FHA Speeds Up Process to Create, Preserve Affordable Housing with Expanded LIHTC Pilot

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Developers are likely to have an easier time getting financing to build and preserve affordable housing from the Federal Housing Administration (FHA).

That's because FHA is expanding its successful Pilot program to speed the processing of loans to affordable housing properties to include new construction and substantial rehabilitation projects that meet certain criteria.

Overall, FHA loans for the new construction and substantial rehabilitation of apartment projects took roughly six months (193 days, on average) to close in fiscal year 2018, according to FHA. To get a firm commitment for these FHA loans took an average of 104 days. That's longer on average than the time conventional bank lenders can take to close construction financing, experts say.

However, loans to affordable housing properties that have received equity from federal low-income housing tax credits (LIHTCs) have a shorter processing time to firm commitment issuance – an average of 90 days.

FHA Cuts Red Tape

Officials have already made changes to other FHA loan programs that are helping make the process of closing loans for some LIHTC properties even faster. Back in 2012, FHA launched a Pilot program for LIHTC properties to streamline FHA mortgage insurance applications under its Sec. 223(f) Program for refinance, acquisition or moderate renovation. FHA asserts that this shorter application review period allows borrowers to lock in better interest rates sooner, an important capability in a rising interest rate environment.

Pilot Program Expands

In February 2019, FHA announced its plan to expand its Pilot program to include loans to new construction and substantial rehabilitation LIHTC projects that meet certain criteria under its Sec. 221(d)(4) and Sec. 220 Programs. Under the new Pilot, processing times for firm commitments are reduced to 30 days via the Expedited Approval Process track and 60 days via the Standard Approval Process Track, according to FHA. Closing is to occur within 60 days of receipt of the firm commitment under both the Expedited and Standard Approval tracks. Deals that qualify for the Expedited Approval Process track include new construction projects that receive 9% LIHTC and 4% or 9% LIHTC projects with greater than 90% of the units covered by a Project Based Section 8 contract. Deals eligible for the Standard Approval Process include the re-syndication of existing LIHTC deals using 4% of 9% LIHTC.

“FHA's expanded Pilot program will ensure faster and more efficient processing for low-risk, LIHTC transactions by eliminating redundant reviews," said HUD officials.

The expanded Pilot will give projects to build new affordable housing and renovate existing affordable housing a chance to benefit from these faster processing times.

"We're applying the lessons we've learned from our earlier Pilot program to streamline our processing for new construction and substantial rehabilitation developments," U.S. Housing and Urban Development (HUD) Secretary Ben Carson said in announcing the changes.

That will help FHA support the production and preservation of more critically needed affordable apartment properties, according to FHA. Nearly a third of the total volume of apartment loans provided by FHA are made to properties financed with equity from LIHTCs.

The new expanded Pilot should also encourage long-term investments in low-income urban and rural communities, including the low-income communities targeted by the new, federal Opportunity Zones program, created by the Tax Cuts and Jobs Act of 2017.

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