What is HUD/FHA? What does HUD/FHA do?
HUD is the Federal agency that works to help the Nation’s communities meet their development needs, spur economic growth in distressed neighborhoods, revitalize urban centers, provide housing assistance for the poor, help rehabilitate and develop moderate and low-cost housing, and enforce the Nation’s fair housing laws. (General information: www.hud.gov, specific Multifamily Program Information is available here).
Congress created the Federal Housing Administration (FHA) in 1934, and in 1965 FHA was made a part of HUD’s Office of Housing. FHA brings liquidity to the housing market by providing mortgage insurance for loans made by FHA-approved Lenders throughout the United States and its territories. FHA insures mortgages for single family homes, multifamily developments, manufactured homes, healthcare (i.e.: nursing homes, hospitals) and, a variety of specialized housing (such as cooperative units and single room occupancy housing). FHA is the only government agency that operates entirely from its self-generated income. (The proceeds from the mortgage insurance and property examination fees paid by the homeowners and developers are captured in an account that is used to operate the program.) FHA and HUD have insured over 34 million home mortgages and 47,200 multifamily projects since 1934. Since 1959, over 7,000 Section 232 mortgage insurance commitments have been issued in all 50 states. Since the Section 242 program’s inception in 1968, over 400 mortgage insurance commitments have been issued for hospitals in 42 states and Puerto Rico.
What is an FHA-insured mortgage loan?
FHA-insured mortgage loans are loans on real property (single family homes/apartments/healthcare facilities) that are insured by the FHA. FHA provides liquidity to the housing and healthcare markets by providing mortgage insurance on real property so that their respective mortgages are marketable and attractive to investors. FHA is not a Lender for most of its multifamily and healthcare programs. Instead, FHA accomplishes its mission (for most multifamily/healthcare assets) by approving selected Lenders that meet specific criteria with regard to capitalization, expertise, and successful experience in multifamily/healthcare lending. Following a rigorous underwriting and due diligence process, FHA may offer insurance for the loan proposed by the approved Lender for the mortgage secured by that asset. FHA mortgage insurance programs cover a large array of multifamily and healthcare assets – from market-rate, suburban, garden-style properties, to rent-subsidized properties, to market-rate, high-rise properties. FHA has the capacity to lend in all U.S. states and territories.
What is the “MAP” Program/What is a “MAP” Lender?
“MAP” is an acronym for HUD’s “Multifamily Accelerated Processing” program, which is “…designed to establish national standards for approved Lenders to prepare, process, and submit loan applications for FHA insurance.” (HUD’s MAP Guide) To utilize the MAP Program a Lender must be an approved multifamily lender and, must be approved by HUD’s Office of Multifamily Housing Development specifically as a MAP Lender. Under the MAP process approved Lenders will perform a complete underwriting of a property, including: ordering and reviewing third party reports, performing architectural and cost reviews, mortgage credit reviews, and performing various management analyses.
How does an FHA-insured mortgage loan differ from other (Fannie Mae, Freddie Mac, Life Company, Bank) mortgage loans?
FHA was legislated into existence to provide liquidity to the single family and multifamily markets in the United States and its territories. Like Fannie Mae and Freddie Mac (the “GSEs”), FHA ensures a continual market presence and market share by insuring mortgage loans every business day of the year…year in and year out. However, unlike Fannie Mae, FHA does not purchase loans from its approved Lenders. Instead, the combination of FHA mortgage insurance and a Ginnie Mae guarantee provides individual Lenders with a vast source of capital with which to make mortgage loans on an ongoing basis.
Unlike most bank construction loans, FHA construction loans combine both the construction and permanent portions into one loan. Also, unlike most bank loans, these loans are non-recourse to the Borrower (with some exceptions). Further, FHA construction/permanent loans do not have any threshold historic/current occupancy requirements prior to funding the permanent portion. FHA generally requires an Operating Deficit escrow – posted upfront – that provides the property with the required funding to work through the lease-up phase. Finally, the interest rate for an FHA loan is determined and locked prior to construction – thereby eliminating interest rate risk post construction.
Unlike most bank or life company Lenders, FHA can provide tax-exempt credit enhancements for specific housing initiatives. Further, unlike the GSEs (historically), a Ginnie Mae credit enhancement for an FHA insured loan is backed by the full faith and credit of the U.S. Government. Lending from FHA (unlike life company and bank lenders), will not insure for financing stand-alone retail, office, or industrial properties; however, FHA may choose to insure properties that contain small amounts of commercial space that are housed within a housing asset. Similar to life company Lenders, FHA programs have been established to accommodate almost any loan size. However, like Fannie Mae, FHA might be locationally/product restricted as to mortgage insurance that exceeds the statutory per unit limits that are periodically set by Congress.
