HUD mortgagee letter allows for larger multifamily FHA mortgage amounts in high land cost areas; House introduces major housing legislation
On March 16, 2010, the U.S. Department of Housing and Urban Development (“HUD”) issued Mortgagee Letter 2010-10 (the “Letter”) revising the HUD Form 92264-A used to calculate the maximum mortgage amount FHA may insure. The previous wording of the form required the cost of land attributable to dwelling use to be incorporated into the calculation of per unit statutory limits. According to the Letter this “inadvertently” prevented rental housing development in cities with high land costs. The revised form reflects the FHA’s determination that the National Housing Act does not require that the cost of land be included in the calculation of per unit mortgage limits.
The change is effective as of March 16, 2010, the date of the Letter, and the revised form is now available on the HUD website. If HUD has already issued a firm commitment, the commitment must be amended at the request of the mortgagee to benefit from the adjusted calculation criteria.
It is expected that this new determination by the FHA will expand the use of FHA insurance for multifamily housing in major high-cost cities such as New York City, San Francisco, Boston, and Philadelphia.
House introduces major housing legislation
The Housing Preservation and Tenant Protection Act of 2010 (H.R. 4868), the long-awaited housing preservation legislation, was introduced by House Financial Services Committee Chairman Barney Frank this week. There is concern that many of the approximately 1.7 million HUD-subsidized rental units in more than 23,000 privately owned, multifamily properties will go to market in the near future when mortgages mature and the affordability restrictions terminate.
The bill also contains provisions seeking to address existing HUD policy matters that many have been seeking to change and have been discussed by the industry for the past few years, including
- conversion of rental assistance payment and rent supplement contracts to project-based Section 8 contracts; 34,000 units nationwide.
- expansion of enhanced vouchers allow, at owner’s option, converting enhanced vouchers to project-based vouchers or to new project-based Section 8.
- provision for ELIHPA and LIHPRHA properties to use any rent adjustment process allowed under MAHRA (typically, LIHPRHA is eligible only for OCAF adjustments and ELIHPA is eligible only for the annual adjustment factor or a budget-based rent increase).
- allowance for owners to receive project-based vouchers in lieu of enhanced vouchers.
- prohibition of HUD’s practice of limiting sales proceeds to nonprofit owners/sellers.
- incorporation of proposed changes to the mark-to-market program, which allows below market properties to go through mark-to-market even though rents are below market; expands nonprofit transfer window.
- making mark-to-market properties also eligible for the MAHRA rent increase.
There are also some controversial provisions, including:
- giving HUD (for tenants) a right of first refusal to buy properties.
- giving tenants litigation rights if they are unhappy with the condition of a property.
- providing for state and local preemption over federal law.
The bill includes many other provisions, including a rural housing title to make permanent USDA’s demonstration voucher and preservation programs. There are also a number of new administrative provisions that would affect owners and operators, such as a new electronic clearinghouse of information. Most of the information required in the bill to be available to the public, such as REAC scores, are already available on HUD’s website.