Section 207 Program insures mortgage loans to finance the construction
or rehabilitation of a broad range of rental housing. Section 207
mortgage insurance, although still authorized, is no longer used
for new construction and substantial rehabilitation. It is however,
the primary insurance vehicle for the Section 223(f) refinancing
program. Multifamily new construction and substantial rehabilitation
projects are currently insured Section 221(d)(4) programs.
Section 207 insures lenders
against loss on mortgage defaults. The intent of the program is to increase the
supply of quality and reasonably priced rental housing for middle-income families.
Type of Assistance:
FHA mortgage insurance for HUD-approved
Section 207 mortgage insurance
may be used to finance the construction or substantial rehabilitation of detached,
semidetached, row, walk-up, or elevator type structures with 5 or more units.
A project is eligible for mortgage insurance if the sponsor can demonstrate that
there is a definite market demand, that the project is economically self-sufficient,
and that financing is secure. The program has statutory per unit mortgage limits,
which vary according to the size of the unit, the type of structure, and the location
of the project. There are also loan-to-value and debt service limitations. The
mortgage is limited to 90 percent of HUD appraised value.
Eligible mortgagors include investors, builders, developers, and others who meet
HUD requirements for mortgagors.
are eligible to occupy dwellings in a structure whose mortgage is
under this program, subject to normal tenant selections.
The sponsor has a pre-application conference with the local HUD Multifamily
Hub or Program Center to determine preliminary feasibility of the project. The
sponsor must then submit a site appraisal and market analysis application (SAMA)
(for new construction projects), or feasibility application (for substantial rehabilitation
projects). Following HUD's issuance of a SAMA or feasibility letter, the sponsor
submits a firm commitment application through a HUD-approved lender for processing.
Considerations include market need, zoning, architectural merits, capabilities
of the borrower, availability of community resources, etc. If the proposed project
meets program requirements, the local Multifamily Hub or Program Center issues
a commitment to the lender for mortgage insurance.
Section 207 was authorized by the National Housing Act. Regulations are
found at 24 CFR, Section 200 and Section 207. The basic program instructions are
in HUD Handbook 4400.1 - Project Mortgage Insurance - Basic Section 207 Instructions
available on HUDclips. The program is administered
by the Office of Multifamily Housing Development.
In fiscal year 2013, the Department did not insure any mortgages
under this section. Developers and lenders prefer Section 221(d)(4)
whose terms are more advantageous.