Simpson Housing Solutions uses the 221(d)(4) and 221(d)(3) financing programs. “They are fantastic loan programs for permanent financing,” says Michael Costa, president. “[They] are the best loans you can obtain. The problem has been the processing time,” he says. “It takes a lot longer to get financing and sometimes it’s prohibitive for us because we would like to use it with the LIHTC. However, the tax credit has critical deadlines that you have to meet. Often the HUD process is so long it puts you up against the deadline, and you end up losing your credits.”
The delivery system for the FHA program was always the problem, according to Gary R. Eisenman, executive vice president at Related Capital Co. and former deputy federal housing commissioner. “HUD should continue to improve the availability of product to the marketplace and let the market determine whether it’s being overused.”
But, according to Marilyn Melkonian, president of Telesis Corp., the FHA has bigger problems than the bureaucracy surrounding the delivery of its funding. “There’s no red tape, because there are no operating programs,” she says.
Since April, no new FHA insurance deals have closed because of the reluctance of the secretary to seek additional subsidies, agrees Eisenman.
Predictable Future? According to Martinez, he inherited a credit subsidy program that was $12.5 million in the hole at the beginning of the year. “It’s no surprise that the program ran out of money in the very first part of this year,” he says. “The problem then … was whether the Administration would declare a national housing emergency which then would have triggered a $40 million emergency fund. I was unwilling to make that recommendation to the President because I do not consider the multifamily housing situation in America today to be [in] a crisis or an emergency in the same way an unforeseen natural disaster may be. I thought it was an urgent problem and a reasonably important problem to deal with, but not something that I could go to the President in good faith and say, ‘we have a housing crisis in America.’ So, we opted to do something different about it.”
HUD did go to Congress to ask for a different supplemental appropriation of $40 million. However, Martinez wants to avoid stopping the program every time it runs out of money. Therefore, HUD also is seeking a change in the premium amount to allow the 221(d)(4) program to operate on a pay-as-you-go basis, which will allow this program to pay for itself.
“As a businessperson, I would prefer a process where there was a more predictable source of funding, and that can come about with a very modest increase in the premium cost,” says Martinez. “Obviously, some [in the industry] don’t like any increase in cost. I think it’s a small price to pay for the continuity of the program and the availability of the program without having to go to Congress every year to seek a subsidy. In addition to that, this is a program that should not be subsidized. I just think it’s a matter of philosophy. There are things that government should subsidize, but this is probably not one.”
However, Eisenman disagrees with Martinez. HUD’s budget this year was $29.5 billion, and next year it will be $31.5 billion. Not asking for the initial money, “calls into question what HUD’s policies are going to be,” says Eisenman. “This administration talks about compassionate conservatism. I think that is great. Housing is a place where the compassion should be emphasized. But, to say that failing to process multifamily insurance for FHA for half of the year is not a crisis seems to be inconsistent with that. If that’s not a crisis, I’m not sure what is.”
HUD’s own report – The Crisis Continues: The 1997 Report to Congress on Worst Case Housing Needs – found that more than 5 million families are under-housed in the country. “There is no question that Martinez should have gotten that $40 million supplemental money,” adds Eisenman. “The money was sought and obtained last year [during the Clinton Administration], and it was available to be used by the new administration. The money was put into the budget by a Republican-controlled House and Senate. It was a bipartisan issue to make sure the money was there.”