FHA Announces Cuts on Multifamily Mortgage Insurance Rates

FHA yesterday announced it will cut insurance rates for multifamily mortgages, designed to stimulate production and rehabilitation of affordable rental housing.

The rate reductions will take effect on April 1, and will directly impact FHA’s Multifamily Housing Programs and properties housing low- and moderate-income families and/or developments installing energy-efficient systems or building within federal energy guidelines.

HUD Secretary Julian Castro estimated the multifamily insurance rate reductions could spur rehabilitation of an additional 12,000 units of affordable housing per year nationally, affecting 40,000 families.

“Families across the country are struggling through an affordable housing crisis,” Castro said. “By reducing our rates, this Administration is taking a significant step to encourage the preservation and development of affordable and energy efficient housing in communities large and small. This way, hard-working families won’t have to make the false choice between quality or affordable housing.”

Mortgage Bankers Association President and CEO David Stevens, CMB, called the cuts a “positive step toward helping support the need for affordable and more cost-efficient rental housing.”

“Specifically, the reduction in Mortgage Insurance Premiums for FHA loans on multifamily affordable and energy efficient properties may help build more apartments and allow for more families and individuals to access affordable and energy efficient housing,” Stevens said. “This is one significant element to expand the availability of affordable and workforce rental housing in America and we will continue to advocate for other measures toward these critically important objectives.”

The rate reductions affect the following:

–For ‘Broadly Affordable’ housing (at least 90% of the units are under Section 8 contract and/or covered by Low Income Housing Tax Credit affordability requirements), FHA will lower annual rates to 25 basis points, a reduction of 20 or 25 basis points from current rates.
–For Affordable mixed-income properties (properties that set-aside units based on affordability including partial LIHTC, partial Section 8, inclusionary zoning or other local affordability requirements), FHA will lower annual rates to 35 basis points, a reduction of 10 to 35 basis points from current rates.
–For energy-efficient properties (those committed to industry-recognized green building standards and committed to energy performance in the top 25 percent of multifamily buildings nationwide), FHA will lower annual rates to 25 basis points, a reduction of 20 to 45 basis points. Qualification for the top 25 percent will be determined using EPA’s Portfolio manager 1-100 score.
–To ensure that the Broadly Affordable and energy-efficient properties benefit directly from the lower rates, FHA will limit the fees that can be charged on these loans.
–Multifamily insurance rates for market-rate properties that are not energy efficient will remain unchanged.

FHA will also reduce upfront premiums to support affordable housing and energy efficiency goals and to streamline the premium structure. Upfront insurance rates will be set at 25 basis points for Broadly Affordable and Energy-Efficient properties and 35 basis points for Mixed-Income properties. Upfront premiums for market rate properties that are not energy-efficient will remain unchanged.

Castro said each year the U.S. loses more than 300,000 affordable housing units and asserted that the rate reductions will help preserve and maintain affordable housing by making rehabilitation more cost-effective and allowing the U.S. to better preserve its limited affordable housing stock.

“Most of the affordable housing in the U.S. was built prior to 1980, making it more than 30 years old,” Castro said. “These premium reductions will allow developers to renovate this housing, providing families with better quality places to live. The reductions will allow owners of affordable housing developments to free up the capital needed to support higher levels of rehabilitation or increase the number of affordable units–both of which will increase the access families will have.”

Castro called the rate reductions “sensible,” made possible by the strong health of the FHA Multifamily portfolio, which stands at a historically low default/delinquency rate of 0.15 percent. He said FHA’s Multifamily business traditionally generates “significant revenue” for taxpayers and that the reductions will leverage more than $400 million in new mortgage financing for affordable housing/energy-efficient development without significantly decreasing overall revenue.