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Abstract: 

Section 221(d)(4) mortgage defaults soared to $381 million in 2004, only slightly under levels seen at the height of the savings and loan crisis. This spike in default rates indicates acute distress in the FHA multifamily portfolio, and default rates are vulnerable to further upward pressure in the near term. FHA multifamily loan production also fell in 2004 by the most in over a decade, and the most pronounced downturn in rental housing markets since the early 1990s has also negatively affected originations. Prepayments are also at record levels, and the general health of long-term care projects remains weak. In contrast to turbulence in other FHA programs, 542c HFA Risk Sharing is an oasis, with only one default in 2004. Begun in 1994, FHA Risk Sharing is a significant improvement over traditional forms of FHA insurance.

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Affiliations:  1: Merrill Lynch, Pierce, Fenner & Smith Ltd.