HUD Relaxes Rules For Refinancing Multifamily Housing

Apartment owners have a new tool available for refinancing existing projects.  Since 1975, HUD would not allow the refinancing of a newly constructed or substantially rehabilitated apartment complex that was built with conventional financing, until after the Project maintained 3-years of sustained occupancy (the “3-Year Rule”).   

Yesterday, HUD issued Mortgagee Letter 2020-03 (see here: Mortgagee Letter 20-03 Three Year Waiver, revising the 3-Year Rule.  The last waiver of the 3-Year Rule was from 2009-2013 when HUD responded to the capital market freeze with a temporary waiver of the rule.  Applications for refinancing of newly constructed or substantially rehabilitated properties will now be accepted as soon as properties achieve the required Debt Service Coverage Ratio (“DSCR”) for at least one full month.  DSCR requirements are typically 1.17 for “market rate” projects, and 1.11 for “Broadly Affordable” projects.   

HUD will re-evaluate this waiver 2 years from now, to assess whether the change is achieving its policy objectives and may further modify this waiver at that time.  Interest rates on FHA-insured loans are favorably low at the moment, and so this may be a great time to refinance existing projects, improve cashflow with longer amortizations and lower interest rates, and potentially pull out equity for further improvements or investments in other areas. 

For more information you may contact David Lang.