While its overall mortgage volume dipped in 2006, the Federal Housing Administration (FHA) is working on improving several key seniors-focused programs in 2007. The FHA’s basic lending activity (not including loans where it shares risks with other entities) was down by approximately $500 million, and new construction/substantial rehab loan activity was down 35 percent, to $1.4 billion in fiscal 2006, from $1.8 billion the previous year.

Even so, some seniors-focused areas showed marked improvement.

In 2006, FHA experienced a significant increase in Sec. 207/223(f) apartment refinances, “primarily driven by refinances of Sec. 202 program direct loans with Sec. 8 project-based assistance,” said Lemar Wooley, an FHA spokesman. The FHA also reported an 11 percent increase in Sec. 232 originations. That program provides mortgage insurance for nursing homes, intermediate care, board and care, and assisted-living facilities.

Sec. 232

The FHA hopes to become a bigger player in the Sec. 232 arena. “They have told the lenders that they are definitely going to be emphasizing and think they will play a very relevant role in the 232 world,” said Mark Ragsdale, senior vice president of originations at PNC MultiFamily Capital.

The uptick in Sec. 232 originations —from $1.24 billion in 2005 to $1.59 billion in 2006—has caused the FHA to rethink how it administers the program. “We are looking at ways to streamline processing of Sec. 232 loans while increasing monitoring and controls on lessee/operators,” Wooley said.

While lenders see further clarification of the Sec. 232 guidelines in the pipeline, FHA is also looking to spruce up its Sec. 232 infrastructure in 2007.

Karl Reinlein, executive vice president of Capmark Finance, sees FHA staffing up its Sec. 232 program—from the executive to the field office levels—to increase that program’s business overall in 2007. Beyond improved clarity, he also sees the agency focusing on consistency of regulations around the country. That would be a change from current practice, Reinlein said. “The HUD offices seem to do things differently from hub to hub.”

Sec. 221 reform

The FHA is making a concerted effort to increase market share and improve processing efficiency for its Sec. 221(d)(4) program to provide insurance for new construction/substantial rehabilitation loans, according to Marie Head, president of Prudential Huntoon Paige.

“They are working on some reforms and initiatives in the Sec. 221(d)(4) program—expanding what’s eligible for the program,” she said. “Right now, Sec. 221(d)(4) doesn’t allow meals for seniors, kitchens, and things like that.”

FHA believes that its Sec. 221(d)(4) volume will increase in 2007, particularly on projects financed in part with equity from low-income housing tax credits (LIHTCs). That projected increase has revealed the need for process improvements. With that in mind, the agency is streamlining its processes for reviewing and underwriting LIHTC deals. “It was a slow-moving process,” Head said. Additionally, the FHA is working on reforming “the way they look at developer’s fees” for tax credit deals, and also hopes to tighten its working relationship with state housing finance agencies on setting their qualified allocation plans, Head said. “There’s nothing formal yet, but they have a special group working on that.”

Sec. 231 rises from the dead

This focus on seniors has caused FHA to include the Sec. 231 program, which provides mortgage insurance for the construction or substantial rehabilitation of rental housing for the elderly, in its Multifamily Accelerated Processing (MAP) program.

“They have revived and put it back on the books as open for business,” said Head. The Sec. 231 program has fallen by the wayside in recent years, tailing off ever since the Sec. 221 statute was amended to permit housing for elderly families with children.

The FHA concedes that few projects have been insured under Sec. 231 in recent years, partly since it wasn’t eligible for the MAP program. The Sec. 221 program provided the same loan ratios for nonprofits and profit-motivated borrowers as the Sec. 231 program.

“The advantage to developers is that the Sec. 231 statute permits elderly-only projects, unlike HUD policy, which permits elderly families with children under Sec. 221,” Wooley said. “Sec. 231 is being added to MAP in response to requests from developers dealing with local communities, which have occupancy restrictions on apartments.”

Sec. 202

For 2007, FHA looks for continued volume in Sec. 202 refinancing, and is working to update guidance on the overall Sec. 202 program.

Ragsdale expects FHA will streamline the Sec. 202 program to make it easier for borrowers to refinance and restructure their debt, as well as rehabilitate their properties. “HUD is motivated to see these properties preserved,” Ragsdale said.

Since the agency changed its regulations at the beginning of 2005 to make it easier to refinance Sec. 202 loans, this area has taken off. HUD refinanced 245 Sec. 202 loans in fiscal 2006, more than six times the amount of the previous year.

What’s more, “I think it will increase this year even further,” Reinlein said. “Those properties are in dire need of improvements and renovations.”