HUD/FHA Government Lending
Frequently Asked Questions
- What is HUD/FHA? What does HUD/FHA do?
- What is an FHA-insured mortgage loan?
- What is the “MAP” Program/What is a “MAP” Lender?
- How does an FHA-insured mortgage loan differ from other (Fannie Mae, Freddie Mac, Life Company, Bank) mortgage loans?
- What mortgage loan programs does OMHHF offer?
- How is an FHA-insured mortgage loan priced? How is the interest rate determined?
- What will a typical FHA-insured mortgage loan transaction cost?
- How long should a typical FHA-insured mortgage loan process take from application through funding?
- What are the recourse provisions of an FHA-insured mortgage loan?
- Are there any particular ownership requirements for an FHA-insured mortgage loan?
- Can mezzanine or secondary financing be utilized together with an FHA-insured mortgage loan?
- Can an FHA-insured loan be assumed?
- Can an FHA-insured loan be pre-paid?
- Is an FHA-insured loan the best way for me to achieve my objectives?
Q: What is HUD/FHA? What does HUD/FHA do?
A: HUD is the Federal agency that works to help the Nation’s communities meet their development needs, spur economic growth in distressed neighborhoods, revitalize urban centers, provide housing assistance for the poor, help rehabilitate and develop moderate and low-cost housing, and enforce the Nation’s fair housing laws. (General information: www.hud.gov, specific Multifamily Program Information is available at: http://portal.hud.gov/hudportal/HUDsrc=/program_offices/housing/mfh ).
Congress created the Federal Housing Administration (FHA) in 1934, and in 1965 FHA was made a part of HUD’s Office of Housing. FHA brings liquidity to the housing market by providing mortgage insurance for loans made by FHA-approved Lenders throughout the United States and its territories. FHA insures mortgages for single family homes, multifamily developments, manufactured homes, healthcare (i.e.: nursing homes, hospitals) and, a variety of specialized housing (such as cooperative units and single room occupancy housing). FHA is the only government agency that operates entirely from its self-generated income. (The proceeds from the mortgage insurance and property examination fees paid by the homeowners and developers are captured in an account that is used to operate the program.) FHA and HUD have insured over 34 million home mortgages and 47,200 multifamily projects since 1934. Since 1959, over 7,000 Section 232 mortgage insurance commitments have been issued in all 50 states. Since the Section 242 program’s inception in 1968, over 400 mortgage insurance commitments have been issued for hospitals in 42 states and Puerto Rico.
Q: What is an FHA-insured mortgage loan?
A: FHA-insured mortgage loans are loans on real property (single family homes/apartments/healthcare facilities) that are insured by the FHA. FHA provides liquidity to the housing and healthcare markets by providing mortgage insurance on real property so that their respective mortgages are marketable and attractive to investors. FHA is not a Lender for most of its multifamily and healthcare programs. Instead, FHA accomplishes its mission (for most multifamily/healthcare assets) by approving selected Lenders that meet specific criteria with regard to capitalization, expertise, and successful experience in multifamily/healthcare lending. Following a rigorous underwriting and due diligence process, FHA may offer insurance for the loan proposed by the approved Lender for the mortgage secured by that asset. FHA mortgage insurance programs cover a large array of multifamily and healthcare assets – from market-rate, suburban, garden-style properties, to rent-subsidized properties, to market-rate, high-rise properties. FHA has the capacity to lend in all U.S. states and territories.
Q: What is the “MAP” Program/What is a “MAP” Lender?
A: “MAP” is an acronym for HUD’s “Multifamily Accelerated Processing” program, which is “…designed to establish national standards for approved Lenders to prepare, process, and submit loan applications for FHA insurance.” (HUD’s MAP Guide) To utilize the MAP Program a Lender must be an approved multifamily lender and, must be approved by HUD’s Office of Multifamily Housing Development specifically as a MAP Lender. Under the MAP process approved Lenders will perform a complete underwriting of a property, including: ordering and reviewing third party reports, performing architectural and cost reviews, mortgage credit reviews, and performing various management analyses.
Q: How does an FHA-insured mortgage loan differ from other (Fannie Mae, Freddie Mac, Life Company, Bank) mortgage loans?
A: FHA was legislated into existence to provide liquidity to the single family and multifamily markets in the United States and its territories. Like Fannie Mae and Freddie Mac (the “GSEs”), FHA ensures a continual market presence and market share by insuring mortgage loans every business day of the year…year in and year out. However, unlike Fannie Mae, FHA does not purchase loans from its approved Lenders. Instead, the combination of FHA mortgage insurance and a Ginnie Mae guarantee provides individual Lenders with a vast source of capital with which to make mortgage loans on an ongoing basis.
