HUD/FHA Financing Group Leading the Way on New Rate Reduction Program

Rosenblum Goldenhersh’s HUD/FHA Financing Practice Group is breaking new ground in connection with the new HUD interest rate reduction program.  On April 19th of this year, HUD’s Multifamily Housing Program Division announced new guidance to allow mortgagors and mortgagees of HUD/FHA insured loans to request interest rate reductions.  Historically, in order for a mortgagor to obtain a rate reduction, the project would refinance with a Section 223(f) or Section 223(a)(7) loan.  However, with continuing low interest rates, HUD needed a more efficient alternative to meet the significant increase in refinancing requests.

David Lang in the firm’s HUD/FHA Financing Practice Group has been working closely with mortgagors, HUD counsel, FHA lenders and their counsel to develop standardized request packets for the new program in order to formalize the process.  The new program is designed for requests to be processed by HUD local offices within 20 days compared 90 days or longer for the refinance programs which require approval from Asset Management in Washington D.C.  David says the April 19th memo did a good job of laying out the key requirements for projects to be eligible for the program, however the administrative process needed to be developed in practice.  Working with other stakeholders, David has developed a system on behalf of several clients, and has involved Sara Geisen, a paralegal at the firm, in order to enhance the program’s cost effectiveness and efficiency.

With a good working process developed, the application process should become a bit smoother for eligible projects.  Eligible projects include both current loans and loans that have been in financial or technical default within the last 24 months.  However, defaulted loans may require additional documentation, such as a preservation capital needs assessment and additional explanation of the project’s history.  One key requirement for all projects is that the debt service coverage ratio on the revised loan must equal at least 1.05.  Loans still within a prepayment lock-out are not eligible, however prepayment penalties and other closing costs can be negotiated between the mortgagor and mortgagee.  David explains that typically mortgagees are allowing prepayment penalties and other closing costs to be factored into the revised interest rate (without increasing the mortgage amount), so there are very little upfront costs to borrowers.

For a copy of the April 19th memo click:  For additional information on the new program and whether or not your project may qualify, please contact David Lang at 314-726-6868.