WASHINGTON, DC – August 4, 2010 – (RealEstateRama) — Sen. Charles E. Schumer (D-NY) introduced legislation today that would increase the access to Federal Housing Administration (FHA) loan guarantees for mutli-family housing developments, by raising the cost per unit that FHA will insure for high-cost areas like New York. Previous caps on FHA per unit loan guarantees were so limiting that from 2006-2007 only 3 high-rise multi-family development projects were insured by FHA. The Schumer legislation would increase the per unit limit for the FHA Multifamily Loan Program.
“Cities like New York have been losing out for too long on FHA backed loan guarantees for the construction of multi-family housing, because development costs are much higher in major metropolitan areas than they are in the rest of the country,” said Schumer. “My legislation will give the HUD Secretary the ability to raise the cap to better reflect the realities of construction costs in New York.”
FHA Multifamily Loan program has had limited success in promoting the construction of new rental housing units because the maximum loan size for this category is so small compared to the average construction costs in urban areas. It has become increasingly difficult for cities like New York to secure affordable financing for multifamily rental development and rehabilitation, at a time when affordable rental housing is needed the most by Americans who are unable to afford a home of their own.
Schumer’s legislation would provide the Secretary of HUD the authority to designate “High Cost Areas” and “Extremely High Cost Areas” categories for FHA Multifamily Insurance. This authority already exists for certain States and territories including Alaska, Hawaii, Guam, and the Virgin Islands. The legislation requires that FHA economists vet the credit eligibility before insuring a multifamily loan. As a result, this legislation does not alter underwriting criteria or weaken taxpayer protections. Rather, it is intended to give high cost cities the same access to FHA Multifamily Insurance that regions with lower cost markets already utilize.
The cost of construction for a New York City high-rise building typically exceeds current loan guarantee limits set by FHA, making the program nearly irrelevant to New York City. Current FHA loan limits are capped at $214,421 per unit for high cost areas, yet the average cost per unit in New York City is $419,000. The Schumer legislation would give the HUD Secretary the authority to adjust the per unit limit to provide New York City with a greater opportunity to build multi-family housing units.
The legislation would also increase the premium allowed for construction or rehabilitation of rental high rise buildings with elevators, as compared to buildings without elevators, from 10% to 50%, in line with actual construction cost differentials.
The program is completely funded by its own insurance premiums so this legislation would not incur any additional cost to the federal government.
