FHA Raises Threshold for Large Multifamily Loans and the Industry Cheers

The multifamily housing industry largely voiced approval of the Federal Housing Administration decision this week to increase the threshold for large multifamily loans from $75 million to $120 million.

It represents the first increase in the threshold since 2014 and will enable more FHA multifamily insurance applicants to use standard underwriting processes.

There could be more. FHA also announced it will review the threshold on an annual basis, with the possibility of increasing it in $5 million increments if warranted.

“This change addresses the single-point risk of loss created by large individual loans and defines the underwriting standards for large multifamily loans,” according to the National Association of Home Builders.

“Except where otherwise stated, these policies do not apply to loans below the large loan threshold or to loan applications under Section 223(a)(7), which is the program to refinance existing FHA-insured multifamily loans,” NAHB wrote.

Revisions also were made to the Multifamily Accelerated Processing (MAP) Guide to reflect the new $120 million threshold and the annual review methodology. Other requirements in FHA’s MAP Guide related to large loans were unchanged.

NAHB said that the US Department of Housing and Urban Development’s risk analysis and industry feedback showed this upward revision was prudent, primarily because of increases in housing and construction costs over the last decade, without providing undue risk to the FHA insurance fund.

“We know that borrowers are contending with the dual challenges of increased development costs and meeting the nation’s dire need for more rental housing,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon in prepared remarks.

“Anything we can do to prudently alleviate extra steps in obtaining FHA insurance will help all of us meet the housing supply challenges before us.”

Dave Borsos, NMHC Vice President, Capital Markets, tells GlobeSt.com that the increase of the threshold for large multifamily loans from $75 million to $120 million is “great news” for multifamily business as this program “is extremely important for the production or rehabilitation of rental housing. This expansion will now allow more loans, affordable or market rate, to utilize a standard processing path resulting in a simplified underwriting process and timeline.”

Kory Geans, Chief Investment Officer, Middleburg Communities, tells GlobeSt.com that while he doesn’t think there is a meaningful impact on multifamily much less development, there are some things to consider given the decision.

One positive to the higher threshold is that greater debt liquidity for existing assets could increase the attractiveness for buyers, Geans said.

“If that were to be the case, however, it would be on a very limited basis because there is already meaningful debt liquidity for existing assets,” he said.

“On the flip side, the FHA’s decision could theoretically allow the agencies to meet their caps more easily which could in turn limit the number of deals they are able to lend to. I consider this routine maintenance of their policies to remain consistent with the market needs.”

Charles Stucke, Chief Investment Officer of Subtext and Co-founder and Chief Investment Officer of Subtext Investment Management Company (SIMCO), tells GlobeSt.com that housing is a major component of the consumer price index and inflation, “and it’s clear that in the US we are suffering from a palpable undersupply.

“The Fed increasing rates makes it harder to solve that challenge, but this news from the FHA will help ease credit in the multifamily sector, particularly for larger loans.”

Easing credit to help solve the nation’s housing supply problem and to bring down the cost of a major component of inflation represents astute policy, Stucke said.

“This is an example of the FHA acting surgically while the Fed is hitting with a big hammer,” he said.