HUD Suspends FHA Mortgage Insurance; Industry is Caught Unprepared
multihousingnews.com
By Keat Foong, Executive Editor
SEPTEMBER 25, 2003 -- Washington, D.C.--In a surprising and potentially highly disruptive announcement, HUD suspended Sept. 16 the issuance of all FHA multi-housing mortgage insurance for the remainder of the 2003 fiscal year, which ends Sept. 30. The suspension is the result of HUD having exhausted the $23 billion of financing for which it had been authorized by Congress to insure for the year.
In HUD Mortgagee Letter 2003-14, the department said it will not issue new firm commitments, reopen expired firm commitments or increase the mortgage amount for outstanding firm commitments for any multifamily general risk and risk-sharing programs until Congress either enacts supplemental commitment authority for FY 2003 or new commitment authority for FY 2004.
According to the National Multi Housing Council (NMHC), the disruption was unexpected as HUD had assured industry participants earlier in the year that its FY 2003 insurance authority was adequate to accommodate FY 2003 insurance needs.
In an interview with Multi-Housing News on July 31, John Weicher, the FHA Commissioner, when asked to highlight some of HUD's recent accomplishments, said, "We've put the FHA program on a break-even basis which has allowed us not to see the program stop. ... The program doesn't have the instability in it that it used to have. It doesn't have the stop-and-start that was so damaging to the industry."
Claudia Kedda, director of multifamily finance at the National Association of Home Builders (NAHB), said the suspension will delay construction and developers' ability to lock in interest rates. "Of course we are very unhappy about the disruption to multi-housing. When HUD is out of commitment authority, builders with projects ready to go have to sit back and wait ... and time is money," said Kedda.
She added that she did not think it likely that the suspension would lead to outright cancellation of projects as purchase contracts are likely to be locked in by the time financing is applied for. Others, however, argued that it would lead to cancellations.
Bud Malone, president of Malone Mortgage Co. in Dallas, characterized the FHA suspension as a crisis and said there are projects that will "absolutely terminate" as a result of the suspension. Malone said he has a tax credit transaction in Houston that needed a firm loan commitment of no later than Sept. 23 and a closing of no later than Sept. 30 in order to obtain the tax credit allocations. "That developer's deal could evaporate. He could lose the tax credits."
Malone added: "The reactions I have been hearing from the [FHA] staff is, 'What's the big deal? Fiscal Year 2004 is just around the corner.' Number one, it is a big deal because there are many projects, especially tax-credit projects, that have as a condition [of allocation] our meeting certain drop-dead deadlines in loan commitments," said Malone.
HUD estimates that between $700 million to $800 million worth of multi-housing transactions will be affected for the remainder of this fiscal year.
Applications for FHA insurance are still being processed, but HUD is not offering any new firm commitments at this point. "You may have gone through the application process, but you can't obtain the firm commitment [until additional insurance authority is provided]," explained Kedda.
In its letter to lenders, HUD said that:
FHA will continue to extend Site Appraisal and Market Analysis (SAMA) letters and Conditional and Firm Commitments.
FHA will continue to issue new, amend outstanding and reopen expired SAMA letters, Conditional Commitments and MAP invitations letters, conditional to an increase in the FHA commitment authority.
FHA will also continue to initially and finally endorse project mortgages that had outstanding Firm Commitments issued before the effective date of the suspension.
The Senate has passed a supplemental appropriations bill for the FHA insurance authority that is needed for the rest of FY 2003. If the president signs the bill quickly, "the multifamily program could restart fairly soon," said Kedda.
If the supplemental appropriations bill is not passed or signed, developers can wait for FY 2004 which begins Oct. 1 for the FHA program to continue. However, the FY 2004 HUD-Veterans Administration appropriations bill has not yet been passed. If the bill is not passed by Oct. 1, the passage of continuing resolutions would allow the programs to continue at 2003 funding levels.
In a statement, NAHB called the continuing-resolutions approach "very disruptive, because the funding is prorated and allocated only for short time periods. This creates a stop-and-go processing environment, which is very costly to developers. It is important that field offices continue to process loans within the guidelines above so that builders do not suffer long delays once the funding is in place to re-open the programs."
According to the NMHC, until new budget authority is in place, HUD has established a priority list based on the status of each current pending action to ensure quick action once the budget authority is in place.
Kedda and Malone said HUD clearly should have done a better job of anticipating the shortfall much earlier in advance to provide the industry with the time to ask Congress for additional insurance authority. That would have prevented any disruption of the program. Instead, said Malone, mortgagees received HUD's announcement of the insurance commitment suspension on the day before it took effect. |
