In the face of high vacancy rates and increasing defaults, the Federal Housing Administration (FHA) has proposed underwriting changes to its Sec. 221(d)(4) program to ensure the long-term viability of the program. Among other things, the proposal will raise the debt service coverage ratio to 1.20x for market-rate deals and 1.15x for tax-credit deals. The maximum loan-to-cost ratio will be lowered to 83 percent for market-rate developments and 87 percent for tax credit developments.
Importantly, the proposals do not increase insurance premiums, change existing non-recourse provisions or change loan-to-value guidelines. Information about the changes is available at http://bit.ly/aBvcXM.
FHA is not required to request comments on the proposals, although NAA/NMHC are preparing feedback. HUD says it will finalize them this spring by communicating them to their mortgage lenders.