The U.S. Department of Housing and Urban Development has relaxed one of its requirements for financing multifamily properties.
In Mortgagee Letter 2009-26, HUD said it would insure loans on some new construction properties where construction began prior to applying for mortgage insurance with the agency.
HUD is waiving for six months its requirement that construction cannot commence prior to making an application for a HUD-insured mortgage.
The temporary move is being made because of illiquidity in the financial markets.
“The department has received requests to provide mortgage insurance for projects where construction stopped due to the loss of project financing or other sponsor circumstances,” the letter said. “Due to the illiquidity in the financial markets, lenders are reluctant to make construction loans and are backing out of commitments already made to provide construction draws.
“This tightening of credit will continue to depress current and future multifamily construction.”
The level of work completed on the impacted properties ranges from just site infrastructure to condominium-to-apartment conversion properties that are 90 percent complete.
Properties involving substantial rehabilitation or Section 232 are not eligible. Construction must be stopped before the insurance application is submitted to HUD. Construction financed under the FHA program can commence after the initial endorsement.
HUD said that it could extend the program depending on an evaluation of how effective the waiver is.
The agency said that the temporary policy ensures construction and design standards have been applied to all elements of building construction before it takes on any risk. In addition, HUD needs to confirm that it is fully protected under contractor warranty requirements.
Full program details are posted online at HUD.gov.
