HUD announced implementation of the Small Building Risk Sharing (SBRS) Initiative, a program to help preserve “mom and pop”-owned, small multifamily buildings. SBRS is designed to encourage Community Development Finance Institutions (CDFIs) and other “Mission-Based Lenders” to provide long-term, fixed-rate loans to small building owners needing to rehabilitate and/or refinance their properties. HUD and the Mission-Based Lenders will share the risk of lending on a 50/50 basis.
As in the past three years, HUD proposes legislative language that would eliminate the current income and rent restrictions for SBRS-assisted properties. NLIHC remains concerned about HUD’s intent to remove affordability restrictions.
Section 542(b) of the Housing and Community Development Act of 1992 allows HUD to enter into affordable multifamily housing reinsurance agreements with Fannie Mae, Freddie Mac, and other Qualified Participating Entities (QPEs). A QPE and/or its approved lender may originate, underwrite, service, and dispose of affordable multifamily loans. Until SBRS, only Fannie and Freddie had active risk-sharing programs with HUD.
Section 542(b)(9) requires projects to meet the Low Income Housing Tax Credit (LIHTC) occupant income requirements and maximum rent restrictions. Therefore, SBRS requires either 20% or more of the units to be occupied by households with income less than 50% of the area median income (AMI) paying rent that is not greater than 30% of 50% AMI, or 40% or more of the units to be occupied by households with income less than 60% AMI paying rent that is not greater than 30% of 60% AMI.
The Federal Housing Administration (FHA) published a notice in the Federal Register on July 16 announcing final guidance implementing the SBRS Initiative. FHA published an Initial Notice on November 4, 2013 (see Memo, 11/8/13). The Initial Notice proposed limiting access to properties with 5-49 rental units. The Final Notice defines eligible projects to be those with five or more units, including cooperative units. There is no cap on the number of units that may be in an assisted property. The Initial Notice limited loan amounts to $3 million. The Final Notice keeps the base minimum at $3 million, but allows loans up to $5 million in HUD-designated Annual Base City High Cost Areas.
The Final Notice does not indicate that the LIHTC income and rent restrictions apply. Rather, it declares HUD’s intent to seek Congressional approval to “remove affordability restrictions currently required under Section 542(b).” HUD’s FY16 budget request contains language, as did its FY14 and FY15 requests, seeking to exempt SBRS properties from complying with the LIHTC income and rent restrictions. NLIHC submitted comments on January 3, 2014 in response to the Initial Notice, expressing deep concern about removing income restrictions. The Final Notice contains a link to “complete application requirements and program details” leading to another link, “SBRS Program Details,” which states that projects must qualify as affordable housing as defined by the LIHTC program.
On July 17, HUD began accepting applications for the SBRS Initiative from CDFIs, other nonprofit lenders, and public and quasi-public agencies, which HUD collectively calls “Mission-Based Lenders.” Beginning January 17, 2016, HUD will begin accepting applications from private, for-profit lenders approved as FHA Multifamily Accelerated Processing (MAP) lenders, which HUD calls “Private Lenders.”
QPEs are authorized to originate, underwrite, and service loans for HUD multifamily mortgage insurance, in order to acquire, refinance, or rehabilitate (including substantial rehabilitation) properties. New construction is not eligible.
Rehabilitation must address all capital needs identified in a Capital Needs Assessment and satisfy the reserve requirements for the life of the loan. FHA and the QPE share the risk of loan default on a 50/50 basis. If there is a default, the QPE must pay all costs associated with loan disposition, and then seek reimbursement from HUD of up to 50% of the loss.
The Federal Register notice is at http://www.gpo.gov/fdsys/pkg/FR-2015-07-16/pdf/2015-17464.pdf
A HUD media release is at http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2015/HUDNo_15-092
Application requirements are at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/progdesc/progsec542b
NLIHC’s January 3, 2014 comment letter is at http://nlihc.org/sites/default/files/NLIHC-542b-Comment-Letter.pdf