To ensure that the Broadly Affordable and energy-efficient properties benefit directly from the lower rates, FHA will limit the fees that can be charged on these loans.
Multifamily insurance rates for market-rate properties that are not energy efficient (as defined above) will remain unchanged.
FHA is also reducing upfront premiums to support the affordable housing and energy efficiency goals stated above and to streamline the premium structure. Upfront insurance rates will be set at 25 basis points for Broadly Affordable and Energy-Efficient properties and 35 basis points for Mixed-Income properties. Upfront premiums for market rate properties that are not energy-efficient will remain unchanged.
Each year the U.S. loses more than 300,000 affordable housing units. FHA’s multifamily rate reductions will help preserve and maintain affordable housing by making rehabilitation more cost-effective and allowing the U.S. to better preserve its limited affordable housing stock. Most of the affordable housing in the U.S. was built prior to 1980, making it more than 30 years old. These premium reductions will allow developers to renovate this housing, providing families with better quality places to live. The reductions will allow owners of affordable housing developments to free up the capital needed to support higher levels of rehabilitation or increase the number of affordable units—both of which will increase the access families will have.
Nearly half (49.3 percent) of all renter households spent more than 30 percent of income on housing in 2014, including more than one quarter (26.4 percent) who devoted more than half of income to housing. Since 2000, rents have risen while the number of renters who need affordable housing has increased. The pressure to find affordable housing to rent is more severe for very poor households. Only 28 of every 100 extremely low-income renter households in the United States were able to find decent, affordable homes in 2013.
Encouraging more energy efficient multifamily housing
One-out-of-every-four U.S. households live in multifamily housing units and spend approximately a combined $40 billion on energy costs each year. Making these housing units 20 percent more energy efficient would save $8 billion per year and cut greenhouse gas emissions by over 430 million tons. The lower multifamily insurance rate for energy-efficient projects will contribute to this effort by encouraging owners to adopt higher standards for construction and rehabilitation, resulting in greater energy and water efficiency, reduced utility costs, and improved indoor air quality.
Lowering rates in a responsible way
The reduced rates announced today are made possible by the strong health of the FHA Multifamily portfolio,which stands at a historically low default/delinquency rate of 0.15 percent. FHA’s Multifamily business traditionally generates significant revenue for taxpayers; these changes will leverage over $400 million in new mortgage financing for affordable housing/energy-efficient development without significantly decreasing overall revenue. Even with these reductions, affordable and energy-efficient loans originated in Fiscal Year 2016 are projected to generate net revenue for the federal government.