Last year, the General Accounting Office ranked the U.S. Department of Housing and Urban Development (HUD) as the second most effective and improved agency in the government. But despite this accomplishment, HUD Secretary Mel Martinez walked into an office that was riddled with inefficiencies and problems.

When Martinez was sworn in on Jan. 24, many people said things like, "Wow, good luck," and "You're taking on a difficult task," he recounts. "I know from my own experience in local government that doing business with HUD did not immediately bring to mind a vision of a well-oiled machine that was going to be timely, responsive and so forth. The first thing we're going to do is turn that around."

Martinez wants the industry's perception of HUD to change. "One thing I can guarantee is that we're listening and we want to hear from the private sector," says Martinez. While his 11 predecessors probably had similar ambitions, some might say that nothing but the carpet has changed at HUD. But, Martinez would like to stop that way of thinking. Not only is HUD faced with administrative problems, but about 50 percent of its work force is approaching retirement age. "It's a tremendous opportunity to bring in the work force of the 21st century," he says. "People who will have different training, different ideas, who will come from the electronic age and who will have new thoughts on how we [can] improve things here."

Tera in Kirkland, Wash., is a 161-unit community owned by Seco Development. Pinnacle has managed the property since July 1999.
Tera in Kirkland, Wash., is a 161-unit community owned by Seco Development. Pinnacle has managed the property since July 1999.

Currently, one of the biggest criticisms of HUD is that there is too much red tape and that it takes too long to get things done. To cut time and red tape, Martinez has lofty goals – for example, decentralizing HUD and working better with the private sector. But so far, none has been put into practice. While members of the multifamily housing community recognize that it's too soon to judge Martinez, because he has not had enough time to really put a plan into action, they do have several complaints and recommendations on what will make the agency more responsive to the needs of the multifamily housing industry.

Program Shortfalls One of the biggest complaints is the time it takes to get funding from the Federal Housing Administration (FHA) securitization program. When using this program, HUD requires all the equity upfront. However, when developers try to combine FHA financing with the Low-Income Housing Tax Credit (LIHTC) program, a considerable amount of equity goes into the project – but not all at once, explains Mark Beisler, COO at Red Capital Group. "HUD needs to get guidelines out that work with how the tax credit program works," he says.

However, Martinez points out that the FHA is very interested in making the mortgage insurance programs work better with the LIHTC program. "In considering any changes, we have to be certain that the FHA mortgagee is holding sufficient funds to complete the project and avoid a claim against the FHA insurance fund," he says. "Section 221(d)(4) insured loans with LIHTC currently don't require a credit subsidy appropriation and therefore were not affected by the mortgage insurance premium increase. We need to ensure that the programs remain in that risk category." A lot of the problems stem from the way the agency administers its programs – especially FHA insurance and the Section 8 program. "There is a tremendous amount of change that needs to occur with both of those programs to be much more market friendly to the conventional market," says Clarine Nardi Riddle, senior vice president for government affairs and general counsel at the National Multi Housing Council. "The department needs to get its arms around the concerns that the private sector has been saying about these programs."

Both programs are so time-consuming that they are not workable for many members of the private sector. For instance, the FHA multifamily housing insurance program takes an enormous amount of time before the loan is approved, says Nardi Riddle, also a member of the U.S. Millennium Housing Commission. The developers have so much capital on the line that many have made the decision that the risk-reward relationship is just not there.

"FHA is just completing the first year of multifamily accelerated processing (MAP), which dramatically improves processing times by delegating more responsibility to the private sector to allow the Department to focus on the final review and underwriting decision done by FHA field staff," says Martinez. So far, the reaction to MAP by the industry has been very positive, he adds.