It’s been a busy 14 months for Chris Tawa, to say the least.

The senior advisor in HUD’s office of multifamily housing programs has helped to enact some major changes to the Federal Housing Administration (FHA), with many more on the way.

Tawa looked back on his short but eventful tenure at HUD while giving a preview of what borrowers can expect to see out of HUD in 2011, to kick off the AHF Live Conference in Chicago last week. A well-known veteran of the affordable housing industry, Tawa previously led Fannie Mae’s targeted affordable housing program in the 1990s, and most recently led MMA Financial’s affordable housing debt division.

In some ways, his tenure at HUD is a titanic clash of styles—a no-nonsense, results-oriented guy helping to transform a slow, infuriating bureaucracy. But if his first 14 months are any indication, the current administration will leave quite a mark at the agency as it refocuses on its core affordable housing mission.

Modernization is the overall theme of the changes under way. “You ask a staff member for a reference, and they pull out a three-ring binder with all these yellow pages, circa 1972,” Tawa said. “This is our current guidance. It’s like looking into the catacombs.”

A Look Ahead
One big change for 2011 will be the expansion of the Sec. 223(f) program to make it a better fit for rehabilitation deals. Currently, the program taps out at around $16,000 per unit in hard rehab costs, forcing many developers to go through the more time-consuming Sec. 221(d)(4) program if they want to do anything but a light rehab.

The revamped program will more closely model what’s in place at the government-sponsored enterprises, which allow for rehabs in the neighborhood of $45,000 per unit.

“I’m very enamored of the Freddie Mac Mod Rehab program, it’s going to look something like that,” Tawa said. “We’ll look at using it much more effectively as a tool for preservation, instead of forcing many transactions into the (d)(4) program just because they have rehab of a certain type.”

The FHA will also make some new rules around large loans in 2011, and the sense is that the agency will toughen up the criteria. Tawa said that there are 75 loans in process right now that are more than $75 million, and the agency is concerned about the single-point risk posed to the insurance fund by loans of that size.

By the end of this year, the FHA will publish a new underwriting guide, and early next year the agency will roll out new multifamily loan documents—the first such overhaul in 20 years. 

A Look Back
The FHA’s fiscal year 2010 ended September 30, and the final numbers are staggering. The agency saw a record $13.85 billion in closed loans last year—including a record $10.4 in rental housing—three times the total of 2009 and four times that of 2008.

The agency processed its largest refi ($125 million), and new construction transaction ($187 million) in its history this past fiscal year, both of which were for market-rate housing. Indeed, the FHA has become a lender of first resort for many in the market-rate space, but the agency is now refocusing on its core affordable housing mission.

The first initiative was the well-publicized change to the FHA’s underwriting of Sec. 221(d)(4) and 223(f) deals, “which had been operating for 40 years untouched,” Tawa said. The changes gave the most favorable terms to Sec. 8 rental assistance deals (1.11x debt service coverage ratios, and 90 percent loan-to-cost or value), while making it tougher on market-rate deals.

The FHA also initiated a new screening process for its network of lenders. In the past, a lender just had to do three refinancings, then was deemed qualified to make any type of FHA loan for any type of asset. “Nobody operates this way, and we’re not going to either,” he said. “We’re going to require that all lenders submit to qualifications and be tiered in different program areas depending on expertise.”

That new screening process should be in place in the first quarter.

In all, the FHA closed on 68 tax credit transactions in 2010, $446 million in activity, tripling the output of fiscal year 2009. While a good start, that’s still a drop in the bucket compared to the overall market. “To say that’s pretty sad is an understatement,” Tawa said. “What we’re trying to do now is clear the way to allow the FHA platform to be more usable for all of you in the affordable housing industry.”

Tax Credit Pilot
To speed up the agency’s notoriously slow processing times, the FHA will implement a pilot program that expedites the processing of tax credit transactions early next year.

Modeled on the agency’s LEAN program for health care deals, the pilot will put tax credit deals on the fast lane to closing. The FHA will form regional tax credit execution teams comprised of an appraiser, an underwriter and a credit person, which will streamline the process.

The program will start modestly, only for 9 percent transactions with real equity in them (not TCAP and exchange-driven deals), and only with certain lenders and in certain markets. “The core concept of this pilot is to get the staff out of the middle,” Tawa said. “You have able lenders with greater delegation that know how to underwrite, and an express lane to final commitment.”