FHA multifamily lenders expressed concern after listening to HUD’s proposed guidelines to tighten its underwriting. At the Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo, Carol Galante, deputy assistant secretary for multifamily housing at HUD, said market-rate multifamily properties in the FHA’s portfolio showed high vacancy rates in Texas, Nevada, Arizona, Georgia and the Carolinas.
Claim rates on risk-sharing loans doubled to 1.2% to $442 million in 2009 from $225 million in 2007. HUD forecasts $891 million in claim rates and partial payment claims in the pipeline for fiscal 2010. FHA multifamily volume increased more than 487% in the past 15 months, to $3.182 billion in demand from October 2008 through January 2010. With multifamily construction activity unable to convert or stabilize, Galant said HUD and the industry cannot continue to ignore the situation. “We are in a fundamentally different market environment today than we have ever been and [the industry] has got to wake up and realize that,” Galante said.
The proposed changes include a debt-service coverage increase for FHA’s 221 (d)(4) product to 1.20x from 1.11x, increased escrows and reserves to four months of principal, interest and mortgage insurance premium and disclosure requirements on lender premiums. Galante said multifamily is at “the tip of the iceberg,” while single family is at “the end of its cycle.”
“We don’t move exactly at rapid speed here so I feel there is some time that [the industry] can get used to this before any of this can possibly go into effect,” Galante said. “It will take 60-90 days to get anything formalized and published.”