While not the first time in recent memory the Department of Housing and Urban Development has reaching its commitment authority to finance multifamily housing development projects, the department has again begun prioritizing its projects until it receives more authority for funding.
Those who finance senior housing development projects through HUD say while the delay is not catastrophic, it certainly is slowing the process for getting projects under way.
“I think the biggest concern is the length of time between HUD implementing the prioritization of commitments, and the time that additional commitment authority is expected,” says Nick Gesue, chief credit officer for Lancaster Pollard.
As of about two weeks ago, HUD has stopped issuing commitments for non-priority deals, Gesue says. Priority deals might include those to rebuild following Hurricane Sandy, projects involving tax credits, affordable housing and others.
Congress has the ability to grant additional commitment authority to HUD, as took place earlier this year and advocates including the Mortgage Bankers Association have sought additional commitment authority. However, with Congress currently in recess through August, the earliest commitment authority additions would not be made until September.
“This puts us with nearly two full months without commitments being issued,” Gesue says. “This is a very significant length of time (16% of the year), and will have pretty significant implications on the productivity for the remainder of the year.”
The lack of authority for the coming weeks is likely to lead to a bottleneck as refinance projects awaiting HUD are at a relative standstill until October.
“This isn’t good, but the effects are manageable,” says Michael Vaughn, Senior Vice President, FHA Finance, at Walker & Dunlop. “It is going to put a lot of pressure on lawyers and closers in the fourth quarter because all these pent up projects [moving at the same time].”
Pending a Continuing Resolution that would keep the government funded into the coming fiscal year, the issuing of new financing are likely to be delayed for several weeks, but it doesn’t mean projects can’t be waiting when the financing does become available.
“If you had a deal ready to go two weeks ago, it may be getting delayed over two months,” Vaughn says. “But if you know HUD’s giving approval, you can start working on the application now.”
Written by Elizabeth Ecker