FHA Ups Multifamily Program Oversight

Posted by Orb Staff on July 08, 2010 No Comments
Categories : Commercial Mortgage

l Housing Administration (FHA) Commissioner David H. Stevens has announced plans to implement a series of changes to the multifamily insurance programs that will update underwriting policies, increase lender and underwriter quality, and align loan application, submission and approval standards. The policy changes announced by [link=http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-21ml.pdf]Mortgage Letter 2010-21[/link] will affect all multifamily rental programs and include the following: [list]Revised underwriting standards to raise debt service coverage ratios, lower loan-to-value and loan-to-cost ratios, increase project reserves and sponsor equity investment, and limit sponsor cash-out. Underwriting ratios will be targeted to different property types based on their risk profiles, with lower ratios for subsidized affordable-housing properties and higher ratios for market rate properties.*Enhanced verification of property financial performance to decrease opportunities for misrepresentation and fraud.*Expanded borrower mortgage credit analysis to include a detailed review of contingent liabilities and ballooning term debt that could undermine a sponsor's financial stability.*Pre-screening of proposals for early identification of transactions that are not feasible or are not likely to proceed to a commitment, allowing staff to focus on a deeper analysis of transactions that will close. [/list] The updates to the FHA's underwriting standards are the first since the inception of the insurer's multifamily programs more than 40 years ago. ‘Today's changes are a much-needed step to ensure that FHA multifamily programs are sound,’ says Stevens. ‘These program updates will help us to continue serving our mission of providing liquidity to the multifamily market and decent, affordable rental housing to our nation's communities.’ In addition to the changes outlined in its mortgagee letter, the FHA says its multifamily programs will be pursuing additional steps this year to update agency standards and align the programs with the Obama administration's broader goals for financial oversight. The planned changes include heightening standards for lender and underwriter qualifications, updating the Multifamily Accelerated Processing (MAP) underwriting guide and standardizing the content of underwriters' narrative and application files. The FHA is also pursuing via the rule-making process a point-based system for measuring multifamily lender performance. The system would be modeled after the one used for the FHA's single-family program. The current multifamily lender monitoring system identifies lender violations but fails to define associated penalties. Under the new monitoring system, each lender's underwriting and loan performance would be compared to those of all other lenders in the MAP program. Based on that review, lenders may be suspended or placed on probation, or could have their approval terminated, the FHA says, adding that the new system would enhance its ability to discover and take action against lenders that pose unnecessary and unmanageable risk to the insurance fund. It is anticipated that the Multifamily Credit Watch system will be published as a proposed rule for comment in late summer, with final publication scheduled by the end of the calendar year. SOURCE: [link=http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-143]Federal Housing Administration

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