In 2023, the U.S. Department of Housing and Urban Development (HUD) expanded its pilot program to allow certain commercial loans to be converted into Federal Housing Administration (FHA)-backed loans. Eligible loans must meet specific criteria, including property type (single-family, multifamily, or healthcare facilities), occupancy rates exceeding 85%, and debt service coverage ratios above 1.2. Lenders must also obtain HUD approval and adhere to stricter underwriting standards, including lower loan-to-value ratios (≤75%) and fixed-rate terms of 15–30 years.

This policy aims to stabilize the commercial real estate (CRE) market by providing refinancing options amid rising interest rates and liquidity challenges. According to the Federal Housing Finance Agency (FHFA), CRE loan defaults surged by 15% in Q2 2023, driven by maturing debt and higher operating costs. The FHA’s 2023 Annual Report highlights that its multifamily loan portfolio grew by 8.7% year-over-year, reflecting increased demand for government-backed financing. By enabling conversions, HUD seeks to mitigate risks for borrowers and lenders while ensuring properties meet safety and soundness standards. Data from the Mortgage Bankers Association (MBA) shows that 40% of commercial lenders plan to participate in the pilot, expecting it to reduce delinquencies by 20–25% in eligible markets. However, critics note that stringent eligibility may exclude smaller properties, potentially widening gaps in market access. The pilot, initially targeting 10,000 loans, underscores HUD’s strategic focus on fostering affordable housing and sustainable CRE investment.