Unlike most bank construction loans, FHA construction loans combine both the construction and permanent portions into one loan. Also, unlike most bank loans, these loans are non-recourse to the Borrower (with some exceptions). Further, FHA construction/permanent loans do not have any threshold historic/current occupancy requirements prior to funding the permanent portion. FHA generally requires an Operating Deficit escrow – posted upfront – that provides the property with the required funding to work through the lease-up phase. Finally, the interest rate for an FHA loan is determined and locked prior to construction – thereby eliminating interest rate risk post construction.
Unlike most bank or life company Lenders, FHA can provide tax-exempt credit enhancements for specific housing initiatives. Further, unlike the GSEs (historically), a Ginnie Mae credit enhancement for an FHA insured loan is backed by the full faith and credit of the U.S. Government. Lending from FHA (unlike life company and bank lenders), will not insure for financing stand-alone retail, office, or industrial properties; however, FHA may choose to insure properties that contain small amounts of commercial space that are housed within a housing asset. Similar to life company Lenders, FHA programs have been established to accommodate almost any loan size. However, like Fannie Mae, FHA might be locationally/product restricted as to mortgage insurance that exceeds the statutory per unit limits that are periodically set by Congress.
Q: What mortgage loan programs does Oppenheimer offer?
A: Oppenheimer Multifamily Housing & Healthcare Finance, Inc. has the capacity and expertise to offer a wide array of FHA mortgage insurance programs for our Borrowers. Additionally, we have partnered with other Lenders to provide alternate financing options to meet the needs of our borrowers. The following list of programs provides an outline of information on the most requested programs sought by our clients.
Multifamily New Construction/Rehabilitation: FHA Sections: 220, 221(d)(4), 221(d)(3): Up to 40-year, fully amortizing, level payment, non-recourse, assumable, pre-payable loans plus, an interest-only construction period for up to 36 months (with interest payments capitalized into the loan). These programs generally require compliance with wages in accordance with the applicable Davis-Bacon Act regulations. HUD does not monitor or restrict rents or tenants by income for this program unless first restricted by overlying programs such as the LIHTC or Section 8 Rental Assistance programs. This program is eligible for MAP processing.
Streamlined Refinance: FHA Section 223(a) (7): Provides refinancing for properties already insured by HUD under the following Acts: 220, 221(d) (4), 221(D) (3), 223(F), 232, and 241(a). The program typically does not require market studies or appraisals; there may be a requirement for a limited environmental review, and a PCNA report and, a streamlined/modified mortgage credit review will be performed. This Program is MAP-eligible, and its limited processing regime provides for generally expedited processing.
Multifamily Acquisition/Refinance: FHA Section 223(f): Up to 35-year, fully amortizing, level payment, non-recourse, assumable, pre-payable loans. Eligibility requirements include a provision that the project must be at least three years old. HUD does not monitor or restrict rents or tenants by income for this program unless first restricted by overlying programs such as the LIHTC or Section 8 Rental Assistance programs. This Program is eligible for MAP processing.
Healthcare: New Construction/Substantial Rehabilitation: FHA Section 232: New construction, expansion, or substantial rehabilitation of intermediate care, board and care, residential care, assisted-living and, skilled nursing facilities. This Program does not permit financing for properties charging up-front (“Founders”-type) fees. Up to 40-year, fully amortizing, level payment, non-recourse, assumable, pre-payable loans, plus, an interest-only construction period for up to 36 months (with interest payments capitalized into the loan.) This program requires compliance with wages in accordance with applicable Davis-Bacon Act regulations. HUD does not monitor or restrict rents or tenants by income for this program.
Healthcare: Acquisition/Refinance: Section 232 Pursuant to 223(f): Financing for the acquisition or refinance of intermediate care, board and care, residential care, assisted living, and skilled nursing facilities. This Program does not permit financing for properties charging up-front (“Founders”-type) fees. No equity take-out is permitted. Up to 35-year, fully amortizing, level payment, non-recourse, assumable, pre-payable loans. Eligibility requirements include a provision that requires the property to be at least three years old. HUD does not monitor or restrict rents or tenants by income for this program.
