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Effective Date:Nov 2, 2026
The Federal Housing Administration has opened a new fast track for affordable housing construction, publishing a mortgagee letter on November 2 that creates the LIHTC Express Lane Initiative for Section 221(d)(4) new construction loans.
Mortgagee Letter 2026-13, issued by HUD's Office of Multifamily Housing Programs to all FHA-approved multifamily mortgagees, introduces a streamlined underwriting review and closing process for qualifying Low-Income Housing Tax Credit transactions. The letter is effective immediately, meaning qualifying deals can seek the expedited treatment now.
The initiative reworks several policies from the 2019 LIHTC Pilot program, which remains in effect, and is aimed squarely at experienced development teams with a demonstrated record of delivering complex tax credit transactions. HUD said the goal is to make FHA financing more efficient by cutting processing times for highly experienced and capable LIHTC developers.
The mortgagee letter modifies the earlier pilot in seven specific ways, each aimed at widening the pool of tax credit deals that can use expedited processing and removing requirements HUD no longer sees as necessary for experienced teams.
First, the maximum project size limit of fewer than 200 units is eliminated. Under the 2019 pilot, larger LIHTC developments were shut out of expedited processing regardless of the team's track record. That ceiling is now gone.
Second, the initiative now includes new construction of 4 percent LIHTC transactions financed with tax-exempt bonds. Those deals were previously not eligible for the expedited path, a significant exclusion given how much of the affordable new construction pipeline is financed with 4 percent credits and private activity bonds.
Third, the maximum loan-to-cost ratio of 65 to 75 percent is removed. The program reverts to the standard 80 percent loan-to-cost allowed under the Housing and Economic Recovery Act, aligning Express Lane sizing with the conventional 221(d)(4) program.
Fourth, the requirement that developers defer at least 25 percent of their fee is gone. HUD said it acknowledges there are sufficient economic incentives from LIHTC investors to secure developer commitment without a mandated deferral.
Fifth, early submission of deliverables before application is streamlined and limited to specific environmental factors: consultation with Tribal and State Historic Preservation Officers, endangered species consultation, and the eight-step floodplain and wetland decision-making process.
Sixth, eligibility limitations tied to environmental risk factors have been reduced to two environmental compliance factors, narrowing the screen that previously knocked deals out of the expedited lane.
Seventh, the 30-day firm commitment decision timeline is maintained and reemphasized. HUD said internal processes have been eliminated or reduced in scope to hold that timeline.
Participation in the LIHTC Express Lane is limited to transactions and development teams that meet specific criteria to HUD's determination and satisfaction. The department framed the screen as a way to apply streamlined processing only to low-risk, high-capacity partners.
Project eligibility is restricted to new construction insured under Section 221(d)(4), and projects must carry LIHTC-restricted rents. Substantial rehabilitation deals are not part of the Express Lane cohort.
On the team side, the development team must be managed and controlled by an experienced LIHTC developer or owner with a demonstrated ability to successfully execute complex transactions through the development, construction, lease-up, and operating phases.
The Express Lane does not loosen HUD's credit standards. The mortgagee letter states the initiative maintains HUD's loan sizing and underwriting standards as required by the MAP Guide, and that it strives to maintain insurance risk neutrality by using standard Section 221(d)(4) underwriting thresholds.
That means standard loan-to-cost ratios, debt service coverage ratios, and standard net operating income calculations still apply. HUD said the focus is exclusively on expediting the underwriting review and closing process for qualifying transactions, not on changing how much a project can borrow or how its income is tested.
The department's stated rationale is that experienced LIHTC developers, syndicators, and lenders conduct thorough due diligence, particularly on expenses and net operating income, and often underwrite more conservatively than HUD itself. By relying on that expertise, HUD said it can confidently streamline its review without elevating risk to the insurance fund.
The letter ties the initiative directly to President Trump's March 13, 2026, Executive Order 14394, titled Removing Regulatory Barriers to Affordable Home Construction. HUD said the Express Lane advances administration priorities to expand the affordable housing supply, reduce costs for American families, and deliver more responsive, performance-driven federal housing programs.
The department described the Express Lane as a processing initiative designed to test streamlining efforts with experienced development partners, allowing it to gather feedback and inform future process improvements without introducing significant risk. In other words, HUD is treating the initiative as both a production tool and a policy experiment.
The 2019 LIHTC Pilot remains in effect for its own eligible cohort. HUD said the Express Lane is intended for a different set of qualifying projects, focused on new construction, and reflects what the department learned from the pilot and from industry feedback.
