HUD’s Inspection Backlog
The department anticipates getting through nearly all overdue REAC inspections by the end of 2022. Here’s how.
While the pandemic had serious impacts on property operations across all asset types, many affordable communities faced an additional challenge: From mid-March 2020 to June 2021, the Department of Housing and Urban Development effectively ceased physical REAC inspections of HUD-insured properties.
Although some property inspections still occurred virtually during this period, the bulk of inspections were simply pushed into the future. REAC inspections normally occur every one to three years for a property — depending on its previous inspection score. So, with inspections pushed to the wayside for more than one year, it’s understandable that a significant backlog of inspections needs to be addressed.
A Big Plan
Enter HUD’s Big Inspection Plan, or BIP. Announced in late 2021, the framework around BIP calls for each property to be physically inspected by early 2023 at the latest. The majority of inspections, however, are expected to be done by the end of 2022. Communities will be prioritized by those deemed most in need of review, with those inspections having begun in January.
Distribution of changes in scores between REAC inspections. Image courtesy of HUD.
However, with more inspections comes a need for more personnel across the country. The department plans to engage more contractors to carry out inspection work while also training existing employees — even those possibly engaged in other lines of work within REAC.
One interesting observation made by HUD in its presentation is that REAC scores for properties which were reviewed showed a decrease in quality, which — while minor — could be troubling. Looking at last year’s physical property inspections through mid-October, properties fell an average of 1.2 points (and a median change of 1 point) compared to prior inspections. However, this change may not be too significant, considering more than 90% of assets scored high enough to earn a pass rating, with more than 60% landing a score of 80 or higher.
Other Changes
Announced shortly before the introduction of BIP, other revisions to inspection policy and procedure have been enacted — though most changes are just shifts back to pre-COVID policy. For example, during the first year and a half of the pandemic, HUD provided property owners with a 28-day notice in addition to the standard 14-day notice the REAC inspector would provide. This 28-day period was dropped from official policy at the end of September 2021, however, meaning public housing owners will once again receive only a 14-day notice prior to an inspection.
Another change involves the use and disposal of personal protective equipment, or PPE. During the peak of the pandemic, inspectors had been required to dispose of all PPE off-site and were required to wear gloves for the duration of the inspection. While inspectors must still maintain a high level of hygiene and clean hands prior to entering a unit at a property, they can throw gloves, wipes, and similar PPE material away in garbage collection areas — as long as those disposal areas are outside of units themselves. Gloves are now only required for inspections at senior housing communities and at health care properties.
Related Questions
What is the current status of HUD’s inspection backlog?
HUD's Big Inspection Plan (BIP) was announced in late 2021 and calls for each property to be physically inspected by early 2023 at the latest. The majority of inspections are expected to be done by the end of 2022, with those inspections having begun in January. HUD is engaging more contractors to carry out inspection work while also training existing employees.
According to HUD, REAC scores for properties which were reviewed showed a decrease in quality, which — while minor — could be troubling. Looking at last year’s physical property inspections through mid-October, properties fell an average of 1.2 points (and a median change of 1 point) compared to prior inspections. However, more than 90% of assets scored high enough to earn a pass rating, with more than 60% landing a score of 80 or higher.
Other revisions to inspection policy and procedure have been enacted, such as public housing owners receiving only a 14-day notice prior to an inspection, and inspectors being able to throw gloves, wipes, and similar PPE material away in garbage collection areas — as long as those disposal areas are outside of units themselves. Gloves are now only required for inspections at senior housing communities and at health care properties.
How does the backlog affect the availability of HUD multifamily loans?
The backlog of HUD multifamily loans has caused approval times to become longer and longer in recent years, with some financing taking the better part of a year to originate. While there are some ways around it — say, with a bridge-to-HUD loan — this does create additional expenses in the short term.
What steps is HUD taking to reduce the inspection backlog?
HUD is taking several steps to reduce the inspection backlog. First, they announced the Big Inspection Plan (BIP) in late 2021, which calls for each property to be physically inspected by early 2023 at the latest. The majority of inspections are expected to be done by the end of 2022, with those inspections having begun in January. HUD is also engaging more contractors to carry out inspection work while also training existing employees, even those possibly engaged in other lines of work within REAC. Source
What are the potential consequences of the backlog for HUD multifamily loan borrowers?
The backlog of HUD multifamily loans has been cleared, which means that borrowers can now expect faster loan processing times. According to Multifamily.loans, many HUD multifamily loans should be able to close in four to six months, which is significantly faster than the standard six to eight months that was previously expected. This means that borrowers can now expect to receive their loan funds faster, allowing them to move forward with their investment plans.
How can HUD multifamily loan borrowers prepare for potential delays due to the backlog?
HUD multifamily loan borrowers can prepare for potential delays due to the backlog by being aware of the timeline and being prepared to provide all necessary documents in a timely manner. Our multifamily loan advisors anticipate timelines ought to speed up by at least a couple of months, provided there aren’t any hiccups along the way. Many HUD multifamily loans should be able to close in four to six months. That’s significantly faster than the standard six to eight months our team had generally been conservatively expecting.
HUD, or FHA multifamily loans are far and away some of the most competitive financing options for apartment investors. A quick glance at HUD’s most popular multifamily option — the FHA 223(f) loan — reveals why. Borrowers should be aware of the terms of the loan and be prepared to provide all necessary documents in a timely manner to ensure the loan closes as quickly as possible.
What resources are available to help HUD multifamily loan borrowers understand the inspection backlog?
HUD has recently announced that it is clearing its backlog of multifamily loan inspections. This is great news for borrowers, as it means that loan processing times should be shorter and more efficient. To help borrowers understand the inspection backlog, HUD has published a Multifamily Loan Processing Guide which outlines the process for obtaining a HUD-insured loan. Additionally, HUD has a Multifamily Housing Service Center which provides resources and assistance to borrowers.