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Multifamily: FHA Nixes Tough Pandemic Loan Rules

Multifamily project developers will find it easier to secure FHA loans after the agency eased tough standards introduced early in the pandemic.

WASHINGTON – The Federal Housing Administration (FHA) announced at the Mortgage Bankers Association Commercial/Multifamily Finance Convention & Expo that it’s removing temporary COVID-19 underwriting standards for multifamily transactions insured under Section 223(f) of the National Housing Act.

The change went into effect immediately and applies to all insured transactions that have not yet been endorsed.

The temporary requirements – nine months of debt service reserves, 250% repair escrows and limits on cash-out refinance transactions – originally went into effect in April 2020 when FHA feared the potential financial impact of the COVID-19 pandemic. In the almost two years since then, however, the FHA Multifamily portfolio has proven resilient, remaining at a less than one-percent default rate.

“Through actions taken under the Biden-Harris Administration to help the nation recover from the pandemic, including the historic American Rescue Plan, mortgages in FHA’s Multifamily insurance portfolio experienced fewer challenges than expected,” says Lopa Kolluri, principal deputy assistant secretary for the Office of Housing and FHA. “Because of this, we are in a position to unleash multifamily development capital by lifting these underwriting safeguards.”

This change allows lenders to once again use the standard Multifamily Accelerated Processing (MAP) Guide policies going forward, which require fewer capital reserves to be held for debt service, a lower percentage of capital held in repair escrows, and more flexible requirements for the treatment of cash-out refinance transactions.

“FHA multifamily mortgage insurance helps to create much-needed rental homes in communities nationwide,” says Ethan Handelman, deputy assistant secretary for multifamily housing. “Returning to our normal underwriting safeguards will put more capital to work for affordable housing.”

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