New Guidelines to HUD Multifamily Lending: MAP Guide Changes for 2021
Multifamily developers and investors rely on HUD’s multifamily lending program as an ideal financial tool to acquire or refinance multifamily properties because of their long loan terms, low interest rates and low down payment requirements. At the same time, HUD’s loan programs are among the more complex lending programs. With advice from a variety of industry stakeholders, including Greystone, the number one lender* and expert in commercial HUD loans with over $5 billion in firm commitment volume in 2020, HUD develops guidelines for their programs.
“We commend HUD for its willingness to collaborate with MBA members and key industry stakeholders. Importantly, MBA congratulates HUD on completing this important initiative,” said Sharon Walker, Associate Vice President for the commercial and multifamily group at MBA. “The Mortgage Bankers Association (MBA) has long enjoyed a strong working relationship with HUD and we appreciated the opportunity to participate in reviewing the MAP Guide.”
Approximately every four years, HUD issues a new Multifamily Accelerated Processing (MAP) Guide, which provides updated guidance and detailed information for MAP-approved lenders as they originate, underwrite, close and service loans. The newest MAP guide includes several changes that will impact borrowers, and the new requirements go into effect March 18, 2021. Multifamily owners should be aware of the changes in the MAP Guide that could impact their loan rate and other costs.
“Borrowers have a small window of time to submit applications under the previous MAP guidelines, so we expect an astronomical push to get underwriting applications into HUD before March 18,” said Dan Frink, Managing Director, of Greystone.
Five Significant Changes to HUD’s MAP Guide
Many of the most notable changes in the MAP guide are tied to environmental, energy or engineering guidelines. Included among the biggest changes are:
Elimination of ENERGY STAR Existing Buildings Certification for Green MIP Reduction program.
ENERGY STAR certification was the least onerous and most cost-effective green building certification to achieve, with nearly 9 out of 10 buildings able to lower their Mortgage Insurance Premium (MIP) by 25 basis points when refinancing with a HUD Section 223(f) loan. The MIP reduction is still available, but will require a different certification that can be more difficult and costly to achieve. For example, the National Green Building Standard (NGBS) requires a 15% reduction in energy usage, which Greystone estimates can cost $500 per unit in energy retrofits and $40,000 to $50,000 to complete the certification process. However, the combination of MIP reduction and energy savings may make the NGBS process financially worthwhile.
There will be a two-year grace period for reduced MIP premiums for properties built within three years of the submission of an application to HUD for FHA mortgage insurance, but they do have to meet a higher standard of a 90 Statement of Energy Performance (SEP) score compared to a 75 score under the current provisions of the MAP guide.
“The window to submit MIP reduction applications to HUD under the old MAP guide provisions is rapidly closing,” said Frink, so applications should be pushed through quickly if possible. “For new construction, nothing major really changes,” said Frink. “Newly built multifamily projects all do green construction at a cost of pennies on the dollar compared to retrofitting to current green building standards.”
Asbestos inspection requirement increased.
The current MAP guide requires multifamily buildings built prior to 1978 to be tested for asbestos. The new MAP guidelines expand this requirement to all buildings built before 1989. Greystone estimates this will add approximately $3,000 to the cost incurred by a project to comply with HUD requirements after March 18.
Radon testing requirement expanded.
Under the current MAP guide, HUD requires radon testing on multifamily buildings only on 25% of ground floor units in radon zones 1 and 2, which are areas with high or moderate potential for elevated indoor radon levels. The new MAP guide requires testing on all three radon zones, including those with low risk of dangerous radon levels. In addition, 100% of a project’s ground floor units must be tested along with 10% of upper units.
“This may add several thousand dollars of expense to multifamily deals because of the extra testing,” said Frink. “There are already long turnaround times for radon testing because of the strength of the housing market, so everyone will need to build in extra time to satisfy the radon testing requirements.”
However, testing 100% of ground floor units initially may eliminate the need for two rounds of radon testing, which occurred if elevated radon levels were found in one unit under the previous system of 25% sampling.
Higher loan proceeds available for projects with Cost Not Attributable (CNA) and High Cost Factor (HCF) Elements.
The CNA, HCF waivers, and 100% of land value adjustments that are currently allowed for new construction and substantial rehab loans and, in Section 223(f) refinancing and acquisition loans for affordable and green projects only, will be allowed for determining statutory loan limits for all applicable FHA loan programs.
Changes in equity installment requirements and bridge loan terms.
According to Ms. Walker, other important changes borrowers will see include the change of the initial equity installment requirements from 20% equity to 10% equity and a 10% equity bridge loan. The length of the term allowed for equity bridge loans is now up to one year after construction completion or the completion of repairs.
In addition, the new MAP guide includes a closing guide and an index, both of which make the MAP guide more user-friendly.
*HUD ranking is based upon combined originations of Greystone Funding Company LLC and Greystone Servicing Company LLC.