HUD Publishes FHA-HFA Multifamily Risk-Sharing Final Rule

On December 22, HUD published a final rule in the Federal Register amending existing regulations for the Section 542(c) Housing Finance Agencies Risk-Sharing Program. The final rule adopts without substantive changes the March 8, 2016, proposed rule HUD developed after dialogue with NCSHA and a working group of HFAs. The rule is intended to better align the Risk-Sharing program regulations with current industry and HUD policies and practices and provide greater flexibility for program participants.

Some of the key changes included in the final rule include:

• Allowing certain loans made by Level I HFAs (those that assume 50 percent or more of the risk of the loans) not to be regularly amortizing, provided the loans have a minimum term of 17 years and HUD approves the HFA’s underwriting standards, loan terms and conditions, and asset management and servicing procedures.
• Making the program easier to use for preservation deals by expanding the ability to insure equity take-out loans for refinancing and acquisition deals and amending the definition of substantial rehabilitation.
• Applying the same underwriting standards to supportive housing developments financed by Level I HFAs as currently used for Section 202 developments for the elderly, thereby allowing the use of contract rents in the loan underwriting process.
• Requiring recertification every five years of the underwriting standards, loan terms and conditions, and asset management and servicing procedures for Level II HFAs (those that assume less than 50 percent of the risk of loss on mortgages insured under this program).

The final rule includes HUD’s discussion of and responses to recommendations NCSHA and other commenters made on the proposed rule. These responses explain why HUD rejected some recommendations and incorporated some relatively minor ones.

See NCSHA’s 2016 blog on the proposed rule for additional information.