Landmark Legislation Creates FHA LIHTC Pilot Program

MBA (7/29/2008 ) Murray, Michael
President Bush's expected signature this week on landmark housing legislation will create a new pilot program for the Federal Housing Administration to help expand and streamline the mortgage insurance programs with low-income housing tax credits.
“There are several ways that this legislation helps make financing of tax credit assisted properties more available through FHA,” said Cheryl Malloy, senior vice president at the Mortgage Bankers Association.

Chief underwriters would review applications under the streamlined processing pilot program for all LIHTC loans instead of processing functions that would otherwise be performed by other employees.

Under the legislation, the HUD secretary must issue instructions for implementing the pilot program within 180 days, or before February 1, 2009.

The legislation exempts tax credit transactions from cost certification requirements if the estimate of the loan proceeds to actual cost ratio—at firm commitment—is less than 80 percent. It exempts tax credit properties from periodic inspections by the mortgagee, provided the agency allocating tax credits performs periodic inspections.

“The new legislation would eliminate several unnecessary processing steps, including a HUD subsidy layering review by providing that FHA insurance is not a subsidy,” Malloy said.

The legislation also prohibits HUD from requiring the escrowing of tax credit equity or any other form of security, such as a letter of credit.

“It requires the [HUD] secretary to determine whether any compliance monitoring by the allocating agency is sufficient to ensure compliance with any HUD requirements and, if so, to accept the agency’s evidence of compliance,” Malloy said.

In addition, the HUD secretary could not increase current multifamily mortgage insurance premiums until at least October 1, 2009, unless increased premiums would be necessary to prevent programs from requiring a credit subsidy appropriation.