Bedford Lending

Some big pending HUD multifamily changes planned over the next 6 months.

12 Aug 2022 General HUD
HUD's multifamily programs remain evergreen and have the same fundamental strengths today that they have had in years past, however recently lenders and HUD Washington have had productive discussions about changing some underwriting policies to further incentivize borrowers to use HUD financing. The proposed changes reflect a welcome approach from policy makers and many will go into effect by year end. A few of the most notable changes are detailed below:

  • Perhaps most intriguing is the proposed change in surplus cash distribution limits. Right now, surplus cash (profit) can only be pulled from operations twice a year on any HUD multifamily loan. While HUD has not issued a final determination, it is believed this will be increased to quarterly or perhaps monthly distributions, with the final determination to be released in September 2022.
  • HUD is also working on changes to their "statutory limit" policy, which presently inhibits high value assets from qualifying for financing. Essentially, HUD has a ceiling on what they will lend on a per unit basis (i.e. $300,000 per one bedroom unit, $400,000 per two bedroom unit, etc), which in some markets or scenarios can effectuate very low loan to values. This statutory change requires congressional approval but there is substantial support amongst all parties to make it happen.
  • Similarly HUD is amending the loan amounts that trigger the need for a Regional and National Loan Committee. This should help speed up the process for larger loan requests and the change is imminently pending at time of writing.
  • Lastly, HUD 221(d)(4) construction/rehab loans can be particularly challenging in economic climates like today, as the construction budget delineated prior to closing has to be adhered to throughout a 12-24 month construction process. With inflation and supply chain issues, it can be extremely challenging for borrowers and general contractors to hold the same pricing during construction, even with certain contingencies HUD has in place. Lenders are now in active discussion with HUD to put together a process to increase the loan amount during construction - if needed - to cover cost increases which would be a wholesale change to the 221(d)(4) program. This change is a little further off as it requires some substantial collaboration and policy work, but is again representative of HUD looking to be more flexible in the future.