On July 6, The U.S. Department of Housing and Urban Development (HUD) issued guidance (Mortgage Letter 2010-21) to its Federal Housing Administration (FHA) multifamily mortgage lenders that will increase underwriting, loan processing and other application requirements for the FHA multifamily rental programs.
Among other things, FHA’s revised underwriting standards will raise debt service coverage ratios, lower loan-to-value and loan-to-cost ratios, increase project reserves and sponsor equity investment and limit sponsor cash out. Subsidized affordable housing properties will have lower ratios than market-rate properties. HUD also will increase documentation on property and borrower history and creditworthiness.
The new requirements for Section 221(d)(4) will take effect in 60 days for new applications, 90 days for complete new applications for direct firm commitment, and 120 days for projects with outstanding invitation letters, or such shorter time as provided in the outstanding invitation letter. For Section 223(f) the changes will take effect in 60 days for any use of application fees not submitted before that time.
NAA/NMHC provided extensive comments seeking to limit the impact and asking for a reasonable transition period, arguing that these are the most extensive underwriting changes to the program in decades and come at a time when FHA’s multifamily program is seeing historic demand for government-insured mortgages.