Washington, D.C. – February 1, 2016 – (RealEstateRama) — On January 28, HUD announced that the Federal Housing Administration (FHA) will reduce its multifamily insurance rates to stimulate the production and rehabilitation of affordable rental housing. These rate reductions, effective April 1, will apply to the FHA-HFA Risk-Sharing program and other FHA multifamily housing programs that help finance properties housing low-income families and developments installing energy-efficient systems or building within federal energy guidelines. Multifamily insurance rates for financing of market-rate properties that are not energy efficient will remain unchanged.
During a press call yesterday announcing this initiative, HUD Secretary Julián Castro highlighted the importance of these rate reductions to help preserve and maintain affordable housing, noting that properties will be able to take on an average of four percent more debt. HUD anticipates that these rate changes will leverage over $400 million in new mortgage financing for affordable housing and energy-efficient developments and will result in nearly 12,000 more rehabilitated units annually, without significantly decreasing revenue from FHA multifamily business. According to Castro, the lower multifamily insurance rate for energy-efficient developments will also encourage owners to adopt higher standards for construction and rehabilitation, resulting in greater energy and water efficiency and reduced utility costs.
FHA will cut its multifamily insurance rates for three categories of properties: “Broadly Affordable,” which includes FHA-HFA Risk-Sharing loans and housing with at least 90 percent of units under a Section 8 contract and/or covered by Low Income Housing Tax Credit (Housing Credit) affordability requirements; “Mixed-Income,” defined as housing with affordability set-asides based on partial Housing Credit financing, partial Section 8, inclusionary zoning, or other local affordability requirements; and “Energy-Efficient,” defined as housing committed to industry-recognized green building standards and energy performance in the top 25 percent of multifamily buildings nationwide.
As described in a table included in HUD’s Notice, FHA plans to lower annual rates for the Broadly Affordable category, including most FHA-HFA Risk-Sharing loans, to 25 basis points, a reduction of 20 or 25 basis points from current rates. FHA will cut annual rates for the Mixed-Income category to 35 basis points, a reduction of 10 to 35 basis points from current rates. It will reduce rates for Energy-Efficient properties to 25 basis points, a reduction of 20 to 45 basis points.
FHA also plans to reduce upfront insurance premiums. These 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. Finally, FHA will limit the fees that lenders can charge on these loans (for loans greater than $2 million, to no more than 5 percent of the insured loan amount) to ensure that the rate reduction directly benefits the affordable housing properties and residents.