HUD Headquarters recently published some substantial updates to the Multifamily programs. Below are a few of the notable changes:
MIP Rate Reductions – HUD published sweeping MIP rate reductions across the board for affordable, subsidized, and energy-efficient properties. This includes up to a 75% reduction in the up-front MIP at closing, and up to 58% reduction in annual MIP costs. For example, on a 90%+ Section 8 project, or an Energy-Star Certified property, the up-front MIP at closing now drops from 1.0% to 0.25%, and your ongoing annual MIP will drop from 0.45% to 0.25%. So, for every $50M of HUD debt financed, that translates to $375,000 of MIP costs you will save at closing, and ~$100,000 of annual MIP rate savings.
New MAP Guidance – Hot off the press! The long-awaited MAP Guide update is finally here. There are substantial changes, and we wanted to highlight some of the more notable impacts:
- Market-Rate 221(d)(4) loans can be processed at 85% LTC and 1.176 DSCR (up from 83.3% LTC and 1.20 DSCR respectively).
- 223(f) Non-Critical Repair cap significantly increased, to as much as $40,500/unit.
- 223(f) replacement reserve funding relief.
- Green/Energy Incentives – Definitive guidance now issued on increasing underwritten NOI to capture up to 75% of the projected energy/utility savings on proposed repairs.
- Existing HUD-insured loans do not need to update the existing Phase 1 ESA on future refinances, with certain conditions.
- Simplification of, and less restrictive “Large Loan” parameters. Thresholds now begin at $75M+, not $40M+.
- Updated processing guidance on 223(a)(7)’s and PCNA waivers.
- 221(d)(4) Streamlined processing, and ability to submit less than 100% complete drawings with application.
- Defeasance and Yield Maintenance costs up to 10% of the new loan amount can now be classified as eligible debt.
HUD Multifamily Transformation Update – HUD is in the process of completing their transformation to a single underwriter model with increased focus on both customer service and certainty of execution. The transformation is complete in their Southeast, Southwest, and Northwest Regions. The Northeast Region and Western Region will be completed in 2016. HUD has achieved significantly reduced processing times in the offices that have completed the transformation.
At Walker & Dunlop, we pride ourselves on being on the front line of these substantive and helpful changes for our clients, and are ready to immediately implement the new guidelines on your existing portfolio or upcoming acquisitions and developments.