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HUD to Cut FHA Multifamily Premiums to Boost Affordable Housing

Image: Bloomberg
Image: Bloomberg
"By reducing our rates, this administration is taking a significant step to encourage the preservation and development of affordable and energy efficient housing in communities large and small," said HUD Secretary Julian Castro.

WASHINGTON — The Department of Housing and Urban Development is reducing the mortgage insurance premiums it charges on multifamily mortgages to encourage the renovation of affordable housing units and promote energy-efficient upgrades.

Starting April 1, the Federal Housing Administration will reduce the annual MIPs nearly in half to 25 basis points.

"Families across the country are struggling through an affordable housing crisis," HUD Secretary Julian Castro said during a Jan. 28 call with reporters. "By reducing our rates, this administration is taking a significant step to encourage the preservation and development of affordable and energy efficient housing in communities large and small."

The FHA estimates that the multifamily insurance rate reductions will spur the rehabilitation of an additional 12,000 units of affordable housing per year nationally and 40,000 over the next three years.

Most of the units in these eligible properties must be covered by Section 8 project-based assistance or meet the affordability standards under the low-income housing tax credit program.

The FHA is also lowering its annual premium 10 basis points on mixed-income properties, to 35 basis points.

A year ago, HUD cut annual premiums on single-family FHA mortgages by 50 basis points. The price reduction provided a shot in the arm for FHA volume that was credited for helping the FHA's ratio of reserves to guaranteed loans surpass its statutory 2% minimum threshold for the first time since 2008.

Castro noted that the cost of utilities accounts for roughly 25% of multifamily operating expenses. So energy efficient upgrades will reduce costs for tenants and owners.

Federal banking regulators recently warned that high concentrations of commercial real estate loans, including multifamily, on banks' balance sheets could lead to "greater risk of loss and failure." But the HUD sectary stressed the FHA multifamily portfolio is "very strong," with a historically low default/delinquency rate of 0.15%.

"Even with these reductions, we project that we are going to continue to generate positive returns for the federal government," Castro said.

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