FHA makes new housing, fix-ups work Major role: Federal Housing Administration mortgage insurance plays a key part in the construction and rehabilitation of apartment complexes in the area.

February 04, 1996|By Daniel H. Barkin | Daniel H. Barkin,SUN STAFF

Until recently, the aged, 757-unit Valley Brook apartment complex in Glen Burnie was a leading candidate for the wrecking ball.

Built in the 1960s between Baltimore and Annapolis, the 26 buildings had turned into a housing disaster by last year, when it was taken over by a Boston-based firm specializing in troubled properties.

"It was virtually a slum," said A. Kenton Drury, vice president of Corcoran Jennison Co.

By the time Corcoran Jennison officials visited the site, the complex was in foreclosure, nearly half the apartments were empty, and many of the remaining residents were not paying rent. Police were frequent visitors because of drugs, holdups and burglaries.

Since last summer, however, Corcoran Jennison has been completely overhauling the complex -- now renamed Villages at Marley Station -- in a $38 million rehabilitation project.

But the rescue hinged on securing mortgage insurance from the Federal Housing Administration for much of the project's debt. According to Mr. Drury, Corcoran Jennison would not have been able to obtain funds from lenders and investors without FHA's guarantee of repayment in the event of default.

"Quite honestly, the only program that would make this work would be FHA [insurance]," said Mr. Drury.

Commonly used

That's typical of affordable apartment construction, rehabilitation and refinancing in the region, according to industry and government sources.

Some industry estimates say that more than 90 percent of new apartments in Baltimore and surrounding counties were guaranteed by FHA insurance in 1994. FHA also plays a major role in refinancing and rehabilitating existing apartment complexes in the area, like Villages at Marley Station.

The high dependence of the Baltimore apartment industry on FHA mortgage insurance illustrates the obstacles facing congressional Republicans who want to abolish the U.S. Department of Housing and Urban Development, FHA's parent.

Congress has already sharply reduced the amount of money -- called the "credit subsidy" -- that FHA uses to close the gap between mortgage insurance premiums and claims due to foreclosures on projects it has guaranteed.

Industry observers say that while it is likely that the program will have to be self-supporting eventually, they don't foresee the elimination of FHA's multifamily mortgage insurance role.

If that happened, "You wouldn't have any affordable multifamily housing," said Margaret Allen, senior vice president of AGM Financial Services Inc. of Baltimore.

Ms. Allen played a major role in structuring financing for the Marley Station project. It was a complicated deal that included a federal tax credit, as well as tax-exempt revenue bonds issued by Anne Arundel County and purchased by the Federal National Mortgage Association (Fannie Mae).

The FHA insurance allowed Corcoran Jennison to secure a 40-year mortgage at 7.61 percent interest. The tax credit was awarded by the Maryland Department of Housing and Community Development, which is authorized by the federal government to award them on a competitive basis to affordable housing projects.

Sale of the tax credit to oil giant Chevron helped generate cash that allowed Corcoran Jennison to immediately launch extensive repairs of the apartments.

The result of the deal was to help Corcoran Jennison overhaul the complex while keeping rents on the studio, one- , two- , and three-bedroom units at $415-$650 plus utilities.

Across the state

The Maryland office of HUD -- which covers all of the state except for Montgomery and Prince George's counties -- has insured some 500 market-rate apartment projects in its jurisdiction over the years. Most of these are in Baltimore and Baltimore County.

In 1995, FHA insured 18 multifamily projects in the Baltimore region, Western Maryland and the Eastern Shore with a value of $127.6 million. These included construction of Piney Orchard Apartments in Anne Arundel County, rehabilitation of the Marley Station complex, also in Anne Arundel, and the rehabilitation and refinancing of 16 other existing apartment complexes and nursing homes, mostly in Baltimore and Baltimore County.

Refinancings allowed existing complexes to take advantage of lower interest rates, helping to keep rents affordable, and they also freed up funds to help with renovations. Often, repairs are required by FHA before the insurance will be committed to refinancings.

And proposed projects representing hundreds more area apartment and senior citizen units, many involving substantial rehabilitation of existing buildings, are working their way toward FHA insurance commitments, according to the state HUD office.

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