The Federal Housing Administration (FHA) has announced a new pilot program that aims to improve financing for projects included in the Low Income Housing Tax Credit (LIHTC) Program. Set to launch first in Chicago, Boston, Detroit and Los Angeles, the program initiative hopes to accelerate the approval process for purchasing or refinancing a multi-family LIHTC rental property.
By choosing to launch its program in real estate markets like Chicago, the FHA’s Office of Multi-Family Housing Programs trusts that it will significantly reduce the time it takes to review and approve financing for LIHTC-assisted transactions. Currently, these transactions take about one year; the FHA believes they can cut it to as little as 90 days in some cases.
Expediting the FHA review and approval time is imperative. Doing so will help align FHA-insured financing with more stringent LIHTC Program standards – like the necessity of meeting strict time deadlines. Failure to meet bond closing, or other performance deadlines, may result in forfeit of the credit allocation. At worst, it can affect a borrower’s ability to secure tax credits for future transactions.
Marie Head, Deputy Assistant Secretary for Multi-Family Housing with the U.S. Department of Housing and Urban Development (HUD), believes that success within each of the hub markets – hastening the approval process for low risk LIHTC – will lead to increased production of affordable rental projects throughout the U.S.
According to the Housing and Economic Recovery Act of 2008, the FHA has to streamline mortgage insurance applications for any project with equity from the LIHTC Program. Last year the FHA sanctioned almost $561 million in firm commitments for LIHTC projects – almost 35% more than in 2010. Supporters of the new initiative are confident that the pilot program will increase these numbers even more.
The first phase of the new pilot program provides permanent financing on low-risk transactions. This will allow the FHA to streamline its review process without increasing risk. Applications for permanent financing will be accepted for Chicago new construction properties that were recently occupied, for reasonable remodeling of properties with Section 8 rental assistance or for older, stabilized tax credit properties.
The Chicago real estate market is rising and with this new program, local housing will become readily available for all who need it. Because even the simplest Chicago property can be someone’s dream home.
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