The FY2013 budget submitted to Congress sets out new mortgage insurance premium levels for several key multifamily programs. While insurance premiums will be held at current levels for affordable housing and loans on new construction or re-syndication of LIHTC projects, which remain at 45 basis points, HUD proposes the following increases for the insurance premium for FHA multifamily mortgage insurance:
- Section 221(d)(4): increase of 20 basis points (bps) from 45 bps to 65 bps
- Section 223(a)(7) increase of 5 bps from 45 bps to 50 bps
- Section 223(f): increase of 15 bps from 45 bps to 60 bps
- All other transactions for both multifamily and healthcare would have a 15 bps increase in the insurance premium
Although the premium increases were announced as part of the rollout of President Obama’s FY 2013 budget blueprint, HUD indicated that it does not need Congressional action to proceed.
During a conference call on February 14, HUD officials said the increases would take effect on October 1 with the start of the new fiscal year. HUD indicated that this will only affect applications submitted after that date.
NMHC/NAA and the other trade groups met with HUD Secretary Shaun Donovan on March 14, 2012 to discuss this and other FHA issues. It was the fourth meeting that we have had with the Secretary in the past 14 months.
At the meeting, NMHC/NAA pressed the HUD Secretary for a rational but left the meeting with the belief that the increase was motivated by overall budget constraints. This suggests that additional increases are possible as the agency looks to raise additional revenues.
On April 10, HUD published details of the premium increase in the Federal Register. In response, NMHC/NAA, the Mortgage Bankers Association (MBA) and the National Association of Home Builders (NAHB) led a coalition of 12 rental housing and finance organizations in submitting a letter on May 9 opposing the proposed rate increases for the FHA multifamily insurance programs.
The letter argued that the rate increases are unnecessary given both the strong performance of the FHA’s multifamily programs and the additional steps HUD already took to improve underwriting and loan standards. Rather than significantly reducing FHA’s credit risk and encouraging private multifamily lending, as HUD contended, the rate increases will drive up property owners’ costs, which ultimately get passed to the consumer in the form of higher rents.
The letter also outlined the group’s concerns that HUD would leverage the premium increases to generate funds for unrelated purposes.