‘Foong on Finance’ with Keat Foong: Will the New FHA Rules be Changed Soon?

The more stringent rules HUD announced this summer for the FHA multifamily mortgage insurance program were no surprise. By the time the Mortgage Letter 2010-21 came out on July 6, the multifamily development and financing community already pretty much knew what the main points were going to be.  

Among the biggest, and most contested, changes are the decrease in the required the Loan-to-Cost (LTC) from 90 percent to 83.3 percent, for the FHA 221(d)(4) program for market-rate new construction. The Debt Service Coverage ratio (DSC) has also been increased, to 1.20 percent from 1.11 percent.

The new requirements make it incumbent on developers to raise more equity‑as much as an additional 10 percent more in cash, according to calculations by Johnson Capital.

Developers are not pleased with the increased requirements. HUD has said it will revisit the guidelines around January 2012 to see if market conditions still warrant the new rules. Will change come before then, however? Word is that although the rules have been passed, the National Association of Home Builders continues its discussions with HUD…