HUD Mortgagee Letter Modifies Underwriting Criteria to Reduce Risk

On July 6, HUD published Mortgagee Letter (ML) 2010-21 on multifamily mortgage insurance risk mitigation.  The ML revises FHA’s multifamily loan underwriting standards, policies, and procedures to mitigate risk in light of changes in the real estate and financing markets.  The changes include increasing debt service coverage ratios (DSCR) and lowering allowable loan amounts under several of FHA’s multifamily loan insurance programs.  The ML does not change the DSCR and allowable loan amounts under some programs, including 221(d)(4) mortgages on properties with rental assistance on 90 percent of more of the development’s units and Section 223(f) refinancings of Section 202-financed developments.

The ML states that FHA’s core program underwriting standards have not been adjusted since the inception of the program and the changes made in the ML are intended to mitigate HUD’s risk while ensuring the continued availability of FHA insurance.