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FHA Lowering Mortgage Insurance Premiums for Affordable Multifamily Housing

The U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) announced proposed changes to the fiscal year (FY) 2016 mortgage insurance premiums (MIPs) for select FHA multifamily insurance programs. The proposed changes are a result of FHA’s healthy multifamily portfolio (which currently has a historically low default/delinquency rate of 0.15%), its effort to simplify rate structures, and its commitment to providing affordable housing and promoting energy efficiency.

The notice’s comment period ends on February 17, 2016 and its proposed rate changes, which would apply to commitments issued or reissued beginning April 1, 2016, are organized in four categories:

  • Broadly affordable housing: The new annual MIP will be 25 basis points, a significant reduction from current rates which are generally between 45 and 50 basis points. Properties that have at least 90% of the units under a Sec. 8 contract and/or are covered by low-income housing tax credits (LIHTCs) are eligible.
  • Affordable mixed-income housing: The new annual MIP will be 35 basis points, down from current rates which are generally between 45 and 70 basis points, for properties that provide a set-aside of affordable units and accept vouchers.
  • Green and energy efficient housing: Annual MIP will be 25 basis points, down from current rates generally between 45 and 70 basis points, for projects that prove they have achieved, or will achieve, an industry-recognized standard for green building. Specifically, the developer must prove it has achieved, or has plans to achieve, an ENERGY STAR score of 75 or better.
  • Market-rate housing: Rates will remain the same except for properties that meet FHA’s green and energy efficient criteria.

In addition, HUD is reducing upfront insurance rates to 25 basis points for broadly affordable and energy efficient properties and 35 basis points for mixed-income properties.

HUD Secretary Julian Castro announced the changes on January 28, 2016, while visiting an affordable housing complex in Columbus, Ohio. The FHA projects the rate reductions will facilitate the rehabilitation of an additional 12,000 units of affordable housing per year nationally.

“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,” said Secretary Castro.

More information on the proposed changes, including detailed eligibility criteria, can be found at regulations.gov

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