The Department of Housing and Urban Development (HUD) needs to undergo a major restructuring of its multifamily division in the next two years, according to agency leaders.

This effort includes reducing field offices across the country and introducing a new risk-based processing system that aims to increase consistency and improve efficiency.

"These two elements really complement each other," says Carol Galante, Federal Housing Administration (FHA) commissioner and assistant secretary for housing. "Theoretically, they could be done separately, but they are stronger together and make the platform ultimately better by doing them at the same time."

In an interview with Affordable Housing Finance, Galante and Marie Head, deputy assistant secretary for multifamily housing, discuss how and why the Office of Multifamily Housing needs to change.

First, the how: Under the newly unveiled plans, multifamily housing will consolidate its field structure of 17 hub offices into five hubs, each with a satellite office. The hubs will be in Atlanta; Chicago; Fort Worth, Texas; New York; and San Francisco. The satellite offices will be in Boston; Denver; Detroit; Jacksonville, Fla.; and Kansas City, Mo.

The other seven hubs and 34 program centers will be consolidated into these 10 offices.

In addition, the Office of Field Policy and Management is closing 16 of its 80 field offices this year in a cost-cutting move estimated to save between $110 million and $150 million over a 10-year period. The small offices that are closing are in Camden, N.J.; Cincinnati; Dallas; Flint, Mich.; Fresno, Calif.; Grand Rapids, Mich.; Lubbock, Texas; Orlando, Fla.; Sacramento; Calif.; San Diego; Shreveport, La.; Spokane, Wash.; Springfield, Ill.; Syracuse, N.Y.; Tampa, Fla.; and Tucson, Ariz.  HUD will retain at least one office in each state. Following the closures, several affected states will still retain more than one office, including California, New York, and Texas with three offices each, and Florida and Ohio with two each.

Overall, approximately 900 of HUD's 9,000 employees will be affected. Affected employee will be offered the opportunity to continue working at the federal agency, but it may be in a new location or role.

The multifamily office's duties include providing mortgage insurance to HUD-approved lenders to facilitate the construction, substantial rehabilitation, purchase, and refinancing of multifamily housing projects as well as administering a number of project-based rental assistance programs.

The why: HUD says it will replace an outdated system and increase effectiveness.

"The biggest benefit we're going to see is better consistency across the country about how these transactions, whether they are existing assets or loans coming in, are treated," Galante says. 

Programs can be more consistently administered across 10 offices than they can in 50, say HUD officials.

The move will also help rebalance workloads, which will provide consistent servicing to HUD customers. Each of the locations will have a similar staffing pattern to take care of a similar number of transactions and assets.

The restructuring will result in some regions losing a local multifamily office, but those areas will continue to be served, according to HUD.

In this age, people work by smart phones, tablets, and computers, Head says.

"The thought process is we can provide the same level of service and not be in those geographic locations," she says, noting that some program lenders have never stepped foot in their local HUD office.

The restructuring plan is scheduled to begin this fall and will be fully implemented by 2016.

"This is the way the rest of the world has been doing business for a very long time in the private and nonprofit sector," says Galante, who led BRIDGE Housing, a major nonprofit affordable housing developer, before joining HUD four years ago. "We are just catching up with what is appropriate for the virtual world that we now live in."

In addition to the office consolidations, HUD also plans to implement several operational changes, including risk-based processing across its multifamily housing platform.

"We want to focus our resources on the loans that are the greatest risk to us," says Head, who was president and CEO of Prudential Huntoon Paige, the FHA business line of Prudential Mortgage Capital, before taking her post at HUD in 2011. "In today's environment, we spend as much time underwriting a loan that is not as risky to us as we do a loan that may have a greater risk to us depending on the different program. Those loans that do not carry a lot of risk will move through the pipeline a little bit differently than those loans we need to take a closer look at."

Under the plan, more experienced underwriters will process riskier and more complex applications.

The FHA still uses an old model of having an appraiser, a mortgage credit official, and others look at a transaction in a sequential manner. A new underwriter model will provide for one point of contact for a transaction, another benefit for program users, adds Galante.

That contact will be responsible for underwriting the deal and getting what is needed from the other technical disciplines to move that loan toward approval. "It will most definitely get to faster processing and better underwriting at the end of the day for those transactions," Galante says.

For some transactions, it could shave months off the processing time.

HUD has been moving to this model in its Low Income Housing Tax Credit Pilot Program and its Rental Assistance Demonstration program.

The multifamily changes are estimated to generate up to $40 million to $45 million in annual savings when fully implemented.

In another move, the FHA has ranked its portfolio for the first time so it will know where it needs to focus its energy and better manage its assets. HUD plans to create a troubled assets specialist team to focus on doing workouts and managing assets that may have trouble.