How HUD’s ‘Simplifying’ Multifamily Investment
Can key changes to the mortgage insurance premium help the current administration deliver on its housing promises?
Financing costs for multifamily properties backed by Federal Housing Administration-insured mortgages have been slashed.
Effective immediately, multifamily mortgage insurance premiums are now 25 basis points—down from 90 basis points in at least one multifamily program. The reductions are across-the-board for all FHA multifamily programs.
Previously, MIP rates were set for four categories and 11 loan programs, resulting in 35 individual rates. But under the Trump Administration, the Department of Housing and Urban Development believes the old approach was “overly complicated and (burdensome) for borrowers and lenders.”
MIP rates ranged from 50 basis points for the 223(a)(7) refinancing program to 95 basis points annually for the FHA 241(a) Supplemental Loans for Apartments and cooperatives.
The yearly fee for two programs—the Section 542(b) and 542© risk sharing programs—were already at 25 basis points and will be unchanged.
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A flat MIP rate “significantly simplifies cost-benefit analysis considerations used by owners, developers and lenders,” the agency said in a notice posted in late September in the Federal Register.
The reductions are necessitated by a sharp rise in construction costs and mortgage interest rates since 2021, the notice said, noting that “market rate property MIPs were explicitly unchanged in 2016 and remain cost prohibitive.”
Besides the rate cut, several MIP categories established in 2016, including Affordable Inclusionary Vouchers and Green/Energy Efficient Housing, have been eliminated. These, the Federal Register notice said, “are misaligned” with the January presidential memoranda “Delivering Emergency Price Relief for American Families and Defeating the Cost-of-Living Crisis,” and “have become economically obsolete.”
That memo ordered the heads of all executive departments and agencies to deliver emergency price relief, including by pursuing appropriate actions to lower the cost of housing and expand housing supply.
As for the energy efficient program, the notice said HUD believes investment in energy-efficient building design in today’s market should be an owner’s discretionary, cost-benefit decision not one guided by a government subsidy.
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When the Green MIP rate was implemented in 2016, it served as a government-supported catalyst designed to stimulate the adoption of energy-efficient technologies and practices within the multifamily market.
“In that context, a financial incentive in the form of a reduced MIP rate was a prudent policy tool to overcome initial market barriers and demonstrate the viability of sustainable construction and retrofitting,” the notice said.
But the market is different today, HUD said: “Sophisticated energy modeling tools and a competitive market of service companies empower owners to make informed, data-driven decisions. Mandating or preferentially incentivizing these choices through a federal mortgage loan insurance program distorts decision making.”
While the incentive has achieved its purpose, HUD said the green building MIP is “no longer necessary.”
