Mortgage Insurance: HUD’s Risk-Sharing Program and Its Role in Financing Affordable Rental Housing

Executive Summary

The GAO review of HUD’s section 542(c) risk‑sharing program shows the program plays a material but not dominant role in financing affordable multifamily housing. From fiscal years 2016–2025, HFAs underwrote over $12 billion (inflation‑adjusted) in FHA‑insured multifamily loans under the risk‑sharing program, supporting 776 projects expected to produce or preserve about 93,670 rental units. Compared with three traditional HUD mortgage insurance programs GAO reviewed, the risk‑sharing program accounted for about 7 percent of the total units those programs collectively financed during the same period; the traditional programs collectively helped finance nearly 1.3 million units in fiscal years 2016–2025.

Contractors across the tagged market segments should pay attention because the program delegates origination, underwriting, and servicing authority to HFAs (37 HFAs had been approved by HUD as of July 2026), and HFAs may elect to share from 10 percent to 90 percent of losses with HUD. The program’s focus on affordable projects (versus the traditional programs’ mix of affordable and market‑rate projects) changes underwriting, servicing, and developer/financier engagement dynamics. This creates both risk exposure (different oversight and standards) and opportunities (work with HFAs on affordable preservation/production pipelines). Given the GAO characterization and the event’s labeled severity, contractors should review relationships with HFAs and positioning for affordable multifamily transactions now.

Impact Matrix

Affordable Housing Finance

• Risk Level: Critical
• Opportunity: Continued flow of FHA‑insured loans for affordable multifamily projects via HUD’s risk‑sharing program. Relevant NAICS codes identified in the Tags: 522292, 522310, 525990, 236220, 531110. Agency: HUD. Specific opportunities TBD pending solicitation language.
• Timeline: Fiscal years 2016–2025 data window; HUD had approved 37 HFAs as of July 2026; program initiated as pilot in 1994 and made permanent in 2001.
• Action Required: Map existing and prospective HFA partners; assess capacity to participate in HFA‑led origination/underwriting/servicing; prepare proposals and business development materials focused on affordable preservation and production.
• Competitive Edge: Demonstrate prior affordable housing finance experience and the ability to align project underwriting to HFA standards; offer scalable servicing or loan administration capabilities that HFAs can delegate to.

Multifamily Housing Development

• Risk Level: High
• Opportunity: Participation in projects financed under the risk‑sharing program (new construction, substantial rehabilitation, purchase, refinancing of affordable multifamily housing). Specific opportunities TBD pending solicitation language. NAICS: 522292, 522310, 525990, 236220, 531110. Agency: HUD.
• Timeline: Fiscal years 2016–2025 activity reported; program ongoing as reflected by HUD HFA approvals as of July 2026.
• Action Required: Align development pipelines to HFAs’ underwriting standards; develop joint ventures or fee arrangements with HFAs; identify projects where risk‑sharing advantages (shared loss) improve feasibility.
• Competitive Edge: Build standardized redevelopment/rehab proposals that emphasize affordability metrics (e.g., rent as a share of household income) and predictable construction timelines to appeal to HFAs.

Mortgage Insurance

• Risk Level: Critical
• Opportunity: Provide or support FHA‑insured lending under the risk‑sharing model where HFAs originate/underwrite/service loans, and HUD shares loss with HFAs. NAICS and Agency details from Tags apply. Specific opportunities TBD pending solicitation language.
• Timeline: Fiscal years 2016–2025 program activity; program history and status as noted above.
• Action Required: Review credit risk models and capital allocation approaches to accommodate HFA underwriting variations; pursue partnerships with HFAs or loan servicers that operate under section 542(c).
• Competitive Edge: Offer analytics or risk‑management services tailored to HFA underwriting practices and to demonstrate how shared risk exposure can be mitigated.

Real Estate Finance

• Risk Level: High
• Opportunity: Finance, structure, or service loans tied to affordable multifamily projects using HUD’s risk‑sharing framework; NAICS: 522292, 522310, 525990, 236220, 531110. Agency: HUD. Specific opportunities TBD pending solicitation language.
• Timeline: Fiscal years 2016–2025 reporting; HFA approvals current as of July 2026.
• Action Required: Assess capital strategies that accommodate 10–90 percent HFA election of loss sharing; position firms to participate in preservation pipelines and refinancing opportunities.
• Competitive Edge: Create flexible capital products and servicing platforms that can plug into HFA origination and servicing workflows and that explicitly address affordable unit preservation metrics.

