HUD Multifamily Mortgage Insurance Expands Beyond Its Historical Role

Much of HUD’s recent success with multifamily mortgage insurance can be attributed to their Multifamily for Tomorrow initiatives, which have created standard application templates and underwriting parameters, and streamlined review, loan processing and closing protocols. 

Moreover, low default rates and even lower claim rates give the multifamily programs political – and bipartisan – support in Congress.

As a result, HUD multifamily mortgage insurance is no longer considered the financing of last resort – its mission has expanded beyond being a source of affordable capital when other sources are not in the market or are prohibitively expensive.

This transition exploded in 2021 when compared to the previous year.  Consider the following data points:

• There was a significant increase in initial endorsements (closings) from Fiscal Year (FY) 2020 to FY 2021 – $19.02 billion for 997 projects compared to $29.5 billion for 1,578 projects.

• HUD’s volume of Section 223(f) refinance/ purchase loans closed almost doubled – $15.31 billion for 807 projects in FY 2021 compared to $8.87 billion for 485 projects in FY 2020.

• Although refinancing loans dominated the landscape, the Section 221(d)(4) new construction program saw closings holding steady – $5.276 billion for 217 projects in FY 2021 compared to $5.314 billion for 207 projects in FY 2020.

• HUD’s increase in production has not come at the expense of affordable deals – they continue to be about 45% of total projects, and 37% and 34% of total dollar volume in FY 2020 and FY 2021.

And, despite the recent uptick in interest rates, which will affect all capital sources to some degree, HUD-insured multifamily loans remain a highly attractive source of capital, featuring fixed interest rates, 35-to-40-year amortizations, non-recourse provisions and cash-out options. Moreover, loan underwriting parameters are generous when compared to other sources: construction loans at 85% loan-to-cost and cash-out refinancing loans at 80% loan-to-value, both with 1.17 debt service coverage ratios.

We applaud HUD’s transition from stopgap financing to everyday alternative and look forward to the continued growth and success of its multifamily mortgage insurance programs.