Carol Galante: Affordable, Market-Rate Can Coexist at HUD

It’s been a little less than two years since Carol Galante was appointed deputy assistant secretary for multifamily housing at HUD. And what a time it’s been.

Since seizing the reins, Galante has overseen the biggest expansion in multifamily volume in the FHA’s history while simultaneously re-engineering the agency’s approach to affordable housing deals.

Apartment Finance Today recently sat down with Galante to look back on her short time at HUD and provide a glimpse of what’s to come. One theme ran throughout the discussion—while the agency is updating its approach to affordable housing deals, market-rate borrowers need not worry. The agency’s appetite for market-rate deals remains robust.

AFT: How much has changed at HUD since you took your post? What were your biggest concerns, and how have you addressed them so far?
GALANTE: What I expected to deal with in my first year or so ended up being fairly different than what I did end up dealing with. I found a lot of enthusiasm, both internally and externally, for a lot of changes in HUD’s programs to bring us into the 21st century around the affordable housing products in particular.  At the same time, what I didn’t really expect was how frozen the credit markets were going to be and how much impact that was going to have on the multifamily FHA work. So we did manage to do a lot of good work on the affordable housing side, in spite of the fact that we had to spend a significant amount of attention on the FHA multifamily side.

AFT: So has HUD's focus on affordable housing diminished in light of the flood of market-rate deals that came your way?
GALANTE: Not exactly. Strategically, we want our projects to be more user-friendly for tax credits. And so we’re continuing to focus on that, but at the same time, the pressure has been on us to continue to provide liquidity to the broader multifamily market, and we’ve had a lot of work that we’ve needed to do on that end as well.

AFT: How are you achieving the balance between FHA’s appetite for market-rate deals and its affordable housing side?
GALANTE: It’s about making sure that as a strategic objective, our programs are working for the affordable housing side better than they have been. And at the same time, we haven’t lost focus on what has been the traditional role of FHA, which is financing for the broad middle of rental housing and we still clearly want to be able to do that. I know you’re familiar with our new underwriting standards, but that wasn’t because we don’t want to do “market-rate housing.” It’s just that, in this financial environment, we have to do it prudently.

AFT: If I’m a borrower considering a 223(f) or 221(d)(4) loan right now, what does the FHA want me to know in terms of processing times?
GALANTE: What I want you to know is that we’re working as hard as ever to deliver to our customers. But in fact, we know that we are not delivering in nearly as timely a way as we would like to be right now given the crush of volume. But I would also want you to know that we are actively working on reengineering some of our processes to help be able to swallow the peanut butter, as I like to say, because the reality is we can’t expect a lot of new resources in terms of staff. We expect volume may moderate a little bit but not substantially, so we’ve got to work smarter because there really isn’t any other way to do this.

AFT: Word is that the FHA has four requirements for any new market-rate (d)(4) loan— sustainability, green building, urban and affordable. How important are those requirements?
GALANTE: There’s a little bit of confusion out there, which is that somehow if you don’t have those four things, you’re going to be lower in priority for processing or something like that. Those four principles are part of our strategic plan goals for HUD. It’s a strategic goal versus literally a priority for processing. It’s not at all saying that if you’re a plain vanilla two-story walkup apartment in a suburban community that FHA isn’t interested in financing that product. Some of the lenders have thought that putting out those strategic principals would translate into, well then, if I’m a suburban apartment complex then I go to the bottom of the list, and that’s just not the case.

AFT: How are things going with the national loan committee?
GALANTE: Any new system you put in place is going to create a learning curve both for our staff and for the lenders. The fact is that most of the lenders now who have been through it a couple of times and for the staff who have been through it a couple of times, it really is going very smoothly. The first six to eight weeks were kind of rough; there were lots of questions that maybe the staff didn’t anticipate. Now we have an FAQ available; we coach the staff ahead of time that these are the kinds of issues that the loan committee is likely to drill down on. The actual timeline, once it gets to loan committee, is very quick. And we are doing a couple of other things that will help. We have now decided to take all the 223(a)(7) refinancings and they are not going to loan committee, even though large ones were originally supposed to. So we’ve made some adjustments in response to some of these concerns as well.

AFT: I’ve heard that the FHA plans to expand the 223(f) program to allow for much higher levels of rehab. Do you expect to roll that out this year?
GALANTE: I would like to say yes, so I’ll say yes... hopefully, yes. I think the biggest groundwork we’ve done is just some work around the legal aspects of how we define what’s substantial rehab. What we’ve learned is, we have a lot more flexibility in how we define what goes into a substantial rehab versus what goes into a 223(f), so that’s good news. We have a lot more flexibility than I think maybe people thought we had.