LIHTC Pilot Program Expands to Sections 221(d)4, 220 Sites
HUD launched its LIHTC pilot program in 2012 to streamline processing of Section 223(f) LIHTC transactions with repairs up to $40,000 per unit. As a result of the pilot program, 34 percent of HUD’s 912 loans insured in 2018 were LIHTC transactions. And of the 148,726 units insured last year, 31 percent were LIHTC units. When the pilot program started in 2012, less than 5 percent of HUD’s loan volume was LIHTC.
In light of the pilot program’s success, HUD recently announced an expansion of the program to include Section 221(d)4 and Section 220 transactions. This expansion will now make the majority of LIHTC transactions eligible for the pilot program.
The Federal Housing Administration’s (FHA’s) expanded pilot program will ensure faster and more efficient processing for low-risk, LIHTC transactions by eliminating redundant reviews. Average processing time for LIHTC deals is currently 90 days. Under FHA's pilot, processing times are reduced to 30 days under the Expedited Approval Process track and 60 days under the Standard Approval Process track. A shorter application review period allows borrowers to lock in better interest rates sooner, an important capability in a rising interest rate environment. The maximum loan amount for pilot transactions is $25 million, and at least 25 percent, but not more than 75 percent, of the developer fee must be deferred. The following are the three types of transactions eligible for the new pilot program:
- New construction 9 percent LIHTC transactions with at least 90 percent of the units restricted to LIHTC rents and the achievable LIHTC rents are at least 10 percent below comparable market rents for each unit type;
- Substantial rehabilitation developments with 9 percent or 4 percent LIHTCs with project-based Section 8 contracts covering at least 90 percent of the units. These developments must have a 20-year housing assistance payment (HAP) contract in place at closing. The new 20-year HAP contracts have been commonplace since the last Multifamily Accelerated Processing Guide revision in 2016; and
- Substantial rehabilitation projects without Section 8 assistance that are being resyndicated with 9 percent or 4 percent LIHTCs and have at least 90 percent of the units restricted to LIHTC rents, and the achievable LIHTC rents are at least 10 percent below comparable market rents for each unit type.
The new expanded pilot will also encourage long-term investments in low-income urban and rural communities and supports development in Opportunity Zones. Opportunity Zones are census tracts in low-income communities experiencing economic distress. In July 2018, the Internal Revenue Service published a list of more than 8,700 qualified Opportunity Zones in the 50 states and U.S. territories.