HUD Increases Financing Flexibility for Multifamily Affordable Housing Development

WASHINGTON - The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA), announced updated requirements for several of its multifamily mortgage insurance programs. During the Biden-Harris Administration, FHA has prioritized close engagement with stakeholders. These updates will increase financing flexibility for lenders and developers seeking to use the programs to create new or refinance existing affordable multifamily rental properties and create new or substantially rehabilitate properties that provide rental opportunities for "middle income" individuals and families. Changes announced today will help increase individual loan proceeds available to developers and decrease the cash needed to close for FHA transactions. This will allow FHA transactions to be more competitive with today's market needs while encouraging lenders and developers to provide affordable rental homes for those of modest means.

"We have an acute need for affordable rental housing nationwide,". "These changes to our underwriting rules will help create and preserve much needed homes."

FHA is taking this action for two categories of transactions. The first is transactions that primarily help a property that offers or will offer rent-assisted affordable rental homes, which mean properties targeted to individuals and families with incomes at or below 80 percent of the Area Median Income. For these properties, FHA is decreasing the required debt service coverage ratios (DSCRs) and increasing the maximum allowable loan-to-value/loan-to-cost (LTV/LTC) ratios for mortgages it insures under its 223(d)(4) and 223(f) programs.

In addition, today FHA also announced new policies for a new category of mortgages on properties where at least 50 percent of the rental homes are targeted to individuals and families with incomes at or below 120 percent of the Area Median Income. The creation of this new set of underwriting thresholds for the development of "middle income" rental housing responds to market needs using the existing FHA 221(d)(4) loan program.

"These changes are part of a series of FHA initiatives aiming to meet the evolving needs of lenders, developers, and affordable housing providers as we work toward our shared goal of increasing the availability of quality affordable rental housing," said Federal Housing Commissioner Julia Gordon. "During this Administration, we've sought to make policy changes that achieve a double bottom line: making it easier for FHA's private partners to access our programs while helping provide more safe and affordable homes to the low-income individuals and families who need them."

"HUD worked closely with many multifamily lenders and other stakeholders in the development of these policy changes," said Deputy Assistant Secretary for Multifamily Housing Programs Ethan Handelman. "We're grateful for the thoughtful engagement from so many stakeholders, including the comments submitted through HUD's Drafting Table."

The changes outlined in today's Mortgagee Letters are effective immediately for any FHA Multifamily application that has not reached initial endorsement. Reducing DSCRs, increasing the LTV/LTC requirements, and establishing new "middle income" thresholds all align with the Biden-Harris Administration commitment to expand housing supply by increasing the number of affordable and market rate housing units.