Albany, NY – April 30, 2009 – (RealEstateRama) — Governor David A. Paterson today sent a letter to the members of the New York State Congressional Delegation, urging them to bolster New York’s affordable housing efforts by supporting an increase in the multifamily mortgage loan limits used by the Federal Housing Administration (FHA) in high-cost areas. FHA-insured mortgages provide valuable access to credit in today’s tight credit market, thus encouraging rehabilitation and construction of affordable multifamily housing. Increased limits would enable new construction and/or rehabilitation of existing housing, which holds the potential to stabilize neighborhoods being devastated by foreclosures.
“This is a natural complement to our current economic recovery efforts,” said Governor Paterson. “A revision of FHA loan limits to remedy the effective lock out that unrealistically low limits in high-cost areas have created would provide an economic stimulus in the form of construction and community development, generating jobs and demand for materials and supplementing tax bases in our communities. And, because FHA operates from self-generated income, higher loan limits cost taxpayers nothing.”
Mortgage insurance provides a financial guaranty that insures lenders against loss in the event a borrower defaults on a mortgage. If the borrower defaults and the lender takes title to the property, the mortgage insurer reduces or eliminates the loss to the lender. Banks, who are particularly risk averse in this economy, won’t lend to projects if their mortgage insurance coverage is less than the investment
“I hope that my colleagues in Washington will partner to advance a prompt legislative solution to this problem,” Governor Paterson added. “Our nation’s high-cost metropolitan areas, where affordable housing is most in demand, should have equal access to FHA multifamily mortgage insurance, which has provided multifamily lenders and owners with the ability and the incentives to create tens of thousands of rental projects which otherwise may not have existed.”
The full text of the letter is below.
###April 30, 2009
Dear New York Delegation Member:
I write to ask you to partner with your fellow delegation members to lead the charge in finding a timely legislative solution to an impediment to New York State’s affordable housing efforts. Current loan limits for multifamily mortgages insured by the Federal Housing Administration (FHA) fail to adequately reflect expenses in high-cost areas, rendering FHA multifamily mortgage insurance useless in the New York metropolitan area and numerous other population centers nationwide. Resolution of this longstanding problem could have the two-fold benefit of bolstering the affordable housing supply in our nation’s most unaffordable and densely populated cities and leveraging private investment dollars to provide vital further stimulus to our economy.
Nationwide, there are many areas in which the current maximum loan limits for construction or rehabilitation of multifamily housing projects do not adequately reflect land costs, environmental, health, and safety regulatory costs, and other factors. Mortgage insurance provides a financial guaranty that insures lenders against loss in the event a borrower defaults. Banks, which are particularly risk averse in the current economy, won’t finance projects where mortgage insurance is less than the investment. Because of the unrealistically low current FHA loan limits, areas where most of our nation’s population are in need of affordable housing are disproportionately deprived of the federal government’s support.
In the past, the practical unavailability of FHA loans in high-cost areas forced developers to obtain more costly financing from conventional lenders. However, sources of private lending are extremely limited in the tight credit markets caused by the current economic crisis – creating a new exigency for FHA to play its intended role in the areas it can have the most impact.
I urge the New York congressional delegation to work together to craft legislation raising loan limits for FHA-insured multifamily mortgages in our nation’s high-cost areas to a level adequate to reverse the dramatic decrease in FHA multifamily loan activity in recent years and incentivize the continued construction and rehabilitation of multifamily housing at this crucial time. I believe that this will allow the FHA to have its intended reach and serve Americans in our metropolitan economic engines on par with their fellow citizens in low-cost areas.
I look forward to partnering with you to see this much-needed adjustment enacted.
Sincerely,
Governor David A. Paterson
###
