The Federal Housing Administration (FHA) announced a multifamily insurance rate reduction Jan. 28, in an effort to encourage capital financing of affordable and energy-efficient apartments. The rate reductions will affect the FHA’s Multifamily Housing Programs and properties housing low- and moderate-income families and/or developments installing energy-efficient systems or building within federal energy guidelines.
“The Department of Housing and Urban Development’s decision is a positive step toward helping support the need for affordable and more cost efficient rental housing. Specifically, the reduction in mortgage insurance premiums for FHA loans on multifamily affordable and energy efficient properties may help build more apartments and allow for more families and individuals to access affordable and energy efficient housing,” Mortgage Bankers Association (MBA) President and CEO David H. Stevens said in a news release.
The FHA estimated that the multifamily insurance rate reductions will spur the rehabilitation of an additional 12,000 units of affordable housing per year nationally, meaning over the next three years, nearly 40,000 families could benefit from higher quality and affordable housing.
For housing that is considered “Broadly Affordable” (where at least 90 percent of the units are under a Section 8 contract and/or covered by the Low Income Housing Tax Credit affordability requirements), the FHA is lowering annual multifamily insurance rates to 25 basis points, a reduction of 20 or 25 basis points from current rates.
For “Affordable” mixed-income properties (properties that set-aside units based on affordability including partial LIHTC, partial Section 8, inclusionary zoning, or other local affordability requirements), FHA is lowering annual rates to 35 basis points, a reduction of 10 to 35 basis points from current rates.
For energy-efficient properties (those committed to industry-recognized green building standards and committed to energy performance in the Top 25 percent of multifamily buildings nationwide), FHA is lowering annual rates to 25 basis points, a reduction of 20 to 45 basis points. Qualification for the top 25 percent will be determined using the Environmental Protection Agency’s Portfolio manager 1-100 score.
To ensure that the Broadly Affordable and energy-efficient properties benefit directly from the lower rates, FHA will limit the fees that can be charged on these loans. Multifamily insurance rates for market-rate properties that are not energy efficient will remain unchanged.
FHA also is reducing upfront premiums to support affordable housing and energy-efficiency goals and streamline the premium structure. Upfront insurance rates will be set at 25 basis points for “Broadly Affordable” and energy-efficient properties and 35 basis points for “Affordable” mixed-income properties. Upfront premiums for market rate properties that are not energy efficient will remain unchanged.
According to the news release announcing the reduced rates: “The reduced rates announced today are made possible by the strong health of the FHA Multifamily portfolio, which stands at a historically low default/delinquency rate of 0.15 percent. FHA’s Multifamily business traditionally generates significant revenue for taxpayers; these changes will leverage over $400 million in new mortgage financing for affordable housing/energy-efficient development without significantly decreasing overall revenue. Even with these reductions, affordable and energy-efficient loans originated in fiscal year 2016 are projected to generate net revenue for the federal government.”
The rate reductions will become effective April 1.