricing discount if they earn a rating under any of nine eligible green building certification programs, including LEED, ENERGY STAR and National Green Building Standard. —Brad Berton

More from Affordable Housing Finance:

THUD Bill Defunds National Housing Trust Fund

HUD Issues NHTF Program Guidance

2015 Budget Lifts the Cap on RAD


Hanley Wood