Industry groups moved quickly to circulate the letter on November 2. The Council for Affordable and Rural Housing told members that the launch of the LIHTC Express Lane accelerates the delivery of new construction affordable housing units through the 221(d)(4) program and increases the nation's housing supply, noting that the letter reduces unnecessary regulatory burdens and improves the speed and efficiency of FHA-insured production for affordable transactions containing tax credits.
The Mortgage Bankers Association's news summary highlighted the same core changes: elimination of the maximum project size limit, the return to the standard 80 percent loan-to-cost, removal of the required 25 percent deferred developer fee, streamlined early submission of deliverables, the maintained 30-day firm commitment timeline, and the reduction of environmental eligibility limitations to two compliance factors.
Section 221(d)(4) is FHA's workhorse mortgage insurance program for new construction and substantial rehabilitation of multifamily rental housing. FHA insurance lets lenders offer long-term, fixed-rate, non-recourse construction and permanent financing, and the program is a staple execution for affordable deals that need certainty of rate and terms over a 40-year amortization.
The Low-Income Housing Tax Credit is the nation's primary production tool for affordable rental housing. Developers awarded credits sell them to investors to raise equity, which reduces the debt a project must carry and lets it charge restricted rents. The 9 percent credit is allocated competitively by state housing finance agencies, while the 4 percent credit is paired with tax-exempt private activity bond financing and is broadly available to qualifying bond deals.
Because nearly every large affordable new construction deal layers LIHTC equity with debt, the speed and terms of the debt execution matter as much as the credit award itself. FHA's 221(d)(4) program has long been competitive on terms but has drawn criticism from the industry for review timelines that can stretch well beyond other execution options.
HUD created the LIHTC Pilot in 2019 to test faster processing for tax credit transactions with experienced teams. The pilot offered an accelerated review path but came with guardrails: projects had to be under 200 units, loan-to-cost was capped at 65 to 75 percent, developers had to defer at least a quarter of their fee, and 4 percent bond deals were excluded.
The Express Lane keeps the pilot's core idea, that experienced LIHTC teams can be moved through underwriting faster without added risk, and strips out most of those guardrails. HUD said the changes reflect lessons learned from the pilot and feedback from industry stakeholders about where the process could be tightened further.
Under the mortgagee letter, the early submission of deliverables before application is narrowed to the environmental items that genuinely drive timelines: Tribal and historic preservation consultation, endangered species consultation, and the floodplain and wetland decision-making process. Other materials that previously had to be staged in advance no longer do.
From application, HUD is holding itself to a 30-day firm commitment decision. The letter says internal review processes have been eliminated or reduced in scope to make that timeline stick, and it reemphasizes the 30-day commitment as a feature of the initiative rather than an aspiration.
The department also cautioned that participation is discretionary. Express Lane treatment applies only where HUD is satisfied the transaction and team meet the eligibility criteria, and the department retains its standard underwriting authority on every deal.
Because the letter is effective immediately, lenders and development teams with qualifying new construction LIHTC deals can pursue Express Lane processing now rather than waiting for a program rollout.
The open question is volume. FHA's multifamily insured production has long competed with other execution options for tax credit deals, and processing timelines have been a recurring industry complaint. A working 30-day firm commitment, if HUD sustains it, could pull more LIHTC new construction toward 221(d)(4) financing, particularly for larger deals and 4 percent bond transactions that were previously excluded from expedited treatment.
HUD said feedback gathered through the initiative will inform future process improvements, suggesting the Express Lane could become a template for broader changes to multifamily accelerated processing if the test cohort performs.
FHA published Mortgagee Letter 2026-13 on November 2, creating the LIHTC Express Lane Initiative, a streamlined underwriting and closing process for Section 221(d)(4) new construction loans paired with Low-Income Housing Tax Credits.
The letter eliminates the pilot program's 200-unit cap, opens the fast track to 4 percent LIHTC deals with tax-exempt bonds, restores the standard 80 percent loan-to-cost limit, and drops the 25 percent deferred developer fee requirement.
HUD is keeping the 30-day firm commitment timeline and standard MAP Guide underwriting, saying experienced LIHTC teams often underwrite more conservatively than the department itself.
Eligibility is limited to new construction projects with LIHTC-restricted rents and to development teams managed by experienced LIHTC developers or owners.
The letter is effective immediately and ties to the administration's March 2026 executive order on removing regulatory barriers to affordable home construction.
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