HUD Removes $25M Loan Cap for Projects in LIHTC Pilot Program

HUD’s Office of Multifamily Housing Programs recently issued a memo, which removes the $25 million loan cap for the LIHTC Pilot Program. The pilot program streamlines processing for new construction [Section 221(d)(4)] and substantial rehabilitation [Section 220] transactions. HUD is lifting the cap on FHA loans to better align and incentivize borrowers and lenders to use the new pilot program. This change is in alignment with HUD'S strategic goal to increase the supply of affordable rental housing. All other eligibility and processing requirements for the pilot program specified in HN 2019-03 remain the same.

One level deeper: The goal of the LIHTC pilot program is to ensure faster and more efficient processing by eliminating redundant reviews. The pilot program introduced two modified processing tracks for Section 221(d)(4) and Section 220 new construction and substantial rehabilitation projects:

• Expedited Approval Process track (30 days from application submission to commitment, targeted 60 days from commitment to closing)
• Standard Approval Process track (60 days from application to commitment, targeted 60 days from commitment to loan closing)

HUD’s average processing time for its LIHTC construction loans is 90 days. There are three types of transactions eligible for the new pilot program:

• New construction 9 percent LIHTC transactions with at least 90 percent of the units restricted to LIHTC rents and the achievable LIHTC rents are at least 10 percent below comparable market rents for each unit type.
• Substantial rehabilitation developments with 9 percent or 4 percent LIHTCs with project-based Section 8 contracts covering at least 90 percent of the units. These developments must have a 20-year housing assistance payment (HAP) contract in place at closing.
• Substantial rehabilitation projects without Section 8 assistance that are being resyndicated with 9 percent or 4 percent LIHTCs and have at least 90 percent of the units restricted to LIHTC rents. For these sites, the achievable LIHTC rents are at least 10 percent below comparable market rents for each unit type. These sites must demonstrate sustained occupancy, which HUD defines as maintaining an occupancy of at least 85 percent, and a qualifying debt coverage ratio for the six months before filing an application.

To qualify for expedited approval processing, the loan-to-cost ratio on new construction 9 percent LIHTC developments cannot exceed 65 percent of mortgageable costs. For substantial rehabilitations of properties with at least 90 percent HAP units, the loan-to-cost ratio is increased to 75 percent. This limit applies to both 4 percent and 9 percent transactions.