The HUD Quarterly

From HUD

What's moving at HUD HQ and in the field offices we work with.

HUD released Mortgagee Letter 2026-04 on May 4, which revised four environmental requirements in HUD's underwriting guide (MAP Guide). The headline change is to the rules governing fall hazards from high voltage power lines, cell towers, and similar free-standing structures. Under the old writing of the MAP Guide, any residential structure closer to a tower than the tower's full height required an engineered fall zone study — which was expensive, slow, and hard to get engineers to sign off on. The new standard reduces the threshold distance to 50% of tower height, and where a study is still required, replaces the open-ended "engineering report" with a defined ASCE-7 standard covering wind, ice, and seismic loads. We've had deals stall on this requirement before.

The letter also removes the requirement to assess railroad vibration as a separate environmental item. HUD now treats it as an underwriting concern, to be flagged by the appraiser if it presents a marketability issue — which it rarely does. In addition, HUD's existing pressurized pipeline language reverts to the easier 2011 MAP Guide standard, deferring to PHMSA jurisdiction rather than HUD-specific buffer requirements beyond a 10-foot easement setback. And HUD added new language defining which outdoor ancillary uses qualify as "noise sensitive" and subject to HUD's noise regulations. Pools and playgrounds are "sensitive." Dog runs, trails, hot tubs, sports courts, and rooftop gathering spaces are not. That last one resolves a recurring source of late-stage friction on amenity-heavy properties.

Looking ahead, HUD has been working with a small group of MAP lenders on a larger mortgagee letter targeted for Fall 2026. Among the items in scope: changes to 221(d)(4) working capital, a revised approach to cash-out holdbacks tied to repair escrows on 223(f) refinances, and streamlined application checklists. Brian flagged a bug in HUD's proposed cash-out holdback formula during the comment process and HUD is reworking it. We'll cover the package in detail when it lands.

The Market

Rates and what we're seeing in the pipeline.

The 10-year closed Q2 at 4.47%, up 15 bps from where it ended Q1.

The comparison to Q1 matters more than where Q2 landed. Q1 briefly saw the 10-year dip below 4.00% in late March. When it was sitting around that level, we were starting to see 221(d)(4) new construction deals size to HUD's 87% LTC threshold and 223(f) cash-out refinances size to the 80% LTV threshold — LTC and LTV-based sizing was binding, not debt service ratios. Q2 never got back to those lows: the 10-year opened the quarter at 4.32% and moved higher as the war in Iran lingered on indefinitely. We are back to seeing almost all deals DSCR constrained at the 1.15x threshold.

On the operating side, the concession-heavy T12s we were seeing on applications submitted over the winter are starting to burn off as spring and summer leasing kicks in. Rent growth had been soft across many markets over the last year. However, as we head into summer and a stronger leasing season, we are seeing good rent growth, which we are able to capture in how we size deals heading to HUD Firm Commitment in Q3 and Q4. Rates move daily and vary by deal size, timing, and structure — if you want a current read on a specific transaction, send us a note.

What We're Watching

A few topics that have our attention this quarter.

221(d)(4) as a construction option

We've had more 221(d)(4) conversations in the last quarter than in the prior year. The shift traces back to two things happening over the last few years. First, HUD eliminated the 223(f) three-year stabilization rule in 2020, which made 223(f) available as a construction takeout after just one month of stabilized DSCR. That change moved a lot of developers toward bank construction plus a HUD 223(f) takeout, and away from the longer 221(d)(4) process. Second, bank construction has gotten meaningfully harder to source over the last few years. The banks still active in the space are sizing to 1.25x or 1.35x DSCR, which on current rates means leverage that often does not pencil for new construction. 221(d)(4) is back as a real option as a result of the 1.15 DSCR threshold — we currently have three heading toward application. The longer underwriting timeline that pushed developers away from the program in the first place is now less of a deterrent than the leverage. The 241(a) supplemental program is part of the same conversation — borrowers with an existing HUD-insured property are looking at 241(a) for phased construction in parallel with 221(d)(4) for ground-up. The market is starting to view HUD as a construction lender, not just a permanent refinance option.

