HUD expected to further ease restrictions on mixed-use financing

The financing of low-to-mid-rise mixed-use buildings, restricted by federal rules since the 1930s, will likely become easier this year, the Congress for the New Urbanism (CNU) reports.

The Federal Housing Authority (FHA) raised its nonresidential loan limits to 35 percent from 20 percent in 2012 — now it looks like the US Department of Housing and Urban Development (HUD) is moving forward with reforms in other programs.

Officials from HUD’s multifamily unit recently told CNU president and CEO John Norquist, New York Regional Plan Association executive director Thomas Wright and Richard Oram of the Oram Foundation that further reforms are expected in HUD's Sections 221d4 and 220 multifamily financing programs, due for release in September 2014.

“What is likely to happen is that HUD 220 and 221d4 caps will be raised up to 35 percent,” Norquist says. “This could vary by project characteristics and location, but allowing up to 35 percent non residential is a big deal.” The higher FHA mortgage nonresidential caps have worked, Norquist says.

Lower restrictions will remain in place at Fannie Mae and Freddie Mac, he adds.

“Fannie and Freddie are harder to change. Their leadership has been in flux and Congress has been considering legislation to either abolish or radically change” these organizations. “It is easier to deal with FHA and HUD because they can make the changes we seek without having to go thru Congress to change federal law.”

In a March 27 letter to HUD secretary Shaun Donovan and Commissioner Carol Galante, Norquist, Wright, and Oram emphasized the importance of these changes.

“Restrictions on non-residential use unintentionally but essentially hinder the financing of mixed-use buildings with retail, the kind found in traditional town centers – the good old-fashioned Main Street, and the kind of places Americans increasingly like to visit, and where many young and older people now prefer to live,” they said.

HUD section 221d4 is currently at 15 percent, and most of the other restrictions are set at 20 percent. This makes mixed-use buildings of two to seven stories more difficult – exactly the height found most often on main streets and in smaller city and town centers.

These kinds of buildings were arbitrarily and inappropriately placed in a higher risk category, CNU says. Loans to such buildings that did not meet federal standards could not be sold on the secondary market, which led to few Main Street buildings constructed since the 1930s, CNU explains.

CNU and allied organizations like the Regional Plan Association have been pushing for some time to get these restrictions to be eased or eliminated.