Additional HUD Programs:
Section 202: Supportive Housing for the Elderly: This Program is a direct loan program from HUD that provides capital advances to developers (traditionally, private, not-for-profits) to finance the construction, rehabilitation, or acquisition of housing assets that will serve as supportive housing for very low income elderly persons, including the frail elderly. HUD encourages Lenders to refinance selected properties originally financed under this Program under the 223(f) Program.
Section 213: Cooperative Units: The Section 213 Mortgage Insurance for Cooperative Housing Program insures mortgage loans to facilitate the construction, acquisition, or rehabilitation of cooperative housing projects. These cooperative housing units may be detached, semi-detached, row, walk-up, or elevator-type housing projects consisting of five or more units. This Program is not eligible for MAP processing.
Section 231: Housing for the elderly: New Construction or substantial rehabilitation of rental housing specifically for the elderly or disabled.
Section 236/IRP Decoupling: The Section 236 program was designed to stimulate the production of new, or rehabilitated affordable, multifamily housing. The Program provides an interest rate subsidy that effectively lowers the rate of the HUD-insured mortgage made by a private Lender for the life of the loan (some properties also provide Section 8 rental assistance to the tenants). HUD-insured 236 properties are authorized to refinance using MAP processing under either the Section 221(d)(4) or Section 223(f) programs.
Section 241(a): Supplemental Loan Insurance: Section 241(a) insures mortgage loans to finance repairs, additions, and improvements to multifamily rental housing and healthcare facilities with FHA insured first mortgages or HUD-held mortgages. The 241(a) program is intended to keep the project competitive, extend its economic life, and to finance the replacement of obsolete equipment. Insured mortgages finance repairs, additions, and improvements to multifamily projects, group practice facilities, hospitals, or nursing homes already insured by HUD or held by HUD. Major movable equipment for insured nursing homes, group practice facilities, or hospitals may be covered by a mortgage under this Program. Contractors must comply with the prevailing wage requirements under the Davis-Bacon Act. Section 241(a) requires appropriated credit subsidy. This program is not eligible for MAP processing.
OAHP (f/k/a OMHAR): The Mark-to-Market program reduces currently subsidized rents on privately owned multifamily properties with Federally insured mortgages to market levels and, restructures the existing debt on these properties to sustainable levels based upon the new rents.
Other Lending Programs: Please refer to our loan program sheet on CMBS Conduit programs. We have partnered with other lenders to provide access to CMBS, FNMA, and Freddie Mac alternative financing.
Q: How is an FHA-insured mortgage loan priced? How is the interest rate determined?
A: FHA-insured mortgage loans are fixed rate, self-amortizing obligations. The loans are usually made with the backing of a Ginnie Mae security, which guarantees the timely payment of principal and interest to the investor with a pledge of the full faith and credit of the U.S. Government. The spread for a taxable mortgage loan will be an amount over the 10-year Treasury security that includes the investor’s spread as well as guarantee and servicing fees.
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Q: What will a typical FHA-insured mortgage loan transaction cost?
A: FHA transaction costs are generally broken down into categories corresponding to the various stages of processing and the various programs. Typically, a Borrower will pay for: third party reports such as a market study, an appraisal, a PCNA report, and an Environmental Phase I (and Phase II, if required), HUD Application and inspection fees, Ginnie Mae fees, the mortgage insurance premium, Oppenheimer placement and financing fees, and legal fees. Not all fees, expenses, and escrows are applicable to all program financings – please consult with your Oppenheimer sales professional for a definitive explanation of fees that are specific to your proposal. For further information, contact: Jim.Moore@OPCO.com.
Q: How long should a typical FHA-insured mortgage loan process take from application through funding?
A: The speed at which transactions are processed and closed depends, in large part, upon the timely responsiveness of the involved third parties (such as the appraiser/surveyor/attorney).
New Construction and Substantial Rehabilitation Programs – Multifamily Housing:
9-12 months if the development timetable matches with Oppenheimer/HUD timelines (e.g.: that plans, specifications, costs, and permits are ready at the time of HUD’s readiness to review).
New Construction and Substantial Rehabilitation Programs – Healthcare:
Please refer to HUD’s “LEAN” processing guidelines.
Acquisition/Refinance Program – Multifamily Housing:
Approximately 6-7 months from start to finish.
Acquisition/Refinance Program – Healthcare:
Please refer to HUD’s “LEAN” processing guidelines.
Q: What are the recourse provisions of an FHA-insured mortgage loan?
A: FHA mortgage loans are non-recourse to the Borrower, with the exception of (i) funds or property of the project that the Borrower is not entitled to retain by the provisions of the Regulatory Agreement; and (ii) for their own acts and deeds of others which the Borrower has authorized in violation of the provisions of the Regulatory Agreement.
