Updated Road MAP to FHA Multifamily Housing

By Ryan Miles
Vice President
Lancaster Pollard

Imagine the frustration if nearly through your drive to scope out a potential site for a new development or acquisition opportunity, your GPS navigation unit directs you to turn on a road that no longer exists. As you pass the defunct intersection and scramble to find an alternate route, you wonder when and why the road was closed and, most importantly, why the device you rely on was loaded with map information from nearly a decade ago.

The U.S. Department of Housing and Urban Development’s (HUD) Multifamily Accelerated Processing Guide (MAP) Guide had become that outdated GPS unit as it had not received a substantial update since its rollout in 2002. While the MAP Guide contained 90 percent of the underwriting and submission procedures, it relied upon numerous housing notices, mortgagee letters and frequently asked questions published over the past nine years to complete the remaining 10 percent. The new update, effective Nov. 1, 2011, consolidates all of the HUD’s multifamily program changes and guidance into one document with the ultimate goal of reducing application processing time while appropriately balancing risk to the Federal Housing Administration (FHA) mortgage insurance portfolio.

While the majority of the MAP Guide updates are a consolidation of the previously mentioned publications, there are a number of important additions that provide updated guidance and are intended to significantly reduce the timeframe from application submission to closing. These updates include the removal of Section 232—Residential Care Facilities, addition of Section 231—Housing for the Elderly and additional clarity on processing of affordable-housing transactions.

C-LEAN-ing House

As of Sept. 1, 2008, the Section 232 Residential Care Facilities program was transferred to the Office of Healthcare Programs (OHP) and, as such, has been deleted from the MAP Guide. Section 232 is a FHA-insured-loan product used to finance the purchase, new construction or substantial rehabilitation of housing for the frail elderly, including nursing homes, assisted-living facilities and board and care facilities. The program also can be used to refinance these properties. Applications are processed via OHP’s LEAN process and the office is currently drafting a Section 232 Handbook. Until such time that the Section 232 Handbook is published, the original MAP Guide will continue to be used in conjunction with guidance contained in LEAN email blasts for application processing.

Out of the Shadows

The Section 231 Housing for the Elderly program was designed to increase the supply of multifamily rental housing for the use and occupancy of elderly persons (age 62 and over) and/or persons with disabilities by insuring mortgage loans to facilitate new construction and substantial rehabilitation. The program has been eligible for MAP processing since March 27, 2007, but has been underutilized in the past because there was no published MAP guidance. Instead nonprofits have opted to use Section 221(d)(3) while profit-motivated developers have used Section 221(d)(4). To illustrate, HUD endorsed only 10 projects in the fiscal year 2010 using Section 231. These projects included just over 1,000 units and $93 million in loan value compared to 195 projects using HUD’s other new construction and substantial rehabilitation programs, which included over 36,000 units and $3.67 billion in loan value.

While the programs are similar, the Section 231 program offers an advantage: the ability to age-restrict the property. For the other programs, Section 3.2L of the guide states, “Except in the case of a project designed exclusively for the elderly (age 62 and over), the borrower must certify that it will not discriminate based on age or against families with children.” This means that projects financed under other HUD programs and designed and marketed to elderly residents cannot restrict occupancy to otherwise qualified residents who have children or grandchildren living with them. Whereas multifamily projects that are financed under Section 231 can restrict all persons living in a unit to be age 62 years or older. This distinction allows an owner to create a more exclusive senior-living experience. With the underwriting requirements included in the updated MAP Guide, the program is sure to be pulled from the shadows and employed as a viable senior-living development and preservation program.

Embracing the Affordable Mission

FHA mortgage insurance has been a major source of financing for affordable housing since its inception in 1937, but it wasn’t until the publication of HUD’s Multifamily Risk Mitigation Mortgagee Letter (ML 2010-11) in July 2010 that “affordable” was defined. The term was curiously absent from the previous MAP Guide given HUD’s mission to create quality affordable housing for all. The new MAP guide has fully embraced HUD’s credo and provides a clear delineation between affordable and market-rate housing allowing for increased leverage, reduced debt service coverage requirements and more favorable processing timeframes.

Nearly all of the benefits accrue to the new construction and substantial rehabilitation of affordable housing because a majority of the projects are completed in conjunction with Low Income Housing Tax Credits (LIHTC). The synergy of public and private funding sources amplifies the quality of affordable housing being created across the country. HUD has realized that by working in conjunction with LIHTC participants it can leverage its staff’s limited resources to create extremely strong affordable projects.

With the recent close of the FHA’s fiscal year, 2011 will earn a place in the history books because of a record number of multifamily endorsements. The final figures are still being calculated, but as of Sept. 9, FHA had endorsed 1,075 projects to build, rehabilitate or refinance multifamily apartment properties with a total loan value of nearly $10.55 billion. And to think the record volume was driven exclusively by favorable financing terms and reduced capital availability in the commercial market. One can only guess what records will result from updated guidance as the new MAP Guide should provide a better road map to help ensure consistent application of underwriting requirements throughout HUD field offices in the years to come. The updated MAP Guide can be found on HUD’s MAP Home Page; however, it is important to seek the guidance of an experienced MAP-approved lender early to help navigate the intricacies of the loan application and closing process.

Reprinted with permission from Lancaster Pollard

Lancaster Pollard helps health care, senior living and affordable housing organizations expand and improve their services by providing financing solutions. The firm offers a full range of investment banking, mortgage banking and investment advisory services and has one of the largest groups of financial professionals dedicated to health care in the country. As a leading underwriter of bonds and mortgages, Lancaster Pollard has earned a reputation for delivering sound financial advice and the most cost-effective financing options available in the market.