FHA Expanding Fast-Track Financing for Qualified Projects

The U.S. Department of Housing and Urban Development (HUD) is expanding a pilot program first launched in 2012 in an attempt to increase the supply of low-income housing on a national level. The Federal Housing Administration (FHA) first launched the program in 2012 under the title “The Tax Credit Pilot” as part of a mandate included in the Housing and Economic Recovery Act of 2008 (HERA). The goal of the program was to streamline FHA mortgage insurance applications for projects holding equity from the Low Income Housing Tax Credit (LIHTC) program[1]. At that time, the FHA designated certain types of mortgages “low risk” and indicated these mortgages could be streamlined for approval through the Tax Credit Pilot “to significantly streamline the review process and create efficiencies without increasing risk.”

In the first phase of the program, applications for permanent financing were eligible for streamlining if they were:

  • Recently constructed and occupied
  • Applying for financing for preservation and moderate rehabilitation and provided Section 8 rental assistance
  • Were older, stabilized tax credit properties seeking new credits

The goal of the program was to keep properties already receiving tax credits and meeting LIHTC performance standards from missing deadlines that could cause their credits and future LIHTC eligibility to be revoked.

Eligible applications could only be made under Section 223(f), which is the HUD division dealing with mortgage loans “facilitating the purchase or refinancing of existing multifamily rental housing” that “may have been financed originally with conventional or FHA-insured mortgages.” Properties that need “substantial rehabilitation” were not eligible under this section[2]. Properties were also required to contain at least five residential units with complete kitchens and baths and have been “substantially rehabilitated” at least three years prior to the application. They also needed a “remaining economic life” of at least 10 years.

The Expansion Will Include New Construction & Substantial Rehabs

With the expansion of the program, which was approved at the end of February, new construction and multifamily housing requiring “substantial rehabilitation” will now be eligible for this streamlined approval process[3]. Eligible properties will offer residence options for moderate-income families, the elderly, and the disabled.

The FHA predicted earlier this month that the LIHTC timeline for processing applications could be reduced by 60 days once the program takes effect. The goal is to enable borrowers to lock in interest rates more quickly, which could become increasingly important as rates rise.

The expanded program also is intended to expand investor options in opportunity zones, low-income urban areas, and rural communities. Opportunity zones are highly attractive areas in which to invest at present because they offer deferred capital gains advantages extending as far out as 2026 (per present guidelines) as well as supporting local economies[4]. Some experts warn that the constant revisions and clarifications on Opportunity Zone investing may ultimately be rewritten to inhibit some real estate investing activities in favor of small-business support, so the inclusion of opportunity zones in the FHA program expansion verbiage is a good sign for real estate investors.

Tell fellow BEIL readers what you think:

  • Are tax credits enough incentive for developers these days?
  • Is streamlining mortgage approvals a good idea?


[1] https://www.financialservicesperspectives.com/wp-content/uploads/sites/6/2019/03/HUD-Mortgagee-Letter.pdf

[2] https://www.hud.gov/program_offices/housing/mfh/progdesc/purchrefi223f

[3] https://www.jdsupra.com/legalnews/fha-expands-program-to-accelerate-59860/

[4] https://commercialobserver.com/2019/03/what-you-need-to-know-about-opportunity-zones/

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