HUD Proposes Changes to DSCR and LTC/LTV Requirements
HUD recently proposed draft changes that will ultimately increase loan sizing in support of conventional multifamily as well as affordable and workforce housing supply.
The first change proposes lowering the Debt Service Coverage Ratio (DSCR) requirements and increasing Loan-to-Cost (LTC) and Loan-to-Value (LTV) restrictions, a notable shift that will increase loan proceeds for sponsors.
The second creates a Middle Income program under the 221(d)(4) loan program, with lower DSCR requirements and higher LTC restrictions. Middle-income properties are defined as those with a use restriction, monitored by a state or local government entity, on 50% of the units restricted at 60% to 120% AMI.
Key Proposed Changes
Market-Rate 221(d)(4) and 223(f) transactions:
- Reduced DSCR from 1.176x to 1.15x
- Increased LTC/LTV from 85% to 87%
Affordable 221(d)(4) and 223(f) transactions:
- Reduced DSCR from 1.15x to 1.11x
- Increased LTC/LTV from 87% to 90%
Middle Income Housing 221(d)(4) transactions:
- Reduced DSCR from 1.176x to 1.11x
- Increased LTC from 85% to 90%
HUD is expected to issue final versions in approximately 30 days, with changes enacted by the end of the year. Newly submitted deals and those already in the pipeline will likely also benefit from the new policy changes, based on history.
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Read the HUD draft memos here: