Mortgage

FHA Sweetens the Deal for Multifamily Lending in Opportunity Zones

June 2019 – When Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act, the IRS provided tax benefits in order to spur investment in these distressed communities throughout the country. Those investing in Opportunity Zones can receive preferential tax treatment through the deferral of capital gains and a step up in tax basis, eliminating some or all of the capital gains completely, as long as a certain time line and criteria are met. Recently, the Federal Housing Administration (FHA) made an announcement offering its own package of incentives for those purchasing or developing qualified multifamily properties in designated Opportunity Zones to encourage investment:

1. Processing by designated HUD underwriters

The U.S. Department of Housing and Urban Development (HUD) has designated specialized Senior Underwriters in each region of the country to process certain applications for FHA multifamily mortgage insurance for properties in qualified opportunity zones. Lenders must identify in their application that the following criteria is met so that an FHA Senior Underwriter is assigned to the application:

• The application is being submitted pursuant to Section 221(d)(4), Section 220, or the Section 223(f) program for a property located in a qualified opportunity zone census tract, and/or
• The application involves an investment from a Qualified Opportunity Fund.

2. Reduced FHA Mortgage Insurance Application Fee for properties located in a qualified opportunity zone

• For broadly affordable housing transactions located in a qualified opportunity zone census tract, the FHA mortgage insurance application fee may be reduced from the current fee of $3.00 per thousand dollars of the requested mortgage amount to $1.00 per thousand dollars of the requested mortgage amount. Consistent with HUD’s Federal Register notice dated March 31, 2016 (81 FR 18473), broadly affordable housing must have either:
  1. at least 90% of units covered by a Section 8 Project Based Rental Assistance (PBRA) contract; or
  2. at least 90% of its units covered by an affordability use restriction under the Low Income Housing Tax Credit program.
• For market rate and affordable housing transactions located in a qualified opportunity zone census tract, the FHA mortgage insurance application fee may be reduced from the current fee of $3.00 per thousand dollars of the requested mortgage amount to $2.00 per thousand dollars of the requested mortgage amount.

You can find more detailed information at:

https://www.hud.gov/sites/dfiles/OCHCO/documents/2019-07hsgn.pdf

For more information about the tax benefits of purchasing or developing qualified properties, or investing in a Qualified Opportunity Fund, read our previous blog posts on the subject. You can reach us at info@richeymay.com or 303-721-6131.