Does HUD Have A Handle On Multifamily Sector Problems?

by Phil Hall
on July 09, 2012 No Comments
Categories : E-Features

The state of multifamily housing, particularly affordable housing, is becoming problematic, according to testimony delivered before a recent hearing of the House Subcommittee on Insurance, Housing and Community Opportunity.

‘Supply is already falling short of demand,’ said Richard L. Mostyn, vice chairman and chief operating officer of The Bozzuto Group, who addressed the hearing on behalf of the National Multi Housing Council. ‘With forecasts indicating that there could be upwards of 7 million new renter households this decade, an estimated 300,000 units a year must be built to meet expected demand. Yet even though multifamily starts rose 60 percent in 2011, rebounding from record lows in 2009 and 2010, ground was broken on just 167,400 apartments last year.
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‘Furthermore,’ Mostyn added, ‘while the market continues to work through an oversupply of single-family housing, the nation could actually see a shortage of multifamily housing as early as this year. The shortage is particularly acute in the area of workforce and affordable housing.’

‘Our latest analysis shows that nationwide there were 9.8 million extremely low-income renter households in 2010, up from 9.6 million in 2009,’ said Sheila Crowley, president and CEO of the National Low Income Housing Coalition. ‘At the same time, the number of rental housing units they could afford fell from 5.9 million in 2009 to 5.5 million in 2010. In 2010, for every 100 extremely low-income households, there were only 30 rental units that were affordable – paying no more than 30 percent of income – and available to them. Consequently, 76 percent of these households spent over half their income on housing.’

Crowley added that those in search of affordable multifamily housing would not find much help from the private sector.

‘There is no evidence that the private market is interested in or willing to invest in rental housing that can be afforded by the lowest-income household, despite the huge demand,’ she said. ‘This is a role that government must fill, not unlike flood insurance. While many states and localities have created their own programs, they are small in comparison to the need.’

Marie D. Head, deputy assistant secretary for multifamily housing programs in the Office of Housing at the U.S. Department of Housing and Urban Development (HUD), noted the work that the Federal Housing Administration (FHA) has accomplished to address issues relating to multifamily housing.
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‘We have engaged in a series of program specific steps to ensure that we are taking the appropriate steps to manage and mitigate risk,’ Head said. ‘These changes reflect the first update to some of the standards governing FHA-insured multifamily programs in 40 years. Leveraging the lending industry's best practices and standards, these changes are a much-needed step to ensure that FHA multifamily programs are sound and will continue to be available to fulfill our mission of providing liquidity to the multifamily market and decent, affordable rental housing to our nation's communities. These changes also ensure that FHA's multifamily programs are designed to meet the needs of communities across the nation.’

Head added that HUD also updated underwriting standards and heightened qualifications relating to the multifamily sector.

‘HUD recently proposed a change to multifamily lender approval that would require all new and existing multifamily lenders and underwriters to undergo an additional screening process to ensure that they are qualified and experienced before receiving approval to participate in some specialty multifamily insurance programs,’ she continued. ‘Under the new policy, a separate lender approval will be required to offer the more complex FHA insurance programs, such as those for new construction, substantial rehabilitation and low-income housing tax credits. This shift is a result of analyzing outcomes associated with the Multifamily Accelerated Processing program, which show that certain FHA programs demand skilled lenders and underwriters with specialized knowledge.’
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However, the question of HUD's mortgage insurance premiums (MIPs) for FHA multifamily housing was the subject of concern from the Mortgage Bankers Association (MBA).

‘HUD recently issued a notice announcing increases of MIPs for certain FHA multifamily housing, healthcare facilities, and hospital mortgage insurance programs for commitments to be issued or reissued in fiscal year 2013,’ said Rodrigo Lopez, president and CEO of Amerisphere, who represented the mortgage industry trade group at the hearing. ‘The MBA believes that any proposed increase to the MIP should be supported by data and statutory support that justify the increase. The notice does not provide compelling justification for the increases.

‘The premium has been, and should continue to be, based on the management of risk to the government of the potential and severity of mortgage losses,’ Lopez added. ‘The demonstrated strong performance of the programs, the recent implementation of processing changes to tighten credit review, improved legal documents and changes in the credit underwriting and loan requirements – all run counter to the proposed increase in the MIP. It is important that any increase in the mortgage insurance premium be supported and preceded by a careful analysis of the need and impact of the change on these programs.’
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Robert F. Nielsen, immediate past chairman of the National Association of Home Builders, concurred.

‘We do not believe that HUD has provided compelling justification for them,’ said Nielsen about the planned MIP increases. ‘The purpose of the MIPs is not to increase receipts to the Treasury, nor to adjust FHA's pricing of credit risk relative to current private-market pricing. Increasing the MIPs will not serve to build a buffer against future losses, because there is no segregated fund and excess income is returned to the Treasury each year. These higher MIPs will only add to property owners' costs, thereby affecting rents. In the current economic environment, where rents are increasing, higher MIPs will only speed the upward trending of rents.’

Phil Hall is editor of MortgageOrb. He can be reached at hallp@mortgageorb.com.

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