Faith in FHA Quick Loans |
|
When the proposal for cutting the mortgage insurance premium (MIP) for new construction/rehabilitation projects to 45 points for the fiscal year 2005 was made, Federal Housing Administration (FHA) officials at the mortgage bankers association multi-family conference were given a standing ovation. Confidence in FHA apartment financing is nearly at its highest. The fiscal year 2003 saw a record number of FHA financed loans and lender volume projections for 2004 are promising across the board.
In the recent years, FHA overcame the credit subsidy problem, proving its recognition in underwriting inefficiencies that hampered many pending deals. An example is a new policy developed for setting the MIP to enable programs to break even, allowing for the uninterrupted continuation of the Sec. 221 (d) (4) program since October 2002. At the start of the policy in 2002, the MIP was at 80 basis points. In January 2004, the MIP was reduced to 50 basis points. FHA Devotions Toward Customers The five basis point changes, though not affecting production volumes significantly, indicate the stability and health of the market for FHA-financed loans. Its importance is high. The tremendous lowering is less important than the psychological effect. With plenty at stake in reputation, FHA's record-breaking volumes for multifamily financing are indicative of its health. Overall $7.36 billion in multifamily loans were insured in 2003, marking an $86 million increase. $2.5 billion of the total was for new construction. Some lenders believe permanent loan rates will remain low due to soft or recuperating markets. The expectation is that it will hover around 4.4% over the 10-year Treasury bond until mid-year at least. Many predict the production of more loans in 2004 or at least maintaining of current loan production volumes. Fiscal 2004 is expected to be strong, but a slowdown is possible after the quick and easy production of Sec. 223(a)(7) refinance loans. KeyBank Real Estate Capital is also breaking into FHA. Over 2003, roughly $100 million in FHA loans was produced. In 2004, the expected figure is $250 million. FHA is returning with more user-friendliness and as a one stop, one fee program. Most FHA offices are now capable of multifamily accelerated processing (MAP) deals. A new construction deal now takes four to six months instead of a year. Softness in the market continues. But some rehabilitation deals are not as susceptible to vacancy rates. The updated indexing of FHA mortgage limits and help with debt-service coverage restraints was welcomed. Larger loans mean real money. The MAP program is a success with GMACCM totaling $346.8 million in FHA multifamily loans. The restraints had limited FHA insuring to only $4 billion a year. GMACCM's FHA production is to remain steady in 2004. This optimism has lured other lenders to join in. New lenders making their entry include ARCS commercial mortgage, LP and Wachovia Corp. Last year, ARCS created a new FHA multifamily division. The advantages of FHA multifamily financing more than offsets the demands and processes, with higher loan-to-cost ratios, lower fixed-interest rates and longer amortization terms. A record breaking 110% increase in total loan production has spurred Collateral Mortgage Capital, LLC to aim for the top 10 FHA lenders. Starting two years ago, it is building its FHA team with a recent expansion of its Midwest offices. Questions About The Future With FHA's high performance mortgage programs were demonstrated as a viable option for rental housing production demands. This has led to efforts at more flexible financing alternatives to compete with Fannie Mae and Freddie Mac. Some critics however are not impressed. Late last year, FHA proposed low-floater bond financing to supplement fixed-rate bond and taxable mortgage-backed securities programs. It offered a revision of its MAP guide for guidance in using variable-rate financing with FHA insurance. Industry experts are of the view that the proposal, despite being in the right direction, would not offer any of the benefits of either a long-term low-floater or a credit-enhanced swap transaction. Criticism centered on its limitation to construction and lease-up periods and construction-period interest rates being set at the longer-term fixed-rate market level. Though commendable that FHA made the attempt, it has not been quite adequate. The low-floater proposal is likely to be ready by spring for your acceptance and analysis. |
