After months of raising standards for single-family lenders, the Federal Housing Administration tightened guidelines for multifamily mortgages for the first time in the 40 years it has insured such loans.
The measures, announced Wednesday, did not catch apartment lenders off guard, but they nonetheless did not welcome the news.
"We're not surprised by anything nowadays," said Menzo Case, the president and chief executive of Seneca Falls Savings Bank in upstate New York. "It's just another nail in the coffin."
Among the new requirements, the FHA is raising debt service coverage ratios and lowering loan-to-value and loan-to-cost ratios. (The maximum loan to value on "affordable" rental properties, for example, is being cut to 87% from 90%.)
The agency is also requiring additional verification of a property's financial performance, an expanded review of the borrower's credit and the prescreening of certain applications to weed out loans that might not make it to closing.
David Cardwell, vice president of capital markets and technology at the National Multi Housing Council, an apartment industry group, said the new standards are fairly reasonable, but will still present challenges for borrowers and lenders.
"The requirements, while they are more restrictive than the previous requirements … are still the most generous in the market," he said. "That said, it is going to impact a large number of transactions and it's going to require borrowers to seek additional equity investment and that's not what the borrowing community would like to have at a time when they are trying to cope with declining values."
Case said if the standards prove to be too onerous for his $235 million-asset bank, it will just shift its focus to other areas of lending, adding the new rules are likely to push a lot of smaller lenders out of multifamily mortgages. "And that will be left for the big boys to deal with."
The FHA is also working on a proposal for a multifamily "credit watch" system, similar to the one it has to track single-family lenders, in which it will identify and monitor lender violations.
Rodrigo Lopez, president and chief executive of AmeriSphere Multifamily LLC, in Omaha, Neb., and a member of the Mortgage Bankers Association's board of directors, said he thinks the revisions to the underwriting standards "are on point."
"Underwriting standards and requirements have to evolve with … market changes," he said. Just the same, as the market improves, he hopes FHA will be willing to loosen its standards as appropriate.
On the single-family side, the FHA has raised up-front insurance premiums, required higher down payments from borrowers with low credit scores and increased enforcement actions against lenders. Loan losses have eroded the agency's capital.