The Department of Housing and Urban Development (HUD) has proposed draft Mortgagee Letters adjusting underwriting standards for affordable multifamily housing loans. These changes include: 

1. Lowered Debt Service Coverage Ratios (DSCR):  

  • For LIHTC properties with rent advantage: reduced to 1.11x, down from 1.15x; 
  • For market-rate or LIHTC properties without rent advantage: set at 1.15x compared to current  1.18x; and 
  •  For middle-income properties with state or local use restrictions: reduced to 1.11x, down from 1.15x. 

2. Vacancy Factor Adjustments: 

  •  LIHTC with rent advantage: lowered to five from seven percent; and 
  •  Market-rate and middle-income properties: set at seven percent, down from ten percent. 

Benefits for Developers: 

These adjustments enhance financial flexibility by allowing higher loan amounts with lower required cash flow thresholds. This makes it easier to finance affordable housing projects, particularly for properties with use restrictions or extensive affordability requirements. It also aligns with broader efforts to expand housing affordability across income levels. 

 Steps for Developers: 

  • Advocate for Change: Submit comments supporting the draft changes through HUD’s public feedback process by Nov. 25, 2024 5:00 PM ET. 
  • Reassess Project Financials: Work with lenders to model how these adjustments could positively impact loan terms for new or refinanced projects. 
  • Engage Stakeholders: Collaborate with local housing authorities and advocates to emphasize the potential impact on housing supply. 

These updates reflect HUD’s intent to bolster affordable housing production to achieve viability for affordable housing developments.