FHA Lowers Multi-Family Insurance Rates
HUD Secretary Julian Castro recently announced that the FHA will, for the second consecutive year, reduce its multi-family insurance rates. The rate reductions will directly affect low and moderate income families and will also be available to projects installing energy-efficient systems. The reductions are intended to help developers renovate existing housing and to use their available capital to build new units. Secretary Castro said “[B]y reducing our rates, this administration is taking a significant step to encourage the preservation of affordable and energy-efficient housing in communities large and small. This way, hardworking families won’t have to make a false choice between quality and affordable housing.”
The rate reduction takes affect April 1, 2016. Rates will be lowered by 25 basis points for housing classified as “broadly affordable”. This classification mostly covers Section 8 or Low Income Housing Tax Credit (LHITC) housing. Rates will be lowered by 35 basis points for “Affordable” mixed use property which includes partial LHITC, partial Section 8 and inclusionary zoning units. Rates for energy-efficient units will be reduced by 25 basis points. The rate reductions are expected to boost loan volume by $400 million per year and allow for as many as 12,000 unit rehabs per year. Taken together, HUD hopes to improve rental affordability.
Joseph Pigg, Senior Vice President of the American Bankers Association, believes that the rate reductions make it more likely that the FHA will cut single family premiums in the near future and that Fannie Mae and Freddie Mac will feel the pressure to follow soon. The ultimate result will be that loans should become more affordable for everyone very soon.