FHA to Cut Insurance Rates on Multifamily Mortgage

FHA to Cut Insurance Rates on Multifamily Mortgages

Fort Lauderdale, Florida

In an effort to help preserve and increase the amount of affordable, quality rental housing across the country, the Federal Housing Administration (FHA) recently announced a multifamily insurance rate reduction designed to encourage capital financing of affordable and energy-efficient apartments. The rate reductions announced will take effect on April 1, 2016, 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.

U.S. Housing and Urban Development (HUD) Secretary Julián Castro made the announcement during a visit to an affordable housing complex in Columbus, Ohio. FHA estimates that the multifamily insurance rate reductions will spur the rehabilitation of an additional 12,000 units of affordable housing per year nationally, meaning over the next three years nearly 40,000 families could benefit from higher quality and affordable housing.

“Families across the country are struggling through an affordable housing crisis,” says Secretary Castro. “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’s new annual multifamily insurance rates include:

-For ‘Broadly Affordable’ housing (at least 90 percent of the units are under Section 8 contract and/or covered by Low Income Housing Tax Credit (LIHTC) affordability requirements), FHA is lowering annual rates to 25 basis points, a reduction of 20 or 25 basis points from current rates.

-For Affordable mixed-income properties that is properties that set-aside units based on affordability including partial LIHTC, partial section 8, inclusionary zoning, or other local affordability requirements, FHA is lowering 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 is lowering 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 (as defined above) will remain unchanged.

FHA is also reducing upfront premiums to support the affordable housing and energy efficiency goals stated above 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.

Each year the U.S. loses more than 300,000 affordable housing units. FHA’s multifamily 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. 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.

Nearly half (49.3 percent) of all renter households spent more than 30 percent of income on housing in 2014, including more than one quarter (26.4 percent) who devoted more than half of income to housing. Since 2000, rents have risen while the number of renters who need affordable housing has increased. The pressure to find affordable housing to rent is more severe for very poor households. Only 28 of every 100 extremely low-income renter households in the United States were able to find decent, affordable homes in 2013.

Encouraging more energy efficient multifamily housing

One-out-of-every-four U.S. households live in multifamily housing units and spend approximately a combined $40 billion on energy costs each year. Making these housing units 20 percent more energy efficient would save $8 billion per year and cut greenhouse gas emissions by over 430 million tons. The lower multifamily insurance rate for energy-efficient projects will contribute to this effort by encouraging owners to adopt higher standards for construction and rehabilitation, resulting in greater energy and water efficiency, reduced utility costs, and improved indoor air quality.

Lowering rates in a responsible way

The reduced rates announced are made possible by the strong health of the FHA Multifamily portfolio,which stands at a historically low default/delinquency rate of 0.15 percent. FHA’s Multifamily business traditionally generates significant revenue for taxpayers; these changes will leverage over $400 million in new mortgage financing for affordable housing/energy-efficient development without significantly decreasing overall revenue. Even with these reductions, affordable and energy-efficient loans originated in Fiscal Year 2016 are projected to generate net revenue for the federal government.

For more information, visit www.fhfa.gov.