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Housing Finance Agency Risk-sharing: Section 542(c)

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: Section 542(b).

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 housing.

Type of Assistance:
FHA mortgage insurance for HUD-approved lenders.

Eligible Activities:
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 Borrowers:
Eligible mortgagors include investors, builders, developers, public entities, and private Non-profit corporations or associations may apply to a qualified HFA.

Eligible Customers:
Individuals, families, and property owners may be eligible for affordable housing.

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 Region on previous participation and environmental assessments.

Technical Guidance:
This program is authorized by Section 542(c) of the Housing and Community 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 Programs, Office of Production, Program Administration Division.

Program Accomplishments: In FY2023, the Department insured mortgages for 68 projects with 7,331 units, totaling $1 billion.

If you have questions regarding local projects/ properties proposals, financing or housing assistance, please click this link to find your closest local HUD Office and their Multifamily Production contacts.

If you have questions about HUD programs, policies and guidance in the MAP Guide, please click this link to use the HUD Exchange, "Ask A Question" form.

Last Updated: 10/11/2023


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