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HUD embraces regulatory flexibility to encourage preservation of affordable rental housing

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HUD’s Office of Multifamily Housing recently issued guidance to create regulatory flexibility and encourage preservation of existing affordable multifamily properties. In two memos, Deputy Assistant Secretary (DAS) Ben Metcalf authorized changes in HUD rules which will ease the burden on property owners trying to recapitalize aging assisted properties and maintain their long-term affordability. The National Housing Trust commends HUD for initiating these changes.

What is a property really worth? This issue inevitably arises in preservation transactions. To help answer that question, on Aug. 7, Metcalf issued a memorandum allowing HUD field offices to accept a lender’s Multifamily Accelerated Processing (MAP) appraisal in lieu of a rent comparability study (RCS) for Mark-Up-to-Market transactions. Previously, HUD required an independent third-party appraiser to prepare RCS for both insured and uninsured properties. Now, Hub Directors may issue waivers allowing for the use of a lender ordered MAP appraisal that will serve a dual purpose, as an RCS and for use in underwriting an application for HUD mortgage insurance. The possibility of using one appraisal for two purposes reduces redundancy and promotes efficiency in the Mark-Up-to-Market process.
Until recently, developers seeking Section 8 waivers had to queue up at the end of a long line of waiver supplicants at HUD Headquarters. On Aug. 28, Metcalf remedied this by issuing a memorandum indicating that Hub Directors could consider such waivers, and providing additional flexibility in the following areas:
The current prohibition on for-profit participation in Section 8 preservation efforts may be waived with evidence that the proposed for-profit owner has the experience and capacity to rehabilitate and manage the property.
  1. The requirement to lower the comparable market rents in the RCS to reflect any use restriction on the rents that can be charged may be set aside if the project’s underwriting calls for market rents, in order to facilitate the long-term preservation of the project.
  2. The requisite that post-rehabilitation rents for substantial rehabilitation may be effective only after the rehabilitation is complete may be disregarded with confirmation that the lender requires full debt service at closing.
  3. The ban on the early termination of the original, pre-MAHRA renewal contract may be waived if the owner is willing to renew the contract for 20 years and accept the terms of the preservation agreement.
  4. The condition that a property must score 60 or higher on its REAC physical inspection in order to qualify for renewal under Mark-Up-to-Market may not be insisted upon if HUD agrees that the proposed scope of work will rectify the deficiencies identified in the inspection.

The opportunity to use these waivers gives current and prospective owners of affordable rental properties greater flexibility in their preservation transactions. HUD’s regulatory actions encourage owners to commit to preserving their valuable assets as affordable housing for the long term. We hope that HUD will continue to cut red tape to help facilitate preservation.

Ellen Lurie Hoffman serves as Federal Policy Director at the National Housing Trust, where she is responsible for federal housing policy spanning the HUD budget, potential reform of Fannie Mae and Freddie Mac, and maintaining and improving the Low Income Housing Tax Credit.
The National Housing Trust is the only national nonprofit engaged in housing preservation through public policy advocacy, real estate development, and lending.
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