As published in Scotsman Guide's Commercial Edition, March 2012.
Commercial mortgage brokers who have worked with clients in the multifamily and health-care sectors to utilize Federal Housing Administration (FHA) loan-insurance programs have routinely traded execution time for attractive terms. The 2008 financial crisis resulted in a significant increase in demand for FHA insurance programs, which in turn has created longer execution time frames. Thanks to the U.S. Department of Housing and Urban Development’s (HUD’s) efforts in the multifamily and health-care sectors, execution time frames recently have taken a turn for the better.
Look no further than HUD’s LEAN program, which the agency introduced in July 2008 to streamline its health-care programs. It quickly became inundated as word spread in the financing community, and underwriting queues were established to deal with the volume. The total number of applications in the queue at any one time rose to 327 in fiscal year 2010 and 329 in fiscal year 2011.
As this year unfolds, there is significant evidence that processing queues across HUD’s health-care lending programs are dramatically shrinking — if not being eliminated altogether. Some of the moves that have helped change the trend include:
An underwriter-contract award
Improved HUD staff
Looking at the queue for 223(f) refinancing and acquisitions (non-portfolio), applicants saw progress in the queue — as measured by average number of spaces moved each month — jump by nearly four times this past fourth quarter compared to this past second quarter. In fact, HUD expects to eliminate that queue by the end of this year’s second quarter. This progress is nothing short of remarkable, given the fact that the average wait time in this queue was 240 days in calendar year 2011.
The agency’s queue for 232/223(a)7 green refinancing — transactions that do not require a Project Capital Needs Assessments (PCNA) — has already been eliminated. Its 232/223(a)7 regular queue is currently experiencing less than a 30-day wait and should be eliminated soon, as well. The progress in these programs also is significant given that the green queue wait time averaged 97 days in 2011, while the regular queue wait time in 2011 was 105 days.
Although the queue for new construction and substantial rehabilitation transactions continues to move at a slower pace, some mortgage professionals are hopeful that HUD will dedicate more resources toward that queue to help expedite such deals — particularly since many of them are time sensitive.
Recent news out of HUD bodes well for the multifamily side. By the end of this past year, agency staffers were still hard at work. Housing Notice 2011-35, which was released this past December, provided significant revisions to the lending thresholds for its hub and national loan committees.
For example, an application for market-rate new construction financing now only goes to a national loan committee if the loan exceeds $25 million or 250 units — up from $15 million or 151 units. Affordable housing loans now must exceed $50 million or 350 units to go to national review, up from $50 million or 250 units. This means that more transactions can be approved by the local field office or the hub without approval from the national loan committee, which should result in improved time frames for all multifamily transactions.
It is good news for commercial mortgage brokers and their clients to see changes that indicate shorter processing times. With interest rates still near historic lows and major improvements on the horizon in HUD’s mainstay multifamily and health-care loan insurance programs, there couldn’t be a better time for property developers and owners to explore the advantages of an FHA-insured loan.
Jonathan Camps is senior vice president, managing director of production and a member of the executive-management team at Love Funding. He has more than 15 years of real estate finance experience with a focus on multifamily and health-care properties. Camps has overseen 245 FHA transactions that have closed, totaling $1.6 billion, and has underwritten more than 80 FHA-insured transactions that have closed, totaling more than $550 million. Reach Camps at jcamps@ lovefunding.com or (202)887-1825.