Traditional lenders tightened their underwriting criteria almostimmediately after the credit collapse, and construction loans wereamong the hardest hit. Now, the government has decided that may notbe a bad idea.HUD recently unveiled its proposed changes to FHA'sunderwriting of multifamily mortgages. The agency had previouslyreleased its planned tweaks to single-family FHA, so the newapproach to apartment loans was not unexpected. Carol Galante,Deputy Assistant Secretary for Multifamily Housing, maintained thatthe move was part of an effort to strengthen the FHA multifamilyprograms.The changes-namely, to Section 221(d)(4) and223(f) loans-were necessary due to the rising rate of default formarket-rate 221(d)(4) loans, among other factors, Galante stressed.FHA also has a high concentration of properties in the markets withthe highest vacancies, she stated, adding that the claims rate hasdoubled in the past two years to 1.2% in fiscal year 2009, and thatfigure is expected to double this year.The main changes involveincreased oversight of Multifamily Accelerated Processing lendersand borrowers and improvements in credit risk management andprocessing.Debt service coverage ratios would also be increased formarket-rate 221(d)(4) loans and developers would have to come upwith twice the working capital escrow (from 2% of the loan amountto 4%). Further, cash-out proceeds would be withheld until theproject is completed and stabilized, and most borrowers must beable to prove they can stabilize the property within 18 months ofdelivery. For MAP lenders looking to fund new construction or LIHTCdeals, there will be a new specialty certification that wouldrequire them to demonstrate that they are experienced in thoseareas. (For a full breakdown of all the changes, go here or here.)The details to HUD's plan are still beingworked out, and the proposal should be published on the FederalRegister soon. But what information has been released has certainlysparked debate among members of the multifamily community aboutwhat tighter underwriting conditions could mean for theavailability of FHA financing, which has basically become the onlysource of construction funds in the industry since the creditcrash.