The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury recently announced new actions to provide more interest rate certainty for state and local Housing Finance Agencies (HFAs) that use the Federal Housing Administration’s (FHA) risk sharing initiative with the Federal Financing Bank to finance new construction of affordable housing, according to a HUD press release.
HUD Acting Secretary Adrianne Todman underscored these new announcements during a press conference Aug. 13 in Milwaukee, WI.
“Let’s face it, we don’t have enough affordable homes. Here at HUD, we are making changes to build new, quality, affordable homes like never before,” Todman said in the release. “Alongside our colleagues at the Department of the Treasury, we are announcing a crucial move that will enable our partners to use our financing to build tens of thousands more rental homes for the families we serve.”
FHA and the Federal Financing Bank will implement a floor and a cap, called an interest rate “collar,” on the benchmark Treasury rate used to calculate the all-in rate provided to Housing Finance Agencies. This update to the Section 542(c) Housing Finance Agency Risk-Sharing Initiative will make it easier to use the program, thereby increasing the number of new, affordable multifamily properties that can be developed using risk-sharing program financing, HUD stated.
“The Biden-Harris administration knows the key to reversing the affordable housing crunch is to take actions that increase housing supply. The Treasury-HUD rate collar initiative will help reduce the cost to construct more affordable housing that is so urgently needed in neighborhoods across the country,” U.S. Deputy Secretary of the Treasury Wally Adeyemo said. “Treasury will continue to do everything in our power to make housing more affordable for Americans and unlock greater economic prosperity.”
The interest rate collar will be available for Housing Finance Agency-originated mortgages used to finance new construction or substantial rehabilitation of multifamily affordable housing for low-income individuals and families. It will be provided when an application for FHA-insured mortgage financing is conditionally endorsed by FHA. The final pass-through interest rate for the transaction upon completion of construction will be calculated using the floor and cap benchmark Treasury rates referenced above and programmatic spreads determined by the Federal Financing Bank.
“This innovative solution to rate uncertainty will increase the usefulness and reach of a program that has already developed thousands of new rental homes through collaboration among federal, state, and local housing resources,” Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said. “It is one of many levers we’re turning to increase production of affordable rental housing for low-income individuals and families.”
“We believe this important update to the risk-sharing initiative will not only increase the creation of new, deeply affordable housing for the nation’s low-income families, it will also provide additional flexibility that will make the program usable by more state and local HFAs and their borrowers,” Deputy Assistant Secretary for Multifamily Housing Programs Ethan Handelman said. “This change has long been sought by HFAs, and we’re pleased to add it to the program enhancements we’ve implemented under the Biden-Harris administration.”