Federal multifamily borrowing programs will become more compatible with tax credits under new policies designed to streamline program processing. The policies became effective July 22, 2008, in the Department of Housing and Urban Development’s Mortgagee Letter 2008-19. They are part of a significant overhaul that should encourage developers of low-income housing tax credit (LIHTC) properties to take a second look at HUD’s low-interest programs.

Mortgagee Letter 2008-19 outlines policies that impact FHA/HUD Section 221(d)(4), Section 220, and Section 231 program loans submitted under Multifamily Accelerated Processing (MAP). The key benefits are:

A significant reduction in the amount of equity required at construction closing - Previously, projects using HUD insurance had to have most of the funds needed to meet the development costs in reserve at the time of the construction closing. This typically meant contributing LIHTC equity at closing, leading either to lower overall equity available to the project or the need to pay for a bridge loan. The Letter recommends a minimum 20% equity contribution at construction closing, rather than 100%, which means lower costs to LIHTC developers.

A streamlined process that should result in quicker closings -

• Submission of final plans and specifications can be deferred, under certain circumstances, until after the HUD insurance commitment is issued, but before closing.
• HUD has modified the 2530 (Previous Participation Certification) approval process; it is now a condition of commitment rather than a requirement for commitment.
• Each HUD field office will have a “LIHTC Coordinator” to enhance staff knowledge, create consistent processing among offices and improve HUD marketing and outreach.

Additionally, the Housing and Economic Recovery Act of 2008, which was signed into law July 30, calls for further streamlining of FHA/HUD and LIHTC projects. The Act’s provisions include:

• Eliminating the requirement for “subsidy layering,” a burdensome process
• Eliminating the cost certification requirement on low loan-to-cost projects
• Permitting HUD to utilize compliance monitoring reports and files in lieu of performing its own monitoring
• Creating a “pilot” program within six months of the law’s passage to test how to further streamline of the application/commitment process.

For more information, please call Nick Gesue, Senior Vice President, Director of Affordable Housing, 866-611-6555 or email him at ngesue@lancasterpollard.