Up Close with Fannie and Freddie: GSEs to Focus on Unconventional Loans in 2016

Fannie Mae and Freddie Mac’s New Year’s resolution has a familiar ring to it: The two agencies will continue to focus on providing liquidity to the marketplace in the form of unconventional loans.

Rich Martinez, vice president of production and sales at Freddie Mac Multifamily, and Michael Keeney, credit risk manager of Fannie Mae Multifamily’s credit division, each indicate their respective agencies will emphasize building out the affordable housing, workforce housing and small business loan production in 2016.

“There’s a crisis of affordable housing in the country, it’s pretty much everywhere,” said Martinez, speaking at the sixth-annual InterFace Multifamily Southeast conference held in Atlanta last Thursday.

“We want to be in all sectors of the market, and we’re particularly focused on our affordable business, which was a record year this year,” said Martinez, who also runs the Southeast and seniors divisions for Freddie Mac. Freddie Mac’s multifamily business is on pace to exceed $46 billion for 2015, far surpassing the $29 billion total in 2014. The agency has pivoted in recent months to produce more loans for niche sectors of the multifamily continuum, including seniors and student housing.

“We rolled out a new small balance loan program, and year-to-date we expect to do $2 billion,” said Martinez. “We had a record year in seniors housing, we [produced] $2.5 billion to $3 billion in seniors housing and we have a good start for next year as well.”

Hosted by France Media’s InterFace Conference Group at the Westin Buckhead, InterFace Multifamily Southeast brought together more than 425 apartment investors, developers, operators and lenders from all over the Southeast, as well as national players who are active in the region. Martinez and Keeney spoke on a panel discussing Fannie Mae and Freddie Mac’s multifamily divisions, and Daniel Cunningham, senior vice president and East Coast regional manager of agency finance at PNC Real Estate, moderated the discussion.

Lending to the Cap

The government-sponsored enterprises (GSEs) are taking their marching orders from the Federal Housing Finance Agency (FHFA), the conservator of the two agencies since 2008. Fannie Mae and Freddie Mac are operating under an annual cap set by the FHFA at $60 billion — $30 billion a piece for the two agencies. The cap ensures the GSEs don’t dominate the apartment lending market.

Back in May, in response to strong first-quarter production recorded by the agencies, the FHFA revised its list of exclusions, or loans that wouldn’t count against the cap. The FHFA’s newly revised exclusions now include properties with units affordable to renters at 60 percent of area median income (AMI) in all markets, 80 percent of AMI in “high-cost” markets, 100 percent of AMI in “very high-cost” markets and assisted living properties at 80 percent of AMI. The FHFA will continue to exclude affordable housing loans, loans to small multifamily properties (five to 50 units) and loans to manufactured housing rental communities.

The response by both agencies was immediate, with both GSEs targeting “un-capped” properties throughout the country since that May announcement. Fannie Mae Multifamily provided financing for approximately 118,000 units of multifamily housing in the third quarter of 2015. Over 80 percent of those units are affordable to families earning at or below the median income in their area.

Fannie Mae’s new business volume for the third quarter of 2015 totaled $7.3 billion, and approximately 68 percent of the volume for the first nine months of 2015 counted toward the cap. According to Keeney, Fannie Mae exceeded its 2014 production back in October.

Freddie Mac reported $10.9 billion of new business in the third quarter of 2015, a nearly 56 percent increase on a year-over-year basis. Overall, Freddie Mac Multifamily has reported $36.4 billion of new business year-ending October 2015. Right now is a great time to be on the multifamily finance side, according to Martinez.

“We’re clearly in the golden age of multifamily. It’s incredible in terms of rent growth and occupancies,” said Martinez, who says the agency’s goal for 2016 is more than $50 billion, with slightly under $30 billion of the goal volume comprising traditional loans.

Like Martinez, Keeney expects next year to be strong for both capped and uncapped business for Fannie Mae.

“We believe the market in 2016 will be very robust. We’re very bullish about the market in 2016, especially with the results we had in 2015,” said Keeney. “Whatever the market size is, Fannie Mae will be there in all asset classes providing financing to our borrowers.”

— John Nelson

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