Tax credit developers are increasingly turning to the Federal Housing Administration (FHA) as they get set to ramp up long-dormant projects.

Last summer, the FHA made several major changes to the way it approaches tax credit deals, eliminating some very onerous hurdles. For instance, in the past, 100 percent of a project’s equity had to be deposited in cash before the closing of the construction loan, which severely limited a tax credit investor’s cash flow and ultimately alienated tax credit deals. Now, only 20 percent is required.

The long overdue change was applauded by the affordable housing industry but suffered from bad timing, coming as it did during the equity market’s free fall. But FHA lenders are now beginning to see the effects of the Tax Credit Assistance Program enacted through the American Recovery and Reinvestment Act.

Lancaster Pollard has a pipeline of 15 tax credit deals looking at the Sec. 221(d)(4) new construction/substantial rehabilitation program, up from just four deals in process six months ago. “Now that we’re starting to see exchange funds become a little more formalized and a queue developing of projects that believe they’re going to get the money, demand for 221(d)(4) is starting to pick up,” says Nick Gesue, a senior vice president at the Columbus, Ohio-based lender. “A lot of people are dusting off the deals that have been on the shelf for 18 months.”

The FHA will also soon release guidance providing examples of the 20 percent upfront requirement for equity pay-in to clarify that it is 20 percent of the equity required by HUD, not the entire tax credit equity. And the FHA will also soon release regulations that would allow historic tax credits and New Markets Tax Credits to use the same equity pay-in as low-income housing tax credits, according to the Mortgage Bankers Association.

For new construction capital, the FHA is still practically the only game in town. And the agency is exploring ways to expand its pipeline by possibly raising its per-unit cost limits, a roadblock to building in high-cost areas. The FHA is even considering allowing development on brownfield sites, which it has historically prohibited. What’s more, many affordable investors are taking advantage of the FHA’s flagship refinancing program, Sec. 223(f). —Jerry Ascierto