The Federal Housing Administration (FHA), the branch of the Department of Housing and Urban Development (HUD) that insures multifamily loans, issued a notice last month that it will be increasing mortgage insurance premiums (MIPs) in 2013.

This is not the first time, and it won't be the last time, the FHA hopes to raise MIPs, but the multifamily industry is in an uproar and they're letting the agency hear about it.

Currently, the MIP tacks on an additional 45 basis points (bps) to each FHA loan on top of the interest rate. The new bump would push that number to 65 bps for new construction and substantial rehabiliation deals. Refinancings under Sec. 223(a)(7) would see a 5 bp increase, and refis under Sec. 223(f) would get an increase of 15 bps. All other multifamily or healthcare transactions would see a 15 bp rise, although the MIP on deals using low-income housing tax credits would remain the same.

Following the notice, a coalition was formed by some of the housing industry's major associations—including the Mortgage Bankers Association, National Multi Housing Council, National Association of Homebuilders and nine other groups—to draft a letter voicing opposition to the MIP increase. The third paragraph of the letter features the following statement, highlighted as the only boldface text in the letter to make the point of the correspondence quite clear:

“Our organizations do not believe that HUD has provided compelling justification for the increases.”

A clear disapproval to be sure. The proposed increase comes at a time when multifamily companies are making some of the most aggressive pushes in the last decade to get new inventory to market. According to the letter, the MIP increase will only accelerate rent increases as it would increase costs for property owners.

But much of the outrage is surrounding the fact that the FHA has provided flimsy justification as to why it is making the increase. FHA is claiming the measure will boost reciepts to the Treasury and encourage the return of private lending, but the 12-organization coalition is not convinced. In fact, it is claiming the increases directly divert from HUD’s mission by generating funds for unrelated purposes.

“As indicated in the Notice, the MIP announced for FY 2013 would provide funds in excess of that needed to operate the programs. Those excess funds would go to the Treasury, into the overall federal budget for unspecified spending. We believe that such action sets a precedent for poor public policy making and has a significant negative impact on national housing policy,” said the letter.

The coalition believes the increase comes as a threat to mortgage liquidity and job creation that results from multifamily investing and developing. What do you think? Is this another instance of the multifamily industry being shaken down to pay for the sins of the single-family industry? Share you thoughts in the comments section below, or contact me at [email protected].