FHA loans to boost affordable housing development

WASHINGTON – July 17, 2015 – The Federal Housing Administration (FHA) published guidance on its new Small Buildings Risk Sharing (SBRS) Initiative.

Under SBRS, new private-sector lenders can partner with FHA to provide long-term fixed-rate lending products to multifamily property owners. It applies to mortgages of $3 million, and up to $5 million in high-cost areas.

SBRS builds on the Department of Housing and Urban Development's (HUD) existing risk sharing programs with state and local housing finance agencies, as well as Fannie Mae and Freddie Mac.

"Communities across the nation are seeking ways to support affordable housing production and preservation," says Ed Golding, principal deputy assistant secretary for HUD's Office of Housing. The initiative "allows us to target our products to an important and underserved part of the rental market by partnering with CDFIs (Community Development Financial Institutions) and other lenders who have on-the-ground relationships with small building owners in their communities."

Small buildings make up 34 percent of the 17.5 million multifamily rental units in the U.S., according to HUD. They house nearly 6 million households and, on average, offer lower rents than larger properties.

Nearly 60 percent of small rental property owners are individuals, households and estates, and they often have trouble securing financing thanks to credit standards than are more stringent than those offered to larger property owners.

If successful, SBRS will encourage lenders to enter this smaller-investor market and provide long-term, fixed rate capital.

How the SBRS program works

In return for assuming 50 percent of the risk, approved lenders will underwrite and service the loans subject to minimum standards that reduce processing times relative to traditional FHA mortgage insurance programs.

FHA's willingness to assume half the risk can free up lenders' balance sheets and allow them to increase their lending activities without an additional federal subsidy or new regulations.

Given the challenges of accessing long-term fixed rate capital even with an FHA guaranty, the Administration has asked Congress for statutory relief to allow SBRS lenders to access funding through Ginnie Mae; in the interim, lenders will be eligible to access capital from the United States Treasury's Federal Financing Bank at prevailing Ginnie Mae rates.

Lending will be limited to properties that are willing to ensure that at least 20 percent of the units rent for no more than 50 percent of an area's median income, or 40 percent of the units rent for 60 percent of the area's median income.

HUD says rural communities, specifically, have a high share of small multifamily properties that could benefit from this program.

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