February 14, 2022

HUD: FHA Removes Temporary COVID-19 Underwriting Mitigants for Multifamily Transactions

Resilient portfolio performance allows return to Multifamily Accelerated Processing Guide standard requirements for reserves, escrows, and cash-out refinance transactions

The Federal Housing Administration (FHA) announced on Monday at the Mortgage Bankers Association Commercial/Multifamily Finance Convention & Expo that it is removing temporary COVID-19 underwriting mitigants for multifamily transactions insured under Section 223(f) of the National Housing Act, effective immediately for all insured transactions that have yet to reach endorsement. The temporary requirements for nine months of debt service reserves, 250 percent repair escrows, and limits on cash-out refinance transactions were originally put in place in April 2020 to counter-balance potential financial effects resulting from the COVID-19 pandemic. In the almost two years following implementation of the policies, the FHA Multifamily portfolio has proven to be consistently resilient to significant COVID-19 impacts, remaining at a less than one-percent default rate.

“Through actions taken under the Biden-Harris Administration to help the nation recover from the pandemic, including the historic American Rescue Plan, mortgages in FHA’s Multifamily insurance portfolio experienced fewer challenges than expected,” said Lopa Kolluri, Principal Deputy Assistant Secretary for the Office of Housing and FHA. “Because of this, we are in a position to unleash multifamily development capital by lifting these underwriting safeguards.”

This change allows lenders to return to using standard Multifamily Accelerated Processing (MAP) Guide policies going forward, which require fewer capital reserves to be held for debt service, a lower percentage of capital to be held in repair escrows, and more flexible requirements for the treatment of cash-out refinance transactions.

“FHA multifamily mortgage insurance helps to create much-needed rental homes in communities nationwide,” said Ethan Handelman, Deputy Assistant Secretary for Multifamily Housing. “Returning to our normal underwriting safeguards will put more capital to work for affordable housing.”

About the Multifamily Accelerated Processing Guide
The Multifamily Accelerated Processing (MAP) Guide contains comprehensive instruction and requirements for the origination, underwriting and endorsement of FHA-insured mortgages for multifamily properties. Access the MAP Guide online.

About the FHA Multifamily Mortgage Insurance Program
FHA’s Office of Multifamily Housing plays an important role in the construction, substantial rehabilitation and refinance of market rate and affordable housing through the issuance of FHA mortgage insurance. These insurance programs provide stability, liquidity, and affordability to the multifamily housing market by providing credit during countercyclical times and in small markets. In fiscal year 2021, the Office of Multifamily Housing achieved record-breaking volume of $29.5 billion in endorsements for mortgage insurance for more than 1,500 multifamily mortgages. View quarterly and historical data on FHA Multifamily volume here.

This post was originally published here.