In February 2012, the United States Department of Housing and Urban Development (HUD) launched the FHA Low Income Housing Tax Credit Pilot program under the mandate of the Housing and Economic Recovery Act of 2008. The purpose of this act was to streamline the FHA mortgage insurance process for projects receiving equity contributions pursuant to the Low Income Housing Tax Credit (LIHTC) equity program. The Pilot program seeks to streamline the application and processing of FHA-insured, 223(f) mortgage loans for LIHTC projects.
HUD has now released certain policy adjustments intended to provide more flexibility to the Pilot program and expand the scope of eligible projects. Among these adjustments:
- While the first mortgage will be limited to 85% loan ration, HUD will remove the permit subordinate debt, when combined with the first mortgage, to exceed 92.5%, provided that certain conditions are met;
- The 223(f) program will be adjusted to allow eligible Pilot projects with building permits obtained before the current Mortgagee Letter expired to remain eligible for a 3-year rule wavier;
- All LIHTC refinancing transactions will be treated as an acquisition rather than a refinance, regardless of any identity of interest between the buyer and the seller, as long as the project meets the affordability definition of the MAP Guide;
- The Assurance of Completion Escrow will be reduced to 10% of the rehabilitation cost although HUD retains the right to discretionary increases if the scope of work and total cost suggest a need for additional protection;
- HUD has waived the requirement that 100% Non-Critical Repair Costs be funded at closing provided certain conditions are met;
- Hub Directors will not have the discretion to waive the requirement that a 9% Tax Credit Allocation (or Bond Cap Allocation, in the case of 4% Credits) be in hand at the time of application for the Pilot, subject to certain conditions.
In addition, HUD has provided clarification of existing policy, including clarification on certain underwriting requirements, tax abatements and pre-approval of SLPs