HUD Seeks to Boost Energy Efficiency With Lower FHA Mortgage Insurance Premiums

An unprecedented rental housing crisis and a commitment to energy efficient housing shaped a proposal from the U.S. Department of Housing and Urban Development to change the FY 2016 Mortgage Insurance Premiums for several Federal Housing Administration Multifamily Housing Insurance programs.

According to Enterprise, Secretary Castro Castro estimates that lower FHA premiums will allow aging housing developments to take on about 4 percent more debt for rehabilitation.

HUD structured the proposed annual multifamily mortgage insurance rates into four categories.

  1. Market Rate Housing
  2. Broadly Affordable Housing, which includes loans originated under FHA’s Section 542(C) Risk Share program or 542(B) Risk Share Program, as well as properties that have at least 90% of units covered by Section 8 Project Based Rental Assistance or Low-Income Housing Tax Credits.
  3. Affordable Housing, which includes local affordability restrictions, as well as properties that have 10-90% of units covered by Section 8 Project Based Rental Assistance or Low-Income Housing Tax Credits.
  4. Green and Energy Efficient Housing, which requires owners to pursue, achieve and maintain an industry-recognized standard for green building, such as Enterprise Green Communities Criteria, U.S. Green Building Council’s LEED–H, LEED–H Midrise, LEED–NC, ENERGY STAR Certification, EarthCraft House, EarthCraft Multifamily, Earth Advantage New Homes, Greenpoint Rated New Home, Greenpoint Rated Existing Home (Whole House or Whole Building label), and the National Green Building Standard (NGBS). For properties that have already achieved a green building standard and that are refinancing with this lower MIP premium, proceeds may be used to complete further efficiency upgrades, and/or to retrofit to the next-level green certification standards.
FHA MULTIFAMILY MORTAGE INSURANCE PROGRAM CURRENT ANNUAL MIP BASIS POINTS PROPOSED ANNUAL MIP BASIS POINTS (Effective April 1)
Market Rate Housing 50-95 unchanged
Broadly Affordable Housing 45-50 25
Affordable Housing (Inclusionary/Vouchers) 45-95 35
Green/Energy Efficient Housing 45-95 25

In order to ensure the properties benefit from the lower rates, FHA will limit the fees that lenders can charge on these loans.

The proposed MIP rates would become effective for FHA firm commitments issued or reissued on or after April 1, 2016. MIP rates will not be modified for any loans that close or reach initial endorsement prior to March 31, 2016. HUD will take comments on these changes through February 29*, 2016. For more information on how to submit comments, please read the notice in the Federal Register.

FHA estimates that the multifamily insurance rate reductions will spur the rehabilitation of an additional 12,000 units of affordable housing per year nationally, meaning over the next three years nearly 40,000 families could benefit from higher quality and affordable housing.

*In a follow-up notice, the Federal Register corrected the due date for comments to February 29 from February 17.