FHA’s New MAP Guide
By Mark Fogarty
7 min read
Navigating the Update for FHA’s Multifamily Accelerated Process Guide
The Federal Housing Administration’s Multifamily Housing Accelerated Processing Guide is updated periodically every few years. The 2020 MAP Guide update, set to go into effect on March 18, weighs in at 903 pages and is full of new guidance—some positive, some not so positive—for borrowers and lenders wanting to use FHA’s multifamily programs.
FHA officials have lauded the new guide, saying streamlined regulations “provide consistency and precision policy presentation,” including “enhanced navigation and restructuring that aligns with lenders’ operational processes.”
A panel of industry participants at the National Housing & Rehabilitation Association’s recent virtual town hall on FHA lending gave the MAP guide some good grades observing that the new guidelines represent some significant strides by the FHA to align itself more with industry practice. They tempered this assessment though pointing out a number of areas of significant concern for borrowers.
Panelists (who included Ken Buchanan, senior vice president and director of FHA Underwriting, Walker & Dunlop; moderator Rob Hazelton, CEO, Dominion Due Diligence; Kenji Tamaoki, executive director – Agency Originations, PGIM Real Estate; and Bob Warren, senior vice president, head of FHA Underwriting, Berkadia), liked some of the changes a lot, though.
On the FHA 223(f) loan, “They always had a quirky rule you couldn’t refinance a building within three years of the certificate of occupancy. Last year they revised that rule. Now you can use a refinance for a recently constructed building,” he said.
More Loan Proceeds
Opening the door to allow more deals to access the 223(f) program “is going to deliver more loan proceeds than any other program, bar none. To be able to get access to that is a really big expansion of what HUD is going to be able to finance.”
Despite a few caveats, Tamaoki called the low cost, highly leveraged 223(f) financing a huge opportunity for developers.
An adjustment to the cap rate floor also seems to be generally favorable to the industry, with a “must be” in the language softened to “generally be.” Buchanan noted that the 2016 rule, where the cap rate was tethered to the loan constant, compresses value and could limit proceeds. Having it now as “a lender consideration” rather than an absolute requirement should give more flexibility, he said.
“No one really liked this policy, the appraisers especially,” he noted.
Tamaoki called the cap rate floor adjustment “a pretty significant change for a lot of high-end markets, in a good way.”
When it comes to changes in the new statutory limitation language, Buchanan said they were “not perfect, but a step in the right direction.” Warren said, “HUD saw that was something they needed to remedy.”
The new guide moves from an 85 percent of site value limit to 100 percent. The high-cost multiplier effect has been increased as well, from 270 percent to 315 percent, but not in the case of cashing out of an existing deal.
Tamaoki said this change could result in higher loan amounts and significantly more deals.
Changes to Davis-Bacon
Changes in the Davis-Bacon wage requirements could be a big positive for the industry, as well. Tamaoki called them “big, big changes the industry has been pushing for a number of years.” He credited the Mortgage Bankers Association for especially effective lobbying on this front.
A major pain for the industry has been that Davis-Bacon has different wage scales for different activities, which can lead to a worker on a multifamily construction build getting paid differing amounts for two types of work done in the same day.
Now, the threshold for this bifurcation has been increased. In the 2020 MAP Guide, the definition of “substantial work” under Davis-Bacon has been raised from $1 million to $2.5 million. “That million dollars was set 30 years ago and it’s not been changed since,” Tamaoki said. The change upward to $2.5 million “should make life a lot easier.”
Warren noted that in the new guide, FHA clarifies that Davis-Bacon is not required for offsite construction (modular housing), which has been increasing its multifamily share in recent years.
The panelists also discussed topics, such as the value of leased land, concept meetings, Green Mortgage Insurance premiums, and construction cost limitations before opening the town hall up to questions from audience members to end the event.
The View from FHA
FHA officials have pointed to a number of what they feel are positives about the new MAP Guide. They include:
- The integration of the FHA Multifamily Closing Guide, previously a separate document, as a new chapter;
- Expanded appendices that provide access to tools and forms; and
- Enhanced online navigation that includes bookmarking, hyperlinks and similar functionality that makes the Guide easier to use.
The new protocols “provide a streamlined path for approved lenders to submit and process applications for FHA insurance,” the agency said.
Sources:
The National Housing & Rehabilitation’s Jan. 13, 2021 virtual town hall on the new MAP Guide is available at https://www.housingonline.com/events/unmute-the-mic-town-hall-series/.
MAP Changes | 2016 Versus 2020
Three-year rule waiver incorporated:
2016 – 223(f) loans were not allowed for buildings that received their Certificate of Occupancy or underwent substantial rehab within three years of the application date.
2020 – Prior to application, must have minimum 85 percent occupancy, rent roll showing underwritten rents and minimum debt service coverage ratio for at least one month based on actual revenue and stabilized expenses. Prior to closing, minimum DSCR for at least three months.
Cap rate floor:
2016 – Cap rate must be higher than the debt service constant.
2020 – Cap rate should generally be higher than the debt service constant.
Value limitations on properties acquired within the past three years:
2016 – Existing properties – for loans over $25 million, value was limited to purchase price plus closing costs plus costs of improvements, unless proof of increased value is not attributable solely to cap rate.
Land – for loans over $25 million, value was limited to purchase price plus closing costs unless evidence of increased value could be provided.
2020 – Value based on market for both properties and land.
Statutory limits:
2016 – 85 percent of site value.
2020 – 100 percent of the site value. Regional director can increase high-cost multiplier from 270 percent to 315 percent (but not to increase cash-out in an existing deal). Costs not attributable can be included for 223(f).
Value of leased land:
2016 – Value of land leased from a public body for affordable housing was limited to the present value of the lease payments.
2020 – Language has been removed.
Davis-Bacon:
2020 – Specifically states that Davis-Bacon applies only to on-site construction work, meaning Davis-Bacon is not required for modular housing that’s built off-site (this was their previous policy, it just was not in the 2016 MAP Guide).
U.S. Department of Labor AMA 236 memo, Dec. 14, 2020: Threshold for “substantial” work increased to $2.5 million adjusted annually.
Concept meetings:
2016 – Required for market-rate new construction and substantial rehab deals.
2020 – “Strongly encouraged” for market-rate new construction and substantial rehab deals. Required for the 221(d)(4) PILOT program. Recommended for projects in volatile markets, loans over $75 million, cash out exceeding $20 million or more than 50 percent of the loan amount or any other unusual risk factors.
Construction cost limitations:
2016 – 223(f) not allowed if construction costs exceeded $40,000 or more than two building systems were being replaced.
2020 – Limitation on building systems eliminated.
Green MIP:
2016 – Energy Star Existing test accepted, and many existing buildings met the standard.
2020 – For buildings built more than three years ago, Energy Star Existing test no longer accepted. For buildings built within the last three years, Energy Star Existing test allowed but FHA requires score of 90 plus. 100 percent of the energy savings can be underwritten if the property will receive a green building certification. 75 percent of projected savings can be underwritten if there is no green building certification.
