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HUD Announces New LIHTC Pilot Program for Section 221(d)(4) and 220 Projects


In February of 2019, the U.S. Department of Housing and Urban Development (HUD) announced through Notice H 2019-3 an expansion of the low-income tax credit (LIHTC) program to include section 221(d)(4) and section 220 Pilot Program for the new construction and substantial rehabilitation for multifamily projects with low income housing tax credits.

This program is designed to streamline both the application and review processes for FHA mortgage insurance applications. HUD supports using low income tax credits to create new and preserve current affordable housing units. LIHTCs are the primary tool that encourages the investment of private capital into the affordable housing market which is under supplied.

This new pilot program offers two modified processing tracks. There will be an expedited approval processing track, and the standard approval processing track. The expedited processing track will have a limited HUD review, and will rely more on the lender to perform due diligence. Under the standard approval processing track, HUD staff will perform a more thorough review during the underwriting phase.

There are three project types that are eligible for the new pilot program:

1. New Multifamily Construction Projects

For new construction projects, the 9% LIHTC transaction must have 90% or more of the units restricted for LIHTC occupancy. The market study, appraisal, and underwriting must conclude that the achievable LIHTC unit rents will be 10% below comparable market rents for each unit type.

2. Substantial Rehabilitation Projects with Project-Based Section 8 HAP Contracts

Substantial rehabilitation projects with 4% or 9% low-income housing tax credits with project-based section 8 Housing Assistance Payment (HAP) Contracts that cover at least 90% of the units are eligible. The projects need to have a 20-year HAP contract that needs to be executed in advance or prior to the closing of the transaction. For project-based vouchers 15-year contracts are acceptable. For projects that currently have an existing HAP contract in place, the owner and HUD must terminate the existing contract, and execute a new 20-year term renewable contract.

3. Substantial Rehabilitation Projects Being Re-Syndicated

4% or 9% LIHTC projects with substantial rehabilitation being re-syndicated with LIHTC/Tax Exempt Bonds without Section 8 rental assistance that have reached the end of their initial tax-credit compliance period are also eligible. The market study, appraisal, and underwriting must conclude that the achievable LIHTC unit rents will be 10% below comparable market rents for each unit type. Also, at least 90% of the units must be restricted for LIHTC occupancy.

Re-syndicated LIHTC projects without Section 8 assistance must show a minimum average occupancy of 85% for the past 6 months, and operating statements reflect a net operating income to support a minimum debt service coverage of 1.0%.

Goal of the Pilot Program

The new pilot program is designed to encourage long-term investments in the development of low-income urban and rural communities. These “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. The list was made available in Internal Revenue Bulletin No. 2018-28 and can be found here.

Qualifying for the Pilot Program’s Expedited Approval

Applications for this pilot program may not exceed transaction amounts in excess of $25,000,000. Eligible 9% LIHTC, Section 221(d)(4) and Section 220 New Construction projects and 4% or 9% LIHTC, Section 221(d)(4) and Section 220 Substantial Rehabilitation projects with project-based Section 8 HAP Contracts may be processed under the Expedited Approval Processing, subject to the additional conditions described below:

  • The Loan-To-Cost (LTC) ratio on the first mortgage for 9% LIHTC, Section 221(d)(4) and Section 220 New Construction projects may not exceed 65% of mortgageable costs.   
  • The LTC ratio on the first mortgage for a substantial rehabilitation, 4% or 9% LIHTC project with project-based Section 8 HAP contracts covering at least 90% of the residential units may not exceed 75% of mortgageable costs.

The goal of the new pilot program is to issue a firm Commitment under the Expedited Approval Process within 30 calendar days of HUD’s receipt of an acceptable application and to close transactions within 60 calendar days of Firm Commitment issuance.  

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