Section 542(c) enables the U.S. Department of Housing and Urban
Development (HUD) and State and local housing finance agencies (HFAs)
to provide new risk-sharing arrangements to help those agencies
provide more insurance and credit for multifamily loans.
A related program is the Qualified Participating Entities (QPE)
Risk Sharing Program:
The Program provides new insurance authority independent of the
National Housing Act. Section 542(c) provides credit enhancement
for mortgages of multifamily housing projects whose loans are underwritten,
processed, serviced, and disposed of by HFAs. HUD and HFAs share
in the risk of the mortgage. The program was originally designed
as a pilot to assess the feasibility of risk-sharing partnerships
between HUD and qualified State and local HFAs in providing affordable
Type of Assistance:
FHA mortgage insurance for HUD-approved lenders.
Participating qualified State and local Housing Finance Agencies
may originate and
underwrite affordable housing loans including new construction,
substantial rehabilitation, refinancing, and housing for the elderly.
The program provides full FHA mortgage insurance to enhance HFA
bonds to investment grade. HFAs may elect
to share from 10 to 90 percent of the loss on a loan with HUD. The
HFA reimburses HUD in the event of a claim pursuant to terms of
the risk sharing agreement.
An HFA must be approved by HUD to participate in this program.
To be eligible
the HFA must: (1) carry the designation of "top tier"
or its equivalent as evaluated by Standard & Poor's or another
nationally recognized rating agency; or (2) receive an overall rating
of "A" for the HFA for its general obligation bonds from
a nationally recognized rating agency; and (3) otherwise demonstrate
its capacity as a sound, well-managed agency that is experienced
in financing multifamily housing; and (4) have at least 5 years
experience in multifamily underwriting; and (5) be a HUD-approved
multifamily mortgagee in good standing.
Eligible mortgagors include investors, builders, developers, public
entities, and private Non-profit corporations or associations may
apply to a qualified HFA.
Individuals, families, and property owners may be eligible for affordable
To obtain mortgage insurance, a potential borrower should consult
a HUD-approved HFA as the single point of contact for additional
information regarding the process. The lender on behalf of the borrower
then submits an application directly to the HFA. The HFA obtains
specific approvals from the local HUD Multifamily Hub or Program
Center on previous participation and environmental assessments.
This program is authorized by Section 542(c) of the Housing and
Development Act of 1992 (12 U.S.C. 1707). Section 235 of HUD's FY2001
Appropriation Act, Public Law 106-377, amended Section 542 , which
changed the Risk Sharing Pilot Program to a permanent multifamily
insurance program. Regulations are in 24 CFR Part 266. The basic
program instructions are in HUD Handbook 4590.01 - Housing Finance
Agency Risk Sharing Pilot Program available on HUDclips.
The program is administered by the Office of Multifamily Housing
In fiscal year 2011, the Department insured mortgages for 73 projects
with 8,083 units, totaling $593.6 million.