FHA Increases Eligibility Threshold for Standard Underwriting for Large Multifamily Loans
The Federal Housing Administration (FHA) today announced increases to the threshold for large multifamily loans from $75 million to $120 million. This is the first increase in the threshold since 2014 and will enable more FHA multifamily insurance applicants to use standard underwriting processes. FHA also announced it will review the threshold on an annual basis, with the possibility of increasing it in $5 million increments if warranted.
This change addresses the single-point risk of loss created by large individual loans and defines the underwriting standards for large multifamily loans. Except where otherwise stated, these policies do not apply to loans below the large loan threshold or to loan applications under Section 223(a)(7), which is the program to refinance existing FHA-insured multifamily loans.
Revisions have also been made to the Multifamily Accelerated Processing (MAP) Guide to reflect the new $120 million threshold and the annual review methodology. FHA’s other requirements in the MAP Guide related to large loans remain unchanged.
HUD’s risk analysis and industry feedback showed this upward revision was prudent, primarily because of increases in housing and construction costs over the last decade, without providing undue risk to the FHA insurance fund. The changes also allow for regular adjustments to the threshold to avoid undue lag in market changes.
“We know that borrowers are contending with the dual challenges of increased development costs and meeting the nation’s dire need for more rental housing,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon in a press release. “Anything we can do to prudently alleviate extra steps in obtaining FHA insurance will help all of us meet the housing supply challenges before us.”
NAHB advocated for and strongly supports this change. It is necessary to account for increased construction costs and to increase the supply of apartments affordable to low- and moderate-income families.
For more details, see Mortgagee Letter 2023-14.