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Witnesses: FHA remains crucial in multifamily financing

The increasing number of renters needs more attention, according to witnesses who testified before the House Financial Services Committee over the Federal Housing Administration's future role in multifamily housing.

"The focus of the discussion on the future of housing finance reform largely has been on single-family homeownership," said Robert Nielsen, the immediate past chairman of the National Association of Home Builders in his written testimony. "Less attention has been paid to the multifamily rental housing segment of the housing finance system, even though almost one-third of Americans live in rental housing, and demand for rental housing in the future is expected to increase."

In her written testimony, Marie Head, deputy assistant secretary for the Office of Multifamily Housing Programs at the FHA, acknowledged that the multifamily sector of housing was largely ignored in the crisis, but said the FHA played an important roll in continuing multifamily development in hard-hit areas of the country where credit was unavailable without federal enhancement.

"FHA's ability to quickly scale up allowed it to play a countercyclical role that helped keep private investment flowing when conventional financing resources had otherwise retreated from the market," she wrote.

Head said demand for new FHA insurance for new construction and refinancing of multifamily properties increased more than five times from 2008 to 2011, rising from $2.3 billion in fiscal 2008 to $12.4 billion in FY 2011.

She said that while volume increases have now stabilized, HUD expects "elevated levels of mortgage insurance activity for the remainder of fiscal year 2012 and through Fiscal Year 2013."

In order to deal with the elevated activity, Head reviewed several new efforts by the FHA to increase the availability and affordability of multifamily housing including the "Breaking Ground: Delivering Results initiative," which reduced the processing time of loan applications in order to deal with the influx.

While Head pointed out the benefit the FHA has had on spurring multifamily housing, "its expanded footprint in multifamily finance is presumed to be temporary," she said.

"FHA sees its role today as encouraging the return of private capital back into the mortgage market while balancing the need to remain a supportive mechanism for all types of housing moving forward, particularly for underserved markets and for lower income families," she said.

Those that testified largely supported these changes, as well as the role of the FHA in promoting multifamily housing.

Rodrigo Lopez, president and CEO of AmeriSphere Multifamily Finance based in Omaha, Neb., testified on behalf of the Mortgage Bankers Association, and pointed out that while the private market was beginning to improve, the FHA was still necessary "in many markets and for many types of properties, particularly older, affordable properties that investors are less willing to finance."

He said that while multifamily programs have been able to provide critical liquidity, they also have low delinquency rates and show positive cash flow.

"In fact, MBA commissioned its own study last year that found FHA multifamily and healthcare loans originated between 1992 and 2010 have generated positive net cash flows of $927 million. This period covers years of strong economic growth and the more recent recession. And HUD's new tighter underwriting standards should further improve loan performance going forward," he said.

Along these lines, Nielsen testified that the NAHB estimates that the "echo boom" generations move into the housing market will generate demand for between 300,000 and 400,000 multifamily units per year, and while the timing will depend on the pace of the economic recovery, their housing needs will not be put off forever.

Last year, there were 178,000 multifamily housing starts, but this only represents about half of the units that will be needed to keep up with the new demand, he said.

"Production of multifamily housing will undoubtedly increase above the current low levels," said Nielsen. "It is important that the financing mechanisms to support that production are available and that Congress ensures that the FHA multifamily mortgage insurance programs continue to meet the needs of low- and moderate-income renters."

jhuseman@housingwire.com
@JessicaHuseman

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