Finance Roll

For many affordable housing developers, the Federal Housing Administration (FHA) is more representative of bureaucratic red tape than effective housing support. Though the FHA is legally allowed to insure tax credit-based financing for housing projects, its administrative processes are often too cumbersome to be beneficial. As a result, developers avoid the department altogether, leaving millions of dollars in potential funding on the table. In an effort to address those issues, the FHA is rolling out a tax credit pilot program this spring.

The program's goal is to eliminate redundancies and speed up processing times for LIHTC applications. This will be achieved primarily through the appointing of a Designated Underwriter (DU) in each FHA field office. Currently, LIHTC applications are reviewed by several people - each of whom is responsible for a different part of the application - and approval can take 8 months or longer. The ad hoc process means a housing developer may receive approval from one reviewer, only to hear from someone else a week or two later that there are problems. It creates a tremendous amount of uncertainty. In addition, affordable housing developers often operate under tight time frames, having to secure building and financing approval by specific deadlines or risk losing tax credits and other mechanisms used to fund their projects.

While underwriting standards will remain the same, the pilot program implements a new application submission process that includes not only the Designated Underwriters, but also a Designated Asset Management Point of Contact (POC). The POC will work out of the U.S. Department of Housing and Urban Development (HUD) Office headquarters in Washington, D.C., and oversee the field office Asset Management staff.

Under the Pilot Program, applications will be "one stage, Direct-to-Firm," meaning the DU will be the only one who reviews the applications (with the exception of the environmental portion) and grants approval.

Over the last two years, the FHA has worked diligently to streamline its process and capture more of the LIHTC market. In 2009, it processed just under $225 million in LIHTC commitments. In 2011, that amount more than doubled to over $550 million. In addition, the FHA is investing in more rehabilitation projects. Despite improvements, however, the FHA is still having trouble keeping pace with demand. In 2011, it hit a new record for multi-family housing development funding - over $12 billion.

The sharp increase in demand means the FHA is under pressure to make its systems and processes even more efficient. The good news, however, is that - even with application delays - an increasing number of developers see the FHA as a viable funding option for housing projects.

The Tax Credit Pilot Program was mandated by the Housing and Economic Recovery Act of 2008 (HERA), and officially launched via Public Notice H 2012-1 on February 3rd. of this year. The FHA has said it will be fully up and running by spring. If results are good, the FHA is likely to expand the program and lobby Congress to fund it permanently.