HUD Business During a Pandemic

The COVID-19 virus is having a profound impact on the nation, temporarily, but dramatically, affecting how we live and work. The virus is roiling the capital markets, and policies imposed to slow its spread have ground the economy to a crawl in many quarters. The mortgage banking team at Sims Mortgage Funding has taken to working remotely, linked to each other, our clients and our consulting and business partners electronically, and we will continue to operate this way until the “all clear” sign is announced.

In times of crisis there also is opportunity, and the COVID-19 virus proves no exception. Interest rates for HUD-insured loans have fluctuated wildly over the past few weeks, but the gradual tightening of spreads over the yield on 10-year US Treasuries and steps by the Federal Reserve to ensure liquidity into the government-backed securities markets, improving sale conditions, have created a very favorable climate for interest rates on HUD-insured loans.

How favorable? We are seeing indications of interest around 2.60% for HUD-insured refinancing loans and about 3.30% for construction and substantial rehabilitation loans. Please note that these rates exclude HUD’s annual mortgage insurance premiums, which range from .25% to .77% depending upon such factors as the project type, loan purpose, affordability restrictions, etc. These are terrific rates, reminiscent of what we saw in the HUD-insured loan markets during the Great Recession in 2008.

HUD has taken positive steps to remain operational by working remotely during the COVID-19 crisis. They have established procedures to process mortgage insurance applications and are working with our trade associations and third-party report providers to develop protocols for site and building inspections and appraisals. HUD also has developed arrangements for closings remotely – we’ll soon see how this works as we have a multifamily affordable refinance loan in the Southwest Region just starting the closing process.

HUD’s goal is to conduct business as usual during these difficult times – however, it remains to be seen how the negative economic conditions resulting from a national shutdown of the economy and the effects of COVID-19 on the senior housing sector will impact HUD’s review of new mortgage insurance applications. We are hearing anecdotally that HUD is contemplating increased reserves and other escrows for market-rate construction loans, and potential adjustments to project valuations to account for the impact of COVID-19. More to come there.

One of the central missions of HUD’s mortgage insurance programs is to provide credit support and liquidity to the housing and healthcare/senior capital markets during times of economic difficulty. Given the magnitude of the economic dislocation in the wake of the COVID-19 virus, HUD is expected to play an integral, and necessary, component in our national recovery.

We wish you and your families the best and hope that you are staying safe.