The Federal Housing Administration (FHA) will start a new pilot program in the spring charged with getting affordable housing deals done much more quickly.

The Tax Credit Pilot Program was originally mandated more than three years ago by the Housing and Economic Recovery Act (HERA) of 2008. But a change in administrations, and several bureaucratic hold-ups, have delayed its implementation. The program, modeled on the LEAN program for healthcare loans, will expedite the processing of deals using low-income housing tax credits (LIHTCs).

The FHA has made many programmatic strides in its desire to do more LIHTC deals—essentially making its process and requirements more borrower-friendly over the past three years. The agency even included a chapter on tax credit deals for the first time in its latest revision of the Multifamily Accelerated Processing (MAP) guide.

But processing timelines remain the biggest problem for affordable housing developers, especially given the deadlines imposed by tax-credit financing.

“That’s the main challenge now, getting systems within each of the HUD offices to process efficiently,” says Mark Beisler, chairman and CEO of Columbus, Ohio-based MAP lender Red Mortgage Capital. “They view the pilot program as important and part of their mission, so that’s certainly high on the agenda. Tax credit deals should be a significant part of their production, and they recognize that.”

Given the aggressiveness and nimbleness of Community Reinvestment Act-motivated banks, the FHA hasn’t captured much of the LIHTC market in the past. But it’s making incremental gains. The agency processed about $560.5 million in firm commitments for LIHTC deals in 2011, a 35 percent increase from the $416.7 million it did the year before. That was nearly double the $224.1 million done in 2009.

A look inside the numbers also shows a greater focus on new construction or substantial rehabilitation deals using LIHTCs. In 2010, the FHA processed about $294.5 million worth of such deals, but last year that figure bumped up to $441.5 million.

The agency has also made more progress in putting the “U” back in “HUD” by financing more urban deals. In the past, the agency’s requirements and processing timelines truly made it the lender of last resort for more complex deals—such as a high-rise on a site with environmental issues—but that’s beginning to change.

“Five years ago, HUD would’ve never been thought of to do a deal in a downtown location,” Beisler says. “Now they’re stepping up and doing them consistently.”

Still, the numbers are a drop in the bucket compared to the overall affordable housing market. And though HUD’s leadership is staffed with people who have deep backgrounds in the LIHTC world, including Shaun Donovan, Carol Galante, and Chris Tawa, there remains a wide gap between good intentions and results. Transforming an agency like HUD is no small task.
In the absence of the Tax Credit Pilot Program, many lenders say that some FHA offices are expediting tax credit deals ad hoc. “We have definitely noticed a shift toward favoring affordable housing, and most offices are putting anything affordable at the top of their pipelines,” says Tim Leonhard, managing director of affordable housing debt at MAP lender Oak Grove Capital. “They have the ability to be incredibly competitive, but until they can centralize underwriting and origination, which would facilitate more timely closing, they’re never going to be competitive from a time perspective.”