Talking Heads: Ted Toon, Senior Advisor, Office of Multifamily Housing, Federal Housing Administration
By Darryl Hicks
10 min read
What’s coming for RAD, MAP and OZ?
Few people play as critical a role within the Federal Housing Administration’s Office of Multifamily Housing as Theodore “Ted” Toon.
Since joining FHA as a senior advisor in February 2001, Toon has worked closely with many senior political appointees and executive management in developing and executing major policy initiatives. He led the Mark to Market debt restructuring program and the Rental Assistance Demonstration (RAD) program as director of the Office of Recapitalization, as well as the Multifamily Accelerated Processing (MAP) program, and the 221(d)4 Low Income Housing Tax Credit (LIHTC) pilot program, as director of FHA Multifamily Production.
His counsel was even sought by the White House in 2016 to find new and better policies that support residential sustainability and resilience in construction, substantial rehabilitation and disaster rebuilding.
His career achievements over the past 20-plus years span a great many areas in real estate finance, housing finance, mortgage and mortgage insurance, affordable housing, green building and energy efficiency, public policy, public administration, organizational structure, strategic planning and change management.
Tax Credit Advisor sat down with Toon to get updates on FHA’s hiring expansion, RAD, the MAP Guide, Opportunity Zones and future priorities.
Tax Credit Advisor: At a recent NH&RA conference, you mentioned that FHA has been expanding its multifamily staff. What can you tell us about this important development?
Ted Toon: The hiring authority we have is broad. Most of the positions are in field offices throughout the country and include production and asset management, including senior underwriters, closing coordinators, troubled asset specialists and account executives. Since last year, we’ve onboarded more than 100 people from the outside and through internal hires, we have 50 more people in the pipeline ready to be hired and we will be recruiting for about 200 more positions. We are looking for qualified people from the affordable housing industry. If any of your readers want to add their expertise and contribute to the public good, I encourage them to visit www.USAJobs.gov.
TCA: The president’s FY2020 budget includes $100 million in new funding to help finance RAD projects that otherwise could not be done. While Congress still needs to approve funds, what details can you share?
Toon: The RAD program has been overwhelmingly successful, converting well over 100,000 units of public housing into Section 8 and supporting over $6 billion in capital improvements. All of that has been done, because of the enabling legislation, on a budget-neutral basis. However, there are projects in the public housing portfolio that cannot work as RAD conversions because they are in locations where the rents are too low, or the rehab piece is so great that the income levels of those properties don’t support the work that’s needed. The intent of the $100 million—which incidentally has been proposed in prior years but never made it through the final budget process—is to provide gap financing for projects that can’t convert. There is strong bipartisan support for the RAD program. Congress has raised the cap on the number of units that can be converted three or four times, but there has been a reluctance to appropriate additional funds. As more members of Congress have seen projects in their home districts converted and can see the benefits of the program, support has seemed to broaden.
TCA: What other policies has FHA put in place over the past year to improve RAD executions? What plans does FHA have for the RAD program?
Toon: That is something we continue working on and grappling with. Roughly 20 percent of the RAD conversions have used FHA debt, equal to just under $1 billion. We have an internal working group that’s looking for ways to continue streamlining between the two programs. We should see some things coming out soon, both as part of the new MAP Guide next year, and within the RAD program, to see how we can make the two work better together. The public housing conversion component is what gets so much attention, but there are other, equally important, parts of RAD that have attracted less attention: mod/rehabs, SRO (single room occupancy) properties and soon RAD PRAC (Project Rental Assistance Contracts), which is for the Section 202 elderly housing program. These lesser known programs that we refer to as RAD-2, that’s where I think we’ll see greater use of FHA financing.
TCA: Let’s shift to Opportunity Zones. You noted that roughly a quarter of FHA’s insured mortgage portfolio is in Opportunity Zones and that the Department has new incentives for developers who use FHA financing in OZones. Please describe these incentives.
Toon: On May 9, FHA announced a reduction in the application fees for FHA mortgage insurance for projects that are in Opportunity Zones. For transactions that are defined as ‘broadly affordable,’ FHA’s application fee will be reduced from the current $3 per thousand dollars of the requested mortgage amount to $1 per thousand dollars of the requested mortgage amount, resulting in an average cost saving to applicants of approximately $28,000. ‘Broadly affordable’ is defined as developments in which at least 90 percent of the units are Section 8- eligible or deemed affordable under LIHTC. For market-rate transactions, FHA will reduce application fees from $3 to $2 per thousand dollars of the requested mortgage amount, resulting in an estimated average cost savings of $14,000.
TCA: I understand that you’re close to completing the MAP Guide and that there may be some changes to the seasoning period. What can you tell us about this development? When do you anticipate the MAP Guide being released?
