MBA CREF 22: FHA Removes Temporary COVID Mitigants for Multifamily Loans


In a sign of recovery for the U.S. multifamily housing sector, the Federal Housing Administration (FHA) has lifted temporary underwriting mitigants for transactions that were in place at the height of the COVID-19 pandemic.

Lopa Kolluri, principal deputy assistant secretary for the Office of Housing and FHA at the U.S. Department of Housing and Urban Development, announced Monday at the Mortgage Bankers Association‘s (MBA) CREF 2022 in San Diego that it was removing the origination measures for multifamily loans insured under Section 223(f) of the National Housing Act in April 2020. The now-former requirements for nine months of debt service reserves, 250 percent repair escrows and limits on cash-out refinance transactions were designed to combat potential financial stress resulting from the pandemic.

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Kolluri said the decision underscores a positive trajectory for the multifamily sector, with multifamily housing starts in January up 13.7 percent compared to November 2021 and 56 percent higher than the year-ago period, according to new data from Policy Development and Research. This comes on the heels of record-breaking volume in 2021 for the second year in a row. 

“While it’s too early to make firm predictions on where we’d be in volume by the end of fiscal year 2022, we are certainly off to a good start,” Kolluri said. “Our multifamily portfolio continues to be resilient and just by the volume, we can tell that this program is attractive for the lenders.”

The discussion with Kolluri was moderated by Matthew Rocco Jr., MBA chair-elect and CEO of Grandbridge Real Estate Capital.

Proactive measures under the Biden administration such as passage of the American Rescue Plan have helped FHA’s multifamily insurance portfolio experience fewer challenges than anticipated, according to Kolluri, who prior to joining HUD in February 2021 was chief development and operating officer at the Philadelphia Housing Authority. She said there is now a firm commitment from the White House to increasing the nation’s affordable housing supply through HUD’s low-income housing tax credit program.

The removal of the temporary COVID-19 origination mitigants with fewer capital reserves held for debt service was praised by Robert Broeksmit, the president and CEO of MBA. 

“MBA commends FHA for its stewardship navigating the economic downturn and subsequent recovery during the COVID-19 pandemic,” Broeksmit said in a statement. “The return to the standard requirements for reserves, escrows and cash-out refinance transactions will make even more capital available for affordable rental housing in communities across the country.” 

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