Cross-Segment Implications

• The risk‑sharing program’s delegation of origination/underwriting/servicing to HFAs ties Affordable Housing Finance, Mortgage Insurance, Multifamily Development, and Real Estate Finance closely together: lenders and capital providers must coordinate with HFAs rather than relying solely on HUD’s uniform standards.
• Because the risk‑sharing program is limited to affordable projects while traditional HUD programs can be used for market‑rate projects (and roughly half of traditional projects are market‑rate per HUD officials), firms that operate across both affordable and market‑rate pipelines will need dual workflows and compliance approaches.
• The program’s scale (over $12 billion via HFAs; about 93,670 units in 776 projects during FY2016–2025) makes it a meaningful, specialized channel for contractors focused on affordable multifamily work; misalignment with HFA practices could lead to lost opportunities or increased project risk.
• HFAs’ discretionary election to share 10–90 percent of losses with HUD affects capital structuring decisions across finance and insurance segments, creating dependencies between underwriting standards adopted by HFAs and investor/lender appetite.

```json:

{

"tldr": "The GAO review shows HUD’s section 542(c) risk‑sharing program materially supports affordable multifamily housing—HFAs underwrote over $12 billion (FY2016–2025) in FHA‑insured loans, financing 776 projects and about 93,670 units—and operates differently from traditional HUD programs because HFAs originate/underwrite/service loans and approve projects. The program accounted for roughly 7% of the units financed by the selected HUD programs during FY2016–2025. Contractors should engage HFAs, align underwriting and servicing capabilities to HFA standards, and pursue partnerships to access this affordable housing pipeline; specific solicitation opportunities are TBD pending release.",

"segments": [

{

"segment": "Affordable Housing Finance",

"risk_level": "Critical",

"opportunity": "Continued flow of FHA‑insured loans for affordable multifamily projects via HUD’s risk‑sharing program. Relevant NAICS codes identified in the Tags: 522292, 522310, 525990, 236220, 531110. Agency: HUD. Specific opportunities TBD pending solicitation language.",

"timeline": "Fiscal years 2016–2025 data window; HUD had approved 37 HFAs as of July 2026; program initiated as pilot in 1994 and made permanent in 2001.",

"action": "Map and engage HFA partners; assess capacity to participate in HFA‑led origination/underwriting/servicing; prepare business development materials focused on affordable preservation/production.",

"competitive_edge": "Demonstrate affordable housing finance experience and align project underwriting to HFA standards; offer scalable servicing or loan administration capabilities HFAs can delegate to."

},

{

"segment": "Multifamily Housing Development",

"risk_level": "High",

"opportunity": "Participation in projects financed under the risk‑sharing program (new construction, substantial rehabilitation, purchase, refinancing of affordable multifamily housing). NAICS: 522292, 522310, 525990, 236220, 531110. Agency: HUD. Specific opportunities TBD pending solicitation language.",

"timeline": "Fiscal years 2016–2025 activity reported; program ongoing as reflected by HUD HFA approvals as of July 2026.",

"action": "Align development pipelines to HFA underwriting standards; pursue joint ventures with HFAs; identify projects where shared-loss structure improves feasibility.",

"competitive_edge": "Standardize redevelopment/rehab proposals emphasizing affordability metrics and predictable construction timelines to appeal to HFAs."

},

{

"segment": "Mortgage Insurance",

"risk_level": "Critical",

"opportunity": "Provide or support FHA‑insured lending under the risk‑sharing model where HFAs originate/underwrite/service loans and HUD shares loss with HFAs. NAICS and Agency details from Tags apply. Specific opportunities TBD pending solicitation language.",

"timeline": "Fiscal years 2016–2025 program activity; program history and status as noted above.",

"action": "Review credit risk models and capital allocation for HFA underwriting variations; pursue partnerships with HFAs or loan servicers operating under section 542(c).",

"competitive_edge": "Offer analytics or risk‑management services tailored to HFA underwriting practices to mitigate shared risk exposure."

},

{

"segment": "Real Estate Finance",

"risk_level": "High",

"opportunity": "Finance, structure, or service loans tied to affordable multifamily projects using HUD’s risk‑sharing framework; NAICS: 522292, 522310, 525990, 236220, 531110. Agency: HUD. Specific opportunities TBD pending solicitation language.",

"timeline": "Fiscal years 2016–2025 reporting; HFA approvals current as of July 2026.",

"action": "Assess capital strategies that accommodate 10–90 percent HFA election of loss sharing; position to participate in preservation pipelines and refinancing opportunities.",

"competitive_edge": "Create flexible capital products and servicing platforms that integrate with HFA workflows and address affordable unit preservation metrics."

}

],

"cross_implications": [

"HFA delegation of origination/underwriting/servicing links Affordable Housing Finance, Mortgage Insurance, Multifamily Development, and Real Estate Finance operationally—partners must coordinate with HFAs rather than relying solely on HUD standards.",

"Risk‑sharing’s focus on affordable projects versus traditional programs’ mix (about half market‑rate in traditional programs) requires firms to maintain dual workflows for affordable and market‑rate deals.",

"HFAs’ ability to elect 10–90 percent loss sharing affects capital structuring decisions across lenders and investors, creating dependency on HFA underwriting choices.",

"The program’s scale (over $12 billion and ~93,670 units during FY2016–2025) makes it a specialized channel for affordable preservation/production that contractors should actively pursue."

]

}

```