What mortgage loan programs does MHF offer?
Multifamily & Healthcare Finance has the capacity and expertise to offer a wide array of FHA mortgage insurance programs for our Borrowers.
How is an FHA-insured mortgage loan priced? How is the interest rate determined?
FHA-insured mortgage loans are fixed rate, self-amortizing obligations. The loans are usually made with the backing of a Ginnie Mae security, which guarantees the timely payment of principal and interest to the investor with a pledge of the full faith and credit of the U.S. Government. The spread for a taxable mortgage loan will be an amount over the 10-year Treasury security that includes the investor’s spread as well as guarantee and servicing fees.
What will a typical FHA-insured mortgage loan transaction cost?
FHA transaction costs are generally broken down into categories corresponding to the various stages of processing and the various programs. Typically, a Borrower will pay for: third party reports such as a market study, an appraisal, a PCNA report, and an Environmental Phase I (and Phase II, if required), HUD Application and inspection fees, Ginnie Mae fees, the mortgage insurance premium, MHF placement and financing fees, and legal fees. Not all fees, expenses, and escrows are applicable to all program financings – please consult with your MHF sales professional for a definitive explanation of fees that are specific to your proposal.
How long should a typical FHA-insured mortgage loan process take from application through funding?
The speed at which transactions are processed and closed depends, in large part, upon the timely responsiveness of the involved third parties (such as the appraiser/surveyor/attorney).
- Multifamily Housing:
- New Construction and Substantial Rehabilitation Programs: 9-12 months if the development timetable matches with MHF/HUD timelines (e.g.: that plans, specifications, costs, and permits are ready at the time of HUD’s readiness to review).
- Acquisition/Refinance Program: Approximately 6-7 months from start to finish.
- Please refer to HUD’s “LEAN” processing guidelines.
What are the recourse provisions of an FHA-insured mortgage loan?
FHA mortgage loans are non-recourse to the Borrower, with the exception of (i) funds or property of the project that the Borrower is not entitled to retain by the provisions of the Regulatory Agreement; and (ii) for their own acts and deeds of others which the Borrower has authorized in violation of the provisions of the Regulatory Agreement.
Are there any particular ownership requirements for an FHA-insured mortgage loan?
The owners of a property must have successful experience, adequate liquidity and net worth. The Borrower must (generally) be structured as a “single asset, single purpose” entity. Additionally: For Section 232 and 232 pursuant to 223(f): Borrowers are not eligible for HUD-insured financing for healthcare assets if they have been in bankruptcy within the past five years.
Can mezzanine or secondary financing be utilized together with an FHA-insured mortgage loan?
Yes, approved, subordinate debt is allowed under various programs in limited amounts. Terms and conditions of such financing are dependent upon the program and upon its source (public or private). Contact your MHF representative for more information. For further information, please contact: JimMoore@MHFinanceLLC.com.
Can an FHA-insured loan be assumed?
FHA-insured mortgage loans are assumable with the consent of both HUD and the Lender. A fee may be charged to cover applicable costs.
Can an FHA-insured loan be pre-paid?
FHA–insured loans are pre-payable based upon terms that are negotiated to meet the needs of the Borrower. Typically, a percentage of the unpaid principle balance may be prepaid during a year without a prepayment penalty.
Is an FHA-insured loan the best way for me to achieve my objectives?
FHA-insured government lending, with a Ginnie Mae guarantee, offers Borrowers access to a complete source of capital to achieve their financial objectives, by helping to facilitate loans for the new construction, rehabilitation, acquisition, and refinance of multifamily and specified healthcare assets.
- FHA-insured financing offers:
- Long-term, self-amortizing, fixed-rate financing
- Non-recourse debt
- Negotiated pre-payments, rather than defeasance or yield maintenance
- Mortgage interest rates priced at a rate correlated to Ginnie Mae’s full faith and credit of the U.S. Government
- Certainty of execution
- Constant market presence
FHA’s construction programs are competitive in structure and pricing; their streamlined refinances are quick and cost-advantageous. However, processing times for some of the FHA programs may be slower than those of the GSEs, banks or life companies; FHA’s ability to insure mortgages in high cost areas may be constrained by the mortgage-per-unit limits set by Congress; and finally, properties containing large, non-residential components may not fit into FHA’s currently-offered loan insurance programs.