On January 28, HUD announced that the Federal Housing Administration (FHA) will lower its insurance rates for multifamily mortgages in an effort to increase and preserve affordable and energy-efficient rental housing by encouraging more capital financing through reduced borrowing costs. The rate reduction, which will go into effect on April 1, will directly impact FHA’s Multifamily Housing Programs and properties housing low- and moderate-income families, as well as developments that install energy-efficient systems or that meet federal energy guidelines.
HUD Secretary Julián Castro stated, “Families across the country are struggling through an affordable housing crisis. 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.”
FHA will lower insurance rates to 25 basis points for “broadly affordable” housing (with at least 90% of the units under Section 8 contract and/or required to meet affordability requirements under the Low Income Housing Tax Credit (LIHTC) program), a reduction of 20 to 25 basis points from current rates. The new rate for energy-efficient developments that meet federal guidelines will also be set at 25 basis points. FHA will also lower annual rates to 35 basis points for mixed-income properties in which some affordable units are set aside, including partial LIHTC or Section 8 projects and projects that meet inclusionary zoning or other local affordability requirements. FHA will also cut upfront premiums on some properties.
FHA estimates that reducing insurance rates will stimulate the development of an additional 12,000 units of quality, affordable housing annually nationwide, which could help benefit 40,000 families over three years.
The rate reduction is expected to result in a $64 million decrease in FHA receipts, which are used to help fund HUD’s budget. The Administration has already incorporated this cost into President Obama’s budget request for fiscal year 2017.
Public comments on the policy change are due by February 17, 2016.
Read the HUD Notice here: http://www.regulations.gov/#!documentDetail;D=HUD_FRDOC_0001-4339