The ROAD Act and SFR/BTR financing

We've seen growing interest in build-to-rent (BTR) and single-family rental (SFR) development over the last 12-18 months, and HUD had been moving toward a framework that would allow permanent FHA-insured financing on these properties. On March 12, the Senate passed the 21st Century ROAD to Housing Act with a Section 901 provision that would have required large institutional investors (defined as owning more than 350 single-family homes) to dispose of BTR units to individual homebuyers within seven years. A seven-year forced exit is incompatible with long-term permanent financing, and HUD paused work on its BTR memo while the bill moved through the legislative process.

The House passed an amended version in May that exempted BTR from the forced-sale provision through a series of carveouts. On June 16, Senate, House, and White House negotiators released updated bicameral text that adopts the House's BTR-friendly language. The Senate passed the revised version on June 22 by a vote of 85-5, and the House passed it on June 23 by a vote of 358-32. A signing ceremony was scheduled for June 24, but the President canceled it, saying he would not sign until Congress passes the SAVE America Act. The bill was formally presented to the President on June 29. If the President doesn't sign or veto a bill within 10 days (excluding Sundays) while Congress is in session, it automatically becomes law. That window closes around July 10 for this legislation. The full bill text and a section-by-section summary are published by the Senate Banking Committee.

The outcome for BTR is settled regardless of what the President does. If the bill becomes law — by signature or by automatic passage after the 10-day window — the seven-year disposition requirement is out of the final text. If the bill doesn't become law, the status quo holds: there is no seven-year restriction on BTR properties today, and there wouldn't be one going forward. We expect HUD to resume work on its BTR financing framework once the legislative path is finalized.

Montana property taxes and HUD underwriting

Montana HB 231 and SB 542, passed in 2025, dropped the multifamily property tax class rate from 1.89% to 1.10% — a roughly 42% reduction in the tax bill once it fully shows up on the November 2026 bills. Because Montana taxes bill in arrears, every Montana multifamily property HUD underwrites between now and at least 2028 will have a historical tax record that reflects the old rate. HUD's standard approach is to triangulate between historical taxes and the appraiser's forward estimate, which means the new rate has to be actively pulled forward into both — and on a DSCR-constrained deal, the difference can easily move proceeds by several million dollars. We were the first HUD team to underwrite a deal with the new law, and the path required preemptive documentation, an appraiser briefed on the legislation, and an escrow argument that bridged the timing gap between closing and the first reduced tax bill. The mechanics are in our recent deal highlight. The reason this stays on our watch list: HUD has a large Western office, deals are underwritten by whichever underwriter is assigned, and there is no internal memo making the lower rate the default. Each new Montana deal needs the case made again.

From the Pipeline

Current activity at Centennial.

Early-stage 221(d)(4) work

We're in early conversations with HUD on three 221(d)(4) new construction transactions and working with the sponsors on pre-application sequencing. Two are in the Mountain West and one is in Texas. Consistent with the broader 221(d)(4) trend we cover above, all three are deals where bank construction terms didn't pencil and the sponsors are reevaluating HUD as the construction vehicle.

Other active conversations

A 241(a) supplemental discussion with an existing HUD borrower in the Mountain West, and two 223(f) refinance scenarios in pre-engagement review.

From Us

What we've published and a personal note.

Launched the site. We launched roachlorenz.com this quarter as the home for our practice. Sixteen white papers and deal highlights are published so far, covering the major HUD multifamily programs and walking through specific deal mechanics. Two pieces tie directly to themes in this issue: our HUD 241(a) Supplemental Loan white paper and the Montana tax law deal highlight we referenced above. The full library is at roachlorenz.com/resources.

On a personal note. Both of our families grew this spring — Wim and Brian each welcomed new daughters. More diapers...

Get in touch. If something in this issue raised a question on a specific deal, the fastest way to reach us is direct email — Wim at wroach@centennialmortgage.com, Brian at blorenz@centennialmortgage.com. Or send a note through the contact form at roachlorenz.com.