HUD Unveils Multifamily Refinance Program that Also Pays for Green Upgrades

Washington, D.C.–The U.S. Department of Housing and Urban Development has kicked off Green Refinance Plus, which will be jointly operated by HUD’s Federal Housing Administration and Fannie Mae. The new program will allow owners of existing affordable rental housing properties to refinance into new mortgages that include funding for energy- and water-saving upgrades, as well as other necessary property improvements.

HUD Sec. Shaun Donovan and Fannie Mae’s Ken Bacon, executive vice president for multifamily business, unveiled the program this week at a senior housing development in the San Francisco Bay Area where HUD is investing in energy-saving green retrofits. Under the program, FHA and Fannie Mae share the risk on loans to refinance existing rent-restricted projects and provide owners additional funds to make green improvements to their properties.

The thinking behind the program, according to HUD, is that every 10 to 15 years or so, owners of existing multifamily affordable properties need to refinance their mortgages. Yet older apartment building owners are hard-pressed to find additional financing to maintain or improve their properties. Beginning next month, Fannie Mae and its participating lenders will begin accepting applications for the program.

Green Refinance Plus is intended to refinance the expiring mortgages of Low Income Housing Tax Credit and other affordable projects, and to lower annual operating costs by reducing energy consumption. Fannie Mae and HUD anticipate about $100 million in initial refinance volume, with an average loan amount of $3.5 million to $5 million. Also, FHA will insure up to an additional 4 percent to 5 percent of the loan amount, or an average of about $150,000 to $250,000 per loan, to provide additional funds to pay for property improvements such as energy-efficient windows and Energy Star appliances.

Property owners will be able to select the energy-efficiency upgrades that make the most economic sense for their properties, notes HUD. Borrowers will obtain a “Green Physical Needs Assessment” completed by a qualified provider, which identifies property improvements that reduce both energy and operating costs. That, according to the agency, ought to help borrowers make rehabilitation choices that give them the greatest energy savings for their investment.

Green Refinance Plus is an enhancement of the Fannie Mae/FHA Risk-Share program begun in the 1990s. It provides funding for the refinance, preservation and energy-efficient retrofits of older affordable multifamily housing properties, including those that are currently in Fannie Mae’s or FHA’s portfolios.