Q: Are there any particular ownership requirements for an FHA-insured mortgage loan?
A: The owners of a property must have successful experience, adequate liquidity and net worth. The Borrower must (generally) be structured as a “single asset, single purpose” entity. Additionally: For Section 232 and 232 pursuant to 223(f): Borrowers are not eligible for HUD-insured financing for healthcare assets if they have been in bankruptcy within the past five years.
Q: Can mezzanine or secondary financing be utilized together with an FHA-insured mortgage loan?
A: Yes, approved, subordinate debt is allowed under various programs in limited amounts. Terms and conditions of such financing are dependent upon the program and upon its source (public or private). Contact your Oppenheimer representative for more information. For further information, please contact: Jim.Moore@OPCO.com.
Q: Can an FHA-insured loan be assumed?
A: FHA-insured mortgage loans are assumable with the consent of both HUD and the Lender. A fee may be charged to cover applicable costs.
Q: Can an FHA-insured loan be pre-paid?
A: FHA–insured loans are pre-payable based upon terms that are negotiated to meet the needs of the Borrower. Typically, a percentage of the unpaid principle balance may be prepaid during a year without a prepayment penalty.
Q: Is an FHA-insured loan the best way for me to achieve my objectives?
A: FHA-insured government lending, with a Ginnie Mae guarantee, offers Borrowers access to a complete source of capital to achieve their financial objectives, by helping to facilitate loans for the new construction, rehabilitation, acquisition, and refinance of multifamily and specified healthcare assets.
FHA-insured financing offers:
- Long-term, self-amortizing, fixed-rate financing
- Non-recourse debt
- Negotiated pre-payments, rather than defeasance or yield maintenance
- Mortgage interest rates priced at a rate correlated to Ginnie Mae’s full faith and credit of the U.S. Government
- Certainty of execution
- Constant market presence
FHA’s construction programs are competitive in structure and pricing; their streamlined refinances are quick and cost-advantageous. However, processing times for some of the FHA programs may be slower than those of the GSEs, banks or life companies; FHA’s ability to insure mortgages in high cost areas may be constrained by the mortgage-per-unit limits set by Congress; and finally, properties containing large, non-residential components may not fit into FHA’s currently-offered loan insurance programs.
“Oppenheimer Multifamily and Healthcare Finance, Inc. holds the mortgages for 6 Senior Citizen Buildings that are under the management of Christian Housing, Inc. Our buildings refinanced their HUD held mortgages with Oppenheimer in 2006. We have been very pleased with our experience. Barb Lenio has been our service representative for the last several years and her dedication and loyalty to us as clients has been excellent. Our buildings make monthly deposits to several escrow accounts that Oppenheimer manages. Ms. Lenio sends monthly reports to us directly on a prompt and timely basis for our reconciliation and financial closing process. Ms. Lenio also supplies us with updates on withdrawals throughout the month. If there is ever an issue it is resolved within the hour. Her awareness of the client’s needs and her prompt service has been a refreshing and extremely positive experience. She takes the time to get acquainted with her clients and forges business friendships that build a basis for trust and confidence in Oppenheimer.
With the recent reduction in interest rates since we initially refinanced, our buildings considered refinancing their current mortgages. Two representatives approached us very early on to discuss the possibilities. That is when I became acquainted with Frank Cassidy and Benny Anand. The A-7 refinancing process in the beginning was extremely complicated and could have unfavorable ramifications based on HUD’s outlines for this approach. Mr. Cassidy and Mr. Anand took the time to research the guidelines and keep us informed of every update as HUD presented them. Their demeanor was friendly and their knowledge of the issues was superior. Due to the low interest rates and the complications in refinancing under the A-7 program, Oppenheimer approached our six buildings about a Loan Modification that would lower our interest rate. We were impressed with Oppenheimer’s efforts to maintain us as clients and their assistance to us in fulfilling our mission to provide safe and affordable housing to low income elderly. Mr. Cassidy and Mr. Anand took the time to explain every detail and send us projections to assist us in making our decision. The process of modifying our loans has been made easy by the efficiency of Frank Cassidy and Benny Anand.
We would like to say thank you to Oppenheimer Multifamily Housing & Healthcare Finance, Inc. for a job well done and we are looking forward to a long business relationship in the future.”
Daniel K. Barbusio, Director of Property Management
Financial Agents for Christian Housing, Inc., Pittsburgh, Pa.