Toon: The 223(f) loan program has had a policy since inception that requires three years of seasoning after construction before you can access the program. There have been a couple of times when that requirement was waived. It was done in 1975 after the program was created and again after the financial crisis from 2009 to 2013 when other capital sources dried up. The waiver allowed the seasoning period to be reduced to six months. There was a significant amount of work and a significant number of loans that were originated under that waiver. We are evaluating the performance of those loans relative to other loans made during the same period to ensure they don’t pose any additional risks to our portfolio. Basically, we’re looking to see whether we can do something policy-wise along the lines of what was allowed under the waiver. The draft MAP Guide will contain whatever we conclude addresses the needs of the marketplace while balancing risk to the insurance fund. It’s a 900-page document that we are reviewing in its entirety, so it’s a long process. Nevertheless, we hope to have a draft of the revised MAP Guide by the end of 2019. As we did with the 2016 version, our intent will be to publish a copy for public review and comment prior to finalizing it.
TCA: Earlier this year, FHA expanded the LIHTC pilot to include the Section 221(d)(4) and Section 220 loan programs. What can you tell us about this exciting change and the impact it has had in the affordable housing marketplace?
Toon: We published the notice in February 2019 and have already received applications. Clearly, the market is responding to it. We did this pilot as an expansion of another pilot we started several years ago in the 223(f) program that was very successful. What we learned from the 223(f) pilot is that a lot of the streamlining that we put in place made the application process easier, without increasing risk to the FHA insurance fund. Many of the things we tested for in the pilot are now built into the MAP Guide as standard processing approaches. We expect the same thing to happen for the 221(d)(4) pilot.
It basically streamlines the application period in a couple of areas. One of the big ones is in architectural and engineering document reviews, which have historically been duplicative. So, that’s one major area where we hope to see a reduction in processing times. We expect that our borrowers and our lenders will respond positively to these developments.
TCA: President Trump issued a memorandum in March directing the secretary of Housing and Urban Development to develop a housing reform plan that includes “defining the appropriate role of the FHA in multifamily mortgage finance.” Do you anticipate any changes to the way the Office of Multifamily Housing operates?
Toon: The memo directs Secretary Carson to examine all programs in HUD, FHA and Ginnie Mae through a cost-benefit analysis, and recommend new policies that reduce taxpayer risk, increase private sector participation and modernize government housing programs. It’s a broad charge that has been given to the secretary. I don’t know the timing for the release of the housing reform plan, but again it will take a comprehensive look at all the Department’s programs and see how they can meet the requirements of this memo.
TCA: The new director of the Federal Housing Finance Agency, Mark Calabria, has vowed to privatize Fannie Mae and Freddie Mac and end their conservatorship. Prior to the housing crisis, FHA endorsed roughly $3 billion/year in multifamily loans, compared to $15 billion the past two years. If this happens—and I realize Congress must pass legislation authorizing these changes—do you anticipate FHA’s role diminishing in the multifamily area or will the Department be taking steps to stay competitive with the private sector?
Toon: Our role in the marketplace has been to play a counter-cyclical role and serve the needs of the affordable housing market, which I think we’ve done very well. The increase in FHA multifamily debt issued after the housing crisis can be attributed to a combination of factors. There’s the counter-cyclical role that I just spoke about, but around that same time the Office of Multifamily Housing underwent a transformation. We consolidated our offices, retrained our underwriters and technical staff and significantly reduced our processing times. We found that a lot of the borrowers and lenders that had started using FHA products during the financial crisis discovered that they were pretty good products, that FHA was easy to work with, and they have continued working with us. In terms of how that plays out with Fannie and Freddie and GSE reform, it’s hard to say what impact that will have.
TCA: Is there anything important within FHA multifamily that we didn’t cover that you’d like to comment on?
Toon: In terms of exciting things to watch for, there are the staffing level increases and the MAP Guide rewrite that I spoke about. We will soon announce some leadership changes within the Office of Multifamily Housing. We continue working on Opportunity Zones and EnVision Centers and really how we can marry up our various programs. We’ve already talked about FHA and RAD working better together, but then also how those two can overlap with Opportunity Zones and how they can involve EnVision Centers. Internal streamlining of processes is something we continue to work on. The administration has also been focused on regulatory relief. To the extent we can scrub the regulations that impact our work, including labor and environmental regulations, we continue to look at those opportunities for streamlining and regulatory relief. Over the next year, keep a watchful eye on regulatory reform and how they can benefit our programs.
(Editor’s note: The EnVision Centers demonstration program creates a centralized hub in 17 communities nationwide where HUD-assisted families can access social services that promote economic empowerment, educational advancement, health and wellness and character and leadership.)
Story Contact:
Ted Toon
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