WASHINGTON -- Legislation pending in Congress would raise the size of multifamily mortgages that the FHA could insure in cities with high housing costs, enabling the cities to move forward with bond-financed projects that have been stalled by the limit.

Increasing the so-called high-cost adjustment to the Federal Housing Administration's multifamily insurance limits "will make projects that are otherwise unfeasible feasible in areas like New York and San Francisco, which are the two main beneficiaries" of the proposed change, said John C. Murphy, the executive director of the Association of Local Housing Finance Agencies.

Under current law, state and local housing agencies that want to make FHA-insured multifamily housing loans to developers are limited to a dollar amount set by a formula based on the number of bedrooms in each unit in a given project.

In cities designated by the Department of Housing and Urban Development as having high housing costs, HUD permits that dollar limit to be increased by 110%. HUD also has the authority to raise the cap an additional 30% in the high-cost areas, on a project-by-project basis.

The comprehensive housing reauthorization bill passed June 17 by the House Banking Committee would increase the project-by-project adjustment from 30% to 42%, while legislation passed by the Senate Banking Committee on June 22 would raise the adjustment to 37%. The full House and Senate are expected to approve their bills this month.

Although HUD has designated several dozen cities as high-cost areas, only New York and San Francisco have such high costs that the 30% project-by-project adjustment is still too small.

Other cities at the top of HUD's high-cost list are Los Angeles; Santa Ana, Calif.; Hartford; and Newark, N.J. Those cities' costs are still low enough that they are not likely to run up against the 30% project-by-project limit in the near future, Murphy said.

But the high-cost limit, which has not changed in more than a decade, has constrained New York City's ability to take advantage of FHA insurance, said Charles Brass, the director of development for the New York City Housing Development Corp.

Over the last half-dozen years, the development agency has been able to move forward with only three FHA-insured projects. In the most recent deal, the corporation in December privately placed $141 million of multifamily housing bonds with Fannie Mae to finance a loan for a 1,000-unit apartment building in the city.

"We're hopeful that if interest rates cooperate, [the proposed increase] will enable us to do maybe one or two extra projects a year," said Brass, who is also the president of the Association of Local Housing Finance Agencies.

Without the change, "projects that we're looking to do maybe next year or the year after that are constrained" by the 30% limit, Brass said.

Housing lobbyists said they originally hoped housing lawmakers would approve an across-the-board increase in the FHA multifamily mortgage insurance limit. But legislators decided to propose only a narrow increase for the highest-cost cities because of federal budget constraints, the lobbyists said.

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