In the 1980 classic movie, The Blues Brothers claimed they were on a mission from God.
While it may not be as divinely-inspired as Jake’s and Elwood’s cause, HUD has a mission too, but it’s quite lofty if you are searching for capital for multifamily housing projects and coming up short.
HUD’s mortgage insurance programs are designed to provide a stable, steady source of affordable capital for multifamily housing in both good economic times and bad, especially during the latter, when other capital sources become prohibitively expensive, or harder to access because of tightened underwriting requirements.
We’ve all seen the impact that higher interest rates and economic uncertainty have had on conventional multifamily lending sources: lower loan-to-value and loan-to-cost ratios, and higher debt service coverage ratios. And like their conventional lending counterparts, Fannie Mae and Freddie Mac lenders also have followed suit with tighter requirements or have temporarily exited the market.
However, HUD’s mission to provide stable and predictable access to capital keeps its underwriting metrics constant – and consistently more favorable than its competition.
Loan-to-value ratios for the Section 223(f) acquisition/refinancing program range from 80% (cash-out) to 90%, unlike conventional, life-insurance company and Fannie/Freddie loans that are currently in the 65% – 70% neighborhood.
The Section 221(d)(4) new construction program offers an 85% loan-to-cost ratio – what bank does that? Fannie Mae and Freddie Mac hardly venture into construction financing.
HUD debt service coverage ratios range from 1.11 to 1.176, significantly below the 1.30 – 1.40 yardstick used by other lenders.
HUD’s long terms and fully amortizing features – up to 35 or 40 years – also are better than typical conventional or Fannie/Freddie terms.
While non-HUD lenders may take less time than HUD to complete a deal, they are not always in the market, and they typically don’t offer as favorable underwriting terms.
To paraphrase Jake and Elwood Blues: Sims Mortgage Funding is on a mission – from HUD!
