Yogi Berra, baseball Hall-of-Famer and sometime philosopher, is said to have once remarked, “it’s déjà vu all over again”. If Yogi was alive today and made that comment, he could have easily been referring to the current low-interest rate environment, similar to what we experienced during the Great Recession of 2008, that has led to a New Wave of HUD-insured refinancing transactions.
Powered by yields on 10-Year US Treasury notes that have been in the .60% to .75% range, interest rates for HUD-insured refinancing loans recently have been as low as 2.10%, with construction-to-permanent loan rates under 3.00%. This in turn has sparked a wave of refinancing of existing HUD-insured multifamily and healthcare loans though HUD’s expedited-review Section 223(a)(7) program and the even more streamlined Note Modification/Interest Rate Reduction protocol. Through the third quarter of Fiscal Year 2020, which ended on June 30, HUD issued approximately $3.6 billion in Section 223(a)(7) mortgage insurance commitments for 234 multifamily and healthcare projects. Multifamily dominated the landscape, with 78% of the total projects.
The Section 223(f) program is available for projects that are not in HUD’s portfolio but are looking to capitalize on low, fixed interest rates and, non-recourse, 35-year amortizing debt. Moreover, the 223(f) program allows a “cash-out” option for multifamily loans underwritten at 80% loan-to-value. Hear that, commercial lenders? HUD Section 223(f) multifamily business has dramatically increased through June 30, with approximately $7 billion in commitments issued for 376 projects. In the healthcare/LEAN space, HUD issued about $2.3 billion in Section 223(f) commitments through June 30 for 182 projects.
Please note that HUD-insured refinancing loans for healthcare facilities do not allow cashing out of equity, but with a “bridge-to-HUD” lender at the front end and Sims Mortgage Funding at the end of the bridge, borrowers can take out equity in a two-step, but seamless, fashion. Contact us for more details. No one can predict how long interest rates will stay at these attractive levels, and the outcome of the upcoming Presidential election is certain to affect the capital markets – but which way? Yogi also is reported to have said, “it is getting late, early”. We think he meant that it is best to take advantage of favorable market conditions for HUD-insured loans while the going is good.
