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HUD Designates Difficult Development Areas
WASHINGTON, D.C.- September 3, 2008 - The U.S. Department of Housing and Urban Development (HUD) today designated difficult development areas (DDAs) for purposes of the low-income housing tax credit (LIHTC) under Section 42 of the Internal Revenue Code (IRC). HUD makes new DDA designations annually. LIHTC projects in DDAs are eligible for as much as 30 percent more LIHTC subsidy than projects not located in DDAs. The designations of qualified census tracts (QCTs) published September 28, 2006, remain in effect.
Join Novogradac & Company LLP to discuss this and other recent developments of interest to affordable housing professionals at the 15th Annual San Francisco Affordable Housing Conference on September 10 and 11.
Collingswood Nursing Home: Dialysis Unit Installed
Collingswood Nursing Home is a 160-bed nursing home in Rockville, Maryland. The substantial rehabilitation of this property was accomplished in 1999 using a HUD-insured first mortgage obtained by AGM. Because HUD offers second debt for additions and improvements to currently insured properties, AGM recently arranged a $482,700 second debt insured pursuant to Section 241. These funds will be used to install a kidney dialysis unit to serve residents and the wider community. The interest rate is 6.95%.
FHA Simplifies Healthcare Property Acquisition/Refinance Program
The FHA has overhauled their underwriting and processing requirements for the Section 232/223f program used for the acquisition or refinancing of healthcare properties, from board and care to assisted living and skilled nursing homes.
The new Lean guidelines streamline the application process by eliminating or consolidating many of the due diligence requirements and documents, shifting some responsibilities to the Lender (AGM, of course), and significantly tightening their review time frames. Closings are now expected to occur 30-40 days after submittal of the loan application. Loans that fall below 80% LTV are classified as Low Risk, and these applications will be processed more rapidly than the standard.
In addition, the FHA has transferred the responsibility for all Section 232 programs from Multifamily Housing to the Office of Insured Health Care Facilities (OIHCF) based in Washington, D.C. The transition will be phased in over the next several months, ending on October 1, 2008. OIHFC will provide centralized processing for all of FHA's healthcare loans with dedicated, specialized staff; a substantial number of new positions are being added. OIHCF will oversee the Lean process for acquisitions and refinances, and is planning to expand these procedures to the Section 232 New Construction program in October 2008.
AGM is committed to providing excellent service to our clients which means staying on the cutting edge. Two of AGM's seven FHA approved underwriters are also recognized as Healthcare underwriters, and a third is ramping up. AGM staff have already attended the first Lean training seminar and are preparing to implement the new process. Please contact AGM to learn more about any of FHA's loan programs.
FHA Improves Multifamily/Senior Property Programs With LIHTC
The FHA has overhauled their processing requirements for projects utilizing Low Income Housing Tax Credits (LIHTC) in the Section 221(d)(4), 220 and 231 programs used for the new construction or substantial rehabilitation of multifamily and senior properties.
HUD has just issued four new rules which will make FHA mortgage insurance more compatible with tax credit transactions. Mortgagee Letter 2008-19 is available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-19ml.doc. The improvements are:
Only the recommended minimum of 20% of tax credit proceeds must be invested in the project at construction loan closing; other pay-ins must be documented in the organizational documents.
Only schematics plans and specs must be filed with the Firm Commitment application. Final plans and specs must be filed 30 days before construction loan closing. This option is available for experienced development teams.
Firm Commitments may be conditioned upon 2530 clearance, under certain defined circumstances.
Each HUB and Field Office must designate a LIHTC coordinator.
AGM is excited to report these new, long awaited program guidelines for LIHTC projects. HUD has effectively eliminated the "cash to close" hurdle imposed by the prior policy, and we expect that loan application timelines can be tightened by the new flexibility on plan submission. Please contact AGM to learn more about any of FHA's loan programs.
HUD Rescinds Proposed MIP Increase MBA (1/9/2008 ) MBA Staff
HUD announced yesterday that it intends to rescind a Notice published in October that would have increased the mortgage insurance premiums on a number of multifamily programs. HUD noted that the market has changed significantly since the original FY 2008 budget proposal was made. Additionally, the Mortgage Bankers Association produced solid evidence that the programs affected were providing affordable housing, prompting HUD to determine that an MIP increase at this time was not appropriate.
Thanks go to those MBA members who participated in lobbying Congress and the Administration on this issue as well as to those who submitted data for MBA?s survey,? said Cheryl Malloy, MBA?s senior vice president of multifamily and governance. ?There was no indication provided as to whether the Administration's FY 2009 budget proposal will contain an MIP increase. However, we are hopeful that FHA modernization legislation prohibiting an unwarranted increase will become law prior to October 1.
Previous Participation Certification [2530]
Federal Register April 13, 2005 Final Rule
Effective February 2006 all HUD Participants must be on the APPS System no later than June 30, 2006.
In Mid May 2004 HUD published the proposed rule moving all of us off paper 2530s and on to thenew APPS system which has been in development for the better part of eight years now. We've arrived now at the final step which is a six month transition period that will move everyone off thecurrent paper 2530s and onto the electronic system. So, for those of you who may have been waiting to see when HUD would finally get around toimplementing the system, the answer is now, and you have until May 1, 2006 to get on it and up to speed for your 2530 paperwork. Paper copies of the 2530s will be accepted through April 30, 2006. This final rule is going in without any consequential changes from the proposed rule published 11 months ago. One notable feature of the rule that you need to watch out for is that concurrent to going to an automated system HUD is changing the deadline for submission of the 2530 to 30 days in advance of any change. For those of us who do deals on a regular basis it adds one morechallenge to a closing or management transition.
HUD issues Proposed 2005 Fair Market Rents.
In many areas, the newly proposed Fair Market Rents (FMRs) vary dramatically from the current FMRs, which could negatively impact the rent calculation for Section 8 voucher program participants. The new FMRs are the first to be benchmarked using 2000 census data and new definitions of Metropolitan Statistical Areas (MSAs) by the Office of Management and Budget. The resulting Fair Market Rents tend to decrease metro area Fair Market Rents while increasing non-metro area Fair Market Rents. In some cases, the funding changes are dramatic.
HUD also implemented the Office of Management and Budget's new "Metropolitan Division" classification for counties or groups of counties within an MSA with a population of at least 2.5 million. This separates some better-off suburban counties from the so-called "core part" of the MSA. For example, in the Washington, D.C. area, Bethesda and Frederick, MD and the surrounding counties have been separated from the area that spans from Washington, D.C. to Jefferson County, West Virginia.
HUD has also chosen to eliminate statewide minimum FMRs for rural areas, relying instead on county data.
New Qualified Census Tracts and Difficult Development Areas were published on October 1, 2004.
New Qualified Census Tracts (QCTs) and Difficult Development Areas (DDAs) as defined by HUD were published on October 1, 2004, and become effective January 1, 2005. For the first time, QCTs and DDAs will be based on the Office of Management and Budget?s new metro area boundaries, which mean both are likely to change substantially. HUD released the new lists on the first of October to coincide with the release of final Fair Market Rents (FMRs) for 2005.
Both QCTs and DDAs have an impact on the Low Income Housing Tax Credit program in an important way: the eligible basis for a tax credit project located in a QCT or DDA can be increased by 130%, resulting in a significant increase in the tax credit yield. Developers should not assume that a site currently located in a QCT or DDA will remain in a QCT or DDA after January 1, 2005. Conversely, they should be alert to new development opportunities as some areas become eligible for the 30% boost for the first time.
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