Slow Multifamily Loan Processing Hampers Investors

HUD’s failure to keep pace with the volume of multifamily mortgage applications is exacerbating the nation’s shortage of workforce housing, jeopardizing the thousands of jobs created by new apartment construction and reducing the new revenues the program could be generating for the federal government.

That is the message that the National Multi Housing Council (NMHC) and National Apartment Association (NAA) delivered to Congress today in testimony before a key subcommittee of the House Financial Services Committee.

Testifying on behalf of NMHC/NAA, Peter Evans, a partner at Chicago-based Moran and Company, told lawmakers that demand for apartment financing from the Federal Housing Administration (FHA) has increased more than five-fold, with applications increasing from $2 billion annually to $10 billion.

FHA has been unable to keep up with this demand, however. Loan processing times can now exceed 18-24 months, and borrowers often have no idea where in the pipelines their applications are.

The consequences of this backlog are magnified by the fact that private capital markets still have not recovered, leaving apartment firms with few alternatives. The result is a dramatic reduction in new apartment construction at a time when the nation’s demand for affordable rental housing is growing faster than in recent decades.

In 2010, new apartment construction set a post-1963 low at just 97,000 new starts. We need to build 300,000 units a year to meet demand, yet we’ll start fewer than half that many this year, Evans said.

In his testimony, Evans offered numerous suggestions to streamline FHA processing that would still protect the safety and soundness of FHA’s multifamily portfolio. Among other things, FHA should instruct field offices to more consistently follow its multifamily accelerated processing guide to expedite transactions.

Instead of requiring all loans over $15 million to be processed by a national review committee, it should impose this additional threshold only on loans that exceed the program’s terms and requirements. FHA should also create a special underwriting team for large, atypical loans to expedite processing of more standard transactions.

Evans also recognized HUD’s efforts to work with stakeholders to address its backlog and other administrative issues, but reiterated that HUD needs more resources to accommodate the increased volume in the FHA multifamily programs.

Finally, Evans took the opportunity to address suggestions that FHA replace or take over Fannie Mae and Freddie Mac’s multifamily programs. He expressed the industry’s strong opposition to such proposals, noting that FHA is woefully unprepared to assume a larger role. In addition, FHA serves a specific niche within the market and is simply not capable of providing the full range of unique and complex loans required by the apartment sector.

NMHC/NAA’s written testimony is available at www.nmhc.org/goto/6118.