With Housing Finance Reform Doubtful, More Multifamily Business at the GSEs and FHA is Likely

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In my April column, I discussed the status of proposals to dismantle or significantly restructure Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs).         Shortly afterwards, Senate Banking Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo (R-Idaho) unveiled a bipartisan GSE and housing finance reform bill that they had crafted, though publicity regarding the bill has since died down. While the Senate Banking Committee passed the Johnson-Crapo bill (S. 1217) on May 15, there has not been enough support from Democrats for Senate Majority Leader Harry Reid to bring the measure up for a floor vote. As a result, it is likely the bill will remain in limbo until – and perhaps even after – this November’s mid-term elections.


GSEs 2014 Multifamily Loan Caps

With regard to the GSEs, the Federal Housing Finance Agency (FHFA) in April released its long-awaited 2014 multifamily loan production “goals” for Fannie Mae and Freddie Mac. These cap the volume of multifamily loans that each GSE can purchase during the calendar year. When FHFA announced last year’s goals in early 2013, Fannie and Freddie immediately pulled back the reins on loan production, given their strong year-to-date volume. During the balance of 2013, Fannie and Freddie alternatively eased and tightened their production restrictions as they managed their respective caps.

The GSEs’ multifamily loan volume caps for 2014 are the same as 2013: $30.4 billion for Fannie and $25.9 billion for Freddie. Unlike 2013, however, affordable housing loan production will not count toward 2014 volume caps, effectively increasing the multifamily ceilings. As a result of this change and the GSEs’ slower start in 2014 compared to 2013, FHFA’s multifamily volume caps should not be an issue this year for Fannie, Freddie, or their lenders.

HUD Multifamily Transformation

Meanwhile, the U.S. Department of Housing and Urban Development (HUD) continues implementing its Multifamily Transformation initiative. This is designed to make the Department more efficient and improve FHA loan processing times while reducing the number of HUD Multifamily Hub and field offices throughout the country from 51 to 12.

This summer HUD is consolidating the first region into its core Fort Worth Hub office (the 1st of 5 Multifamily Hubs) supported by the Kansas City satellite office. The rest of the country will follow.

HUD has committed to maintaining its FHA processing deadlines and has hired contract underwriters to assist offices affected by the Transformation. These underwriters will operate similarly to those in FHA’s LEAN program, which has been a successful model.

Year-to-Date Activity, Interest Rates

The aggregate volume of all multifamily housing loans closed during the first quarter of 2014 is 17% less than the same period a year earlier. For the GSEs and FHA, the reduction has been even sharper. First-quarter volume by Fannie Mae and Freddie Mac is 55% less than a year ago; for FHA, down by more than 40%.

Some of the year-over-year decrease has been offset by increased multifamily loan volume by life insurance companies (up 18%) and commercial banks.

Much of the reason for the lower multifamily volume so far in 2014 is due to changed interest rates. In the first quarter, rates were much higher – though still low historically – than they were in the first quarter of 2013.

Recent yields on the benchmark 10-year U.S. Treasury have ranged from 2.40% to 2.70%, after starting the year out near 3.0%.

One interesting trend has been the flattening of the yield curve since January 1. While the short end of the curve has not changed appreciably, yields on 10-year (2.61%) and 30-year (3.52%) Treasuries have fallen (as of mid-June) by about 40 and 60 basis points, respectively. Perhaps this reflects a belief by capital markets that low inflation and slow growth will be the norm for the next few years.

Interest rates have also been kept low by increased demand from investors for agency (HUD/GNMA) and GSE multifamily securities.

Product Enhancements and Initiatives

Fannie Mae and Freddie Mac are working hard to win business through various initiatives, product enhancements, and one-off transaction evaluations. Freddie’s very low-income housing (VLI) initiative offers favorable pricing compared to other products. The company has also announced a program for pre-stabilized properties. Fannie offers a similar program, which allows borrowers to lock in their interest rates and loan amounts sooner than previously possible.

FHA’s Tax Credit Pilot Program also remains available. The agency has renewed interest in transactions involving moderate rehabilitation and has been making continuous process improvements as the result of a joint dialogue between HUD and lenders.

FHA and the GSEs remain focused on providing liquidity to the multifamily industry and are keenly interested in facilitating the creation and maintenance of affordable multifamily housing. In recent weeks, Fannie Mae and Freddie Mac have both stated that if there is a transaction with a good story and sponsor, bring it to them for discussion, even if the proposed transaction does not fit neatly into their underwriting “box.” As a result of this focus, willingness to structure good business, and other factors, the GSEs are reporting significantly increased loan quote pipelines. Call your lender today to learn more details.


Current FHA, Fannie Mae, Freddie Mac Financing Options


FHA/HUD – Taxable New Construction or Sub Rehab Loan Parameters [Section 221(d)(4)]

DSCR: 1.11 to 1.20 LTC: 83% to 90% Rate: 4.30% (plus MIP) Loan term: Up to 40 years Amortization: Up to 40 years


FHA/HUD – Taxable Acquisition or Refinancing Loan Sizing Parameters [Section 223(a)(7), 223(f)]

DSCR: 1.15 to 1.20 LTV: up to 85% Rate: 3.55% (plus MIP) Loan term: