Changes in Certain Multifamily Housing and Health Care Facility Mortgage Insurance Premiums for Fiscal Year (FY) 2013
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Notice.
Citation: "77 FR 49007"
Document Number: "Docket No. FR-5634-N-02"
"Notices"
SUMMARY: On
This notice announces that the proposed MIP increases will be implemented in FY 2012. This notice also addresses the public comments received in response to the announced MIP increases.
DATES: Effective Date: The revised MIP will be effective for any firm commitments issued or reissued on or after
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION: In accordance with HUD's mortgage insurance regulation at 24 CFR 207.254, HUD solicited public comment on changes in MIP for its multifamily mortgage insurance programs before the changes are adopted for a new fiscal year. HUD's regulation at 24 CFR 207.254 provides as follows:
Notice of future premium changes will be published in the
In accordance with this regulation, HUD published on
The
The
The
II. Public Comments
The public comment period on the
Additional Protection for the GI/SRI Fund Is Unwarranted
Comment: Commenters objected that the GI/SRI fund needs additional resources. These commenters offered data from a
Commenters requested that HUD provide data to the industry that documents the need to raise the MIP. Commenters stated that HUD offered no actuarial analysis to substantiate the need to protect the GI/SRI fund. Commenters requested that HUD provide the results of studies conducted which resulted in HUD's determination that the GI/SRI fund requires "additional protection" beyond what has already been implemented.
Commenters stated that that the President's budget for FY 2012 [in HUD's section of the budget] assumes continued negative credit subsidy for these programs, and they were therefore projected to generate income for the U.S. Treasury prior to
Two commenters presented a table comparing 2012 default rates against 2013 default rates under specific housing programs (e.g., multifamily development, apartment refinances, health care & nursing homes, health care refinances, and hospitals). The table presented by the commenters reflects that HUD has reduced default rates for the loan program; consequently, reducing the amount of funds going into the reserves for the GI/SRI fund creating less protection for these programs. The commenters requested that HUD to demonstrate how such reductions will affect the reserves in the GI/SRI funds.
A commenter addressed specifically the Section 232 program, stating that the growth and successes of the Section 232 loans (without increases) are a source of stability for the FHA GI/SRI fund, and given this, the commenter finds HUD's announced MIP increases for the Section 232 program "baffling". The commenter refuted HUD claim that the "modest" increases in premiums will have little to no impact on program participants. According to the commenter, the real cost to a Section 232 loan of
Other commenters focused on HUD's healthcare programs more broadly and presented what they identified as "actual/projected" credit scorings which indicates that HUD's healthcare programs have some of the best credit scoring for HUD, that are well within the mandates set forth by Federal Credit Reform Act of 1990 (FCRA) (2 U.S.C.
HUD Response: HUD is not increasing the premiums to gain additional resources to bolster the
The modest increase will ensure that the MIPs are priced appropriately to compensate for FHA's risk, consistent with current and potentially volatile market conditions. The MIP increase is in line with the requirement to responsibly align pricing with risk tolerance in administering FHA programs. The modest MIP increase will address potential risk attributed to the shift in portfolio from a primarily subsidized stock with small loans, to a primarily market rate portfolio with larger average loan sizes and the attendant risk of single point failures. The modestly increased premiums in addition to already record-low interest rates, will not contribute significantly to project costs. HUD will continually monitor interest rates, and will price the MIP accordingly to adjust to future changes.
Consider Negative Impact on the Debt
Comment: Commenters claimed that increased MIPs on loans increases the cost to service the debt causing a negative impact on the debt; hence, providing no additional protection for the GI/SRI fund as proposed by HUD.
HUD Response: This comment assumes the mortgage amount will stay the same as it was before the MIP increase. Given current and projected interest rates, government-insured financing remains materially less expensive than other capital sources and those terms available for FHA-insured loans prior to the current problems in the credit market. If loans are debt service controlled, the higher MIP will result in a lower mortgage amount, increasing the equity in the deal, adding to protection.
MIP Increases Significant Depart From HUD's Current Policy
Comment: Commenters stated that, historically, HUD has not raised the MIP to generate revenue beyond that needed to cover expected credit losses and associated program costs in accordance to the economic model as required under FCRA. Commenters stated that the MIP level is established based on an economic risk model required under the FCRA, and that HUD's announced increases run counter to the FCRA, as it sets the MIP at what the Administration considers a rate aligned with the private sector. The commenters expressed concern that the
HUD Response: Section 505(a) of FCRA authorizes the appropriation of sums necessary "to pay the cost associated with such direct loan obligations or loan guarantee commitments." There is no reference therein to the setting of mortgage insurance premiums. There is also no equivalent reference in Section 203(c)(1) of the National Housing Act regarding this issue. Section 203(c)(1) authorizes the Secretary "to fix premium charge for the insurance of mortgages under the separate sections of this title but in the case of any mortgage such charge shall not be less than an amount equivalent to one-fourth of one per centum per annum * * *"
This change is forward-looking. HUD agrees that the risk model is working appropriately. The decision to increase MIP is not being made due to technical or actuarial defects of the economic model, but rather reflects the administration's concern for mitigating potential unforeseen risks, concern that HUD financing not be underpriced and thus discourage recovery of private capital source, and to differentiate between affordable and market rate program requirements.
MIPs Should Not Be Raised To Increase Receipts to Treasury
Comment: Several commenters opposed increasing MIPs for the purpose of generating receipts to the Treasury. The commenters stated that the current MIP pricing is appropriately priced for the risks assumed. The commenters expressed concern that higher MIPs will not serve to build a buffer against future losses considering that there is no segregated fund and all excess income is returned to the Treasury each year. Commenters stated that should HUD increase MIPs as provided in the
HUD Response: Credit subsidy rates vary from year to year, based in part on default rates and MIP changes, but also due to changes in prepayment rates, rates of recovery on defaults, and improvements to cash flow modeling techniques. Changing economic forecasts are a key variable in calculating the defaults, prepayments, and recoveries that feed into the credit subsidy rate.
While it is true that the GI/SRI negative credit subsidy is paid from the loan financing account to the
Avoidance of FHA Under-Pricing Risk and Encouragement of Private Lending
Comment: Several commenters opposed increasing MIPs for the sake of encouraging private lending and ensuring that FHA is not under-pricing its risk. The commenters expressed that FHA's role is to serve as a "counter-cyclical" capital source and the nation's tepid economic situation will surely benefit from it. The commenters conclude that
Other commenters submitted data that suggests that FHA is not crowding out the private sector. The commenters stated that the data they provided reflects that the refinance market for multifamily rental properties was estimated to be approximately
A commenter provided several charts illustrating the countercyclical nature of the FHA business; share of the new construction market that FHA occupies from FY 2008 through FY 2011; and that FHA financing serves as the niche that local banks and thrifts have retreated from in recent years. Another commenter presented data that illustrated that in 2011 banks and other private funding sources provided
Other commenters stated that as conventional lenders return to the market, FHA's market share has declined due to financing sources being more flexible and less costly to pursue. The commenters urged HUD to provide its estimates of how much additional private capital will participate should the MIP increases go into effect. Certain commenters referenced data provided by the
HUD Response: This modest MIP increase brings FHA's pricing more in line with the private mortgage insurance industry and enables more robust private competition while continuing to ensure sufficient levels of available capital in these sectors. Given the state of the capital markets, government insured financing is underpriced with historically low interest rates--this also contributes risk to the insurance fund since stressed properties are not as likely to be able to refinance in the future. The increase in MIP will address these issues by making it more likely private capital will return to the market.
HUD agrees that FHA's role is to serve as a "counter-cyclical" capital source. In light of record low interest rates, the proposed modest MIP increases are not a barrier to continuing this role. FHA insured financing terms, including with the increased MIP, have not been this favorable in decades, and are materially less expensive than in the years prior to and after the current credit crisis. As stated earlier, HUD will continue to monitor interest rates and their impact on the market, and will adjust its policies accordingly.
A market share of 16.9 percent is much higher than it has been historically. HUD has not represented that it has "cornered the market," but the increased role that FHA has played in the market in recent years should be temporary. With this decision FHA is moving towards a return to the smaller share of the market it has traditionally occupied.
FHA cannot be compared to
Comment: Commenters state that any increase in the MIPs be supported and preceded by a careful analysis of the need and impact of the change, and stated that HUD's notice provided no analysis of the need and impact of the proposed increase on borrowers, lenders or renters who live in properties insured under the programs. The commenters states that these properties will be disadvantaged by the imposition of higher MIPs. Commenter stated that the proposed increases will adversely harm market rental properties in secondary and tertiary markets due in part to private capital (banks, pension funds, and insurance companies, etc.,) and large developers' lack of interest. The commenters stated that FHA is vital in providing liquidity in the secondary and tertiary markets, and urged HUD to differentiate among markets when considering increases to the MIPs. A commenter specifically expressed concern about properties financed or refinanced under the FHA-insured loans in the sections 223(f) and 223(a)(7) multifamily programs.
Another commenter stated that the proposed increases in MIPs will be passed through to the tenants residing within the property insured by the program(s); thus requiring the rental units to be raised to cover theses costs.
The commenters stated that HUD has not provided compelling justification for the increases, and urge HUD not to implement these changes at a time when demand for rental housing is increasing and preserving and investing in our stock of rental housing is critical.
HUD Response: Given record-low interest rates, even with an increase in MIP higher than proposed, higher mortgage amounts at lower debt service burden are available today. Thus, we anticipate no direct or indirect negative impact on tenants, borrowers, or lenders. The MIP increase is not expected to have a significant impact on rental properties in secondary and tertiary markets. FHA will monitor the impact of the increased MIP and will adjust its policies accordingly.
Establishing Risk-Based Premiums for Riskier Loans
Comment: Commenters urged HUD to consider establishing specific risk-based premium pricing for lenders that produce riskier loans. Commenters stated that these lenders should pay higher premiums, while other lenders with little or no defaults should pay lower premiums. The commenters assert that this methodology would raise premiums on those lenders that pose greater risks to the insurance fund--saving the taxpayers from challenges currently experienced by the MMI fund.
HUD Response: HUD has established risk-based premium pricing with this decision on a program-wide basis, but at this time does not contemplate differentiating MIP for lenders. For example, the MIP increase for 223(a)(7) loans will be lower than the increase for new construction loans.
III. MIP Increases for 2013
MIPs for FHA's Mortgage Insurance Programs for FY2013
In the chart below, this notice announces the MIPs which will be in effect during FY 2013 for the multifamily housing, health care facilities, and hospital mortgage insurance programs authorized under the National Housing Act (12 U.S.C.
The mortgage insurance premiums to be in effect for FHA firm commitments issued or reissued in FY 2013 are shown in the chart below. Firm Commitments for applications received prior to
Fiscal Year 2013 MIP Rates--Multifamily Housing , Health Care Facilities and Hospital Insurance Programs Current basis FY13 basis points points FHA Apartments 207 Multifamily Housing 50 70New Construction /Sub Rehab without LIHTC 207 Multifamily Housing 45 45New Construction /Sub Rehab with LIHTC 207 Manufactured Home 50 70 Parks without LIHTC 207 Manufactured Home 45 45 Parks with LIHTC 221(d)(3) New 80 N/A Construction/Substantial Rehabilitation (NC/SR) for Nonprofit/Cooperative mortgagor without LIHTC 221(d)(3) Limited 45 45 dividend with LIHTC 221(d)(4) NC/SR without 45 65 LIHTC 221(d)(4) NC/SR with 45 45 LIHTC 220 Urban Renewal Housing 50 70 without LIHTC 220 Urban Renewal Housing 45 45 with LIHTC 213 Cooperative 50 70 207/223(f) Refinance or 45* 60* Purchase for Apartments without LIHTC 207/223(f) Refinance or 45* 45* Purchase for Apartments with LIHTC 223(a)(7) Refinance of 45 50 Apartments without LIHTC 223(a)(7) Refinance of 45 45 Apartments with LIHTC 223d Operating Loss Loan 80 N/A for Apartments 231 Elderly Housing 50 70 without LIHTC 231 Elderly Housing with 45 45 LIHTC 241(a) Supplemental Loans 80 95 for Apartments/coop without LIHTC 241(a) Supplemental Loans 45 45 for Apartments/coop with LIHTC FHA Health Care Facilities (Nursing Homes , ALF & B&C) 232 NC/SR Health Care 57 77 Facilities without LIHTC 232 NC/SR--Assisted 45 45 Living Facilities with LIHTC 232/223(f) Refinance for 50 * 65 * Health Care Facilities without LIHTC 232/223(f) Refinance for 45 * 45 * Health Care Facilities with LIHTC 223(a)(7) Refinance of 50 55 Health Care Facilities without LIHTC 223(a)(7) Refinance of 45 45 Health Care Facilities with LIHTC 223d Operating Loss Loan 80 95 for Health Care Facilities 241(a) Supplemental Loans 57 72 for Health Care Facilities without LIHTC 241(a) Supplemental Loans 45 45 for Health Care Facilities with LIHTC FHA Hospitals 242 Hospitals 50 70 223(a)(7) Refinance of 50 55 Existing FHA-insured Hospital 223(f) Refinance or 50 65 Purchase of ExistingNon-FHA-insured Hospital 241(a) Supplemental Loans 50 65 for Hospitals * The first year MIP for the Section 207/223(f) loans for apartments is 100 basis (one percent) points for the first year, as specified in sections 24 CFR 207.252b(a). The first year MIP for a Section 232/223(f) health care facility remains at 100 basis points (one percent). The first year MIP for a Section 223(a)(7) refinancing loan remains at 50 basis points.
IV. Positive Credit Subsidy Programs
Positive credit subsidy will no longer be required for loans under any of the active mortgage insurance programs for multifamily housing or health care facilities. Beginning on
Dated:
Acting Assistant Secretary for Housing--
[FR Doc. 2012-20045 Filed 8-14-12;
BILLING CODE 4210-67-P
Copyright: | (c) 2012 Federal Information & News Dispatch, Inc. |
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