HUD Issues Affordable Housing Clarifications
The U.S. Department of Housing and Urban Development (HUD) recently announced several updates to support its affordable housing programs. Included are both clarifications to existing policies and operational changes. All of the updates will be reflected in the revised Multifamily Accelerated Processing (MAP) Guide that is expected to be released in late February, 2015. Below is a summary of the initiatives:
- Reduced minimum vacancy rates. Minimum underwritten vacancy rates will be revised based on the level of Sec. 8 subsidy or rental discount with the lowest rate at 3%.
- Subordinate debt. Subordinate debt (including seller financing) is now allowable up to 100% of project cost and can be secured by the project as long as the subordinate debt provider agrees to HUD’s standard form of subordination.
- Developer fees. HUD will now allow LIHTC developer fees to be included as a mortgageable cost.
- Minimum low-income housing tax credit (LIHTC) pay-in schedule: The revised schedule now includes the anticipated clarification that bridge loans will be counted towards meeting the minimum equity schedules as well as definitions.
- Dedicated LIHTC underwriting teams: While the single underwriter model is being implemented during the Multifamily Transformation, HUD is also establishing specialist teams to process all LIHTC transactions. A team is currently operating in the Southwest region and one will soon be established in the Midwest. Dedicated Rental Assistance Demonstration (RAD) teams have also been established in four HUD offices.
- FHA Sec. 221(d)(4) LIHTC Pilot expansion test: HUD is testing an expansion of the Pilot program with FHA Sec. 221(d)(4) transactions in California through the San Francisco HUD office. California has increased the minimum per unit rehabilitation amount to $40,000, which is above the FHA Sec. 223(f) LIHTC Pilot limits.
- LIHTC investor/MAP lender identity of interest (IOI): HUD increased the number of transactions where the MAP lender holds over 25% ownership in the LIHTC investor from five to 10 per year.