Last week I mentioned how the popularity of the HUD 221(d)4 program was causing some HUD lenders to be more selective about which apartment deals they were taking on since they are not able to handle the recent significant increase in volume. One lender did indeed put a moratorium on new submissions until they work through their backlog. It’s a nice problem to have.
As promised, I visited with HUD officials in the New Orleans office to check their temperature on new deals in the Louisiana markets and to see if the agency was considering any changes in loan processing procedures. My general findings are:
– HUD has not filled up in any particular market and the staff is still open to receiving submissions across the state. They maintain, however, that the agency’s policy of not approving a new project that would compete with an existing HUD-insured project is still in place, particularly if that existing project is still in the lease-up phase.
– HUD will probably be implementing a policy to require potential borrowers to perform more due diligence before submitting an application. Gone are the days of throwing a deal up against a wall to see if it sticks, and then doing the hard work later. The HUD staff will want to know that the market and feasibility studies have been carefully considered, that environmental issues have been identified, that site control is assured and that, in general, the project has a reasonably good chance for success with an experienced team of professionals.
– HUD maintains a desire to provide affordable housing in the mix and not just high-end market rate deals. My sense was that affordable housing deals would be looked on favorably, though there was no specific direction in that regard. Sometimes you just have to read between the lines.
– Processing times are lengthening out as volume increases. This is a function of third party providers being ultra-busy (like appraisers, site inspectors, etc.) and HUD staff having a mountain of deals to get through.
The bottom line here is that HUD is still approving deals and no markets have been cut off, though developers really need to do their homework before submitting deals for consideration and there is a need for patience as everyone works as hard and as fast as they can.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
