Lenders See Benefits From HUD’s Process Changes

Lenders weigh in on HUD's multifamily transformation program.
Anthea Martin, Walker & Dunlop

Anthea Martin, Walker & Dunlop

According to Anthea Martin, a Denver-based vice president with Walker & Dunlop’s FHA finance group, “The biggest challenge for HUD is going to be taking their staff and changing their thinking from linear with multiply reviewers on every deal to big picture thinking with a single underwriter model with subject matter experts pulled in as needed. They are focused on training their staff on the new process and organizing their respective pipelines, so we really need to wait and see until after the transformation is complete to determine if they achieved their goal and made the process truly consistent and streamlined.”

Doing more with less
One major goal of the transformation program is for multifamily field offices to be cut down from more than 50 offices nationwide to just seven satellite offices that will report to five regional multifamily hub offices. These hubs are located in Fort Worth, Chicago, Atlanta, New York, and San Francisco. As of summer 2015, the Fort Worth and Chicago hub transformations were done, while Atlanta was finishing up its transformation. These transformation efforts began at the New York hub. Work is slated to begin on the San Francisco hub in 2016.

FHA lenders appear to be happy with the results so far. David Lacki, managing director of housing, Lancaster Pollard, Columbus,

David Lacki, Lancaster Pollard

David Lacki, Lancaster Pollard

Ohio, said, “Historically, each HUD field office would have various idiosyncrasies that we had to be aware of or deal with. Now, I’m hoping that we’ll see more consistency across the platforms.” He expects that the reduced number of offices will also make for a level playing field, since it will be easier for FHA lenders to gain working experience with more of these offices, so that they can better compete for business. There have been some growing pains as the actual transformation is rolled out (extended processing times and a learning curve for the HUD staff as the existing staff goes through a learning process and new staff is brought in), but lenders say that the end results justify the changes.

Cathy Pharis, head of Wells Fargo Multifamily Capital’s FHA platform, in McLean, Va., said, “The transformation makes so much sense for the industry and for HUD. And I think it makes sense for the taxpayer. It is a more efficient and risk-based way of doing business.” According to Pharis, HUD has not changed its process for underwriting loans since the inception of its multifamily programs. Considering that its system was set up when the agency didn’t have any third-party reports and was handling the entire process itself, the process needed to be improved. As a result of the transformation efforts, senior underwriters look at the different third-party reports and coordinate them, accessing specialists in areas such as environmental or appraisals if they need additional input. This makes for a more efficient process, as Pharis sees it. In fact, Wells Fargo has seen its FHA processing times improve as a result of the transformation efforts.

Lancaster Pollard’s Lacki and Walker & Dunlop’s Martin are happy with the results. “With the Southwest, the Midwest, the Southeast region being completed, we are seeing faster processing times,” according to Lacki. As to whether the transformation has resulted in a consistent approach across the various HUD offices, the lenders say that it’s too early to get an idea about this. According to Pharis, “The expectation is that ultimately it will be, but there is not enough of the country that has really gotten through it and been out the backside for very long to know that.” While a cut down in staff also resulted from the transformation efforts, the lenders haven’t seen any significant negative fallout as a result.

Making FHA multifamily more competitive
Considering that HUD’s programs played an important role following the financial crisis in 2008, lenders believe that it is a good idea to keep the agency relevant so that it is in a position to provide financing in case private lenders limit their roles during any other future catastrophe. One immediate concern that could impede HUD’s efforts to make its FHA multifamily lending process more competitive as the transformation process finishes up is the budget. With the West Coast transformation beginning in 2016, there is some concern about possible delays on this hub in the case of budget cuts.

On the whole, it seems the transformation effort will have the desired effect of making HUD’s FHA multifamily efforts more competitive. According to Martin, “Rightfully so, HUD’s goal has always been for them to be more of a reviewer and not necessarily re-underwrite the loan. Through this streamlined process and condensed model, they will put greater pressure on lenders to submit comprehensive loan submissions versus relying on HUD for a comprehensive analysis. This may end up narrowing the marketplace.”