The Federal Housing Administration is notorious for taking its time when processing loan applications. Adding to that timeline these days is the National Loan Committee (NLC), which reviews deals from regional offices before giving them the final seal of approval. Any new Sec. 221(d)(4) market-rate deal that’s more than 150 units, or more than $15 million, must go to the NLC.
The committee started in September, and as of early January, about 41 loans had been reviewed. So far, only one deal had been rejected outright, while three others were sent back for more information.
This new extra layer of review and approval has slowed down the agency’s processing times, especially given the deluge of deals that have come its way. Another concern expressed by lenders is that there’s little predictability regarding the outcome when the committee reviews a loan.
An expanded mortgage credit review process has also slowed things down. Last year, the FHA expanded the definition of a principal to include anyone serving on a company’s board, and that has proven to be a somewhat intrusive process. Now, lenders have to gather the social security numbers, run credit checks and get Previous Participation clearance (known as the 2530 process) for every member of a company’s board.
The FHA will also propose some rules this year regarding large loans, and is already testing out some of these rules to lay the groundwork. The agency is concerned about the risks posed by larger transactions—in November, it had a pipeline of 75 loans of more than $75 million.
One rule already in place that’s impacting large loans is the 18-month absorption requirement for (d)(4) deals. In the past, developers had two years. Many developers are now reconsidering the size of their projects in light of the new requirement, sometimes proposing two 150-unit phases instead of one 300-unit deal, for instance.
“My perception is, the FHA doesn’t believe it should be in the A-quality market, they believe the conventional market can serve that need,” says Phil Melton, a senior vice president at FHA lender Charlotte, N.C.-based Grandbridge Real Estate Capital. “They’re not going to turn away good deals, but they believe they shouldn’t be the main provider of that kind of financing, especially on a non-recourse basis. They’ve stepped into the void the last couple of years because that’s what was needed for the economy, but that’s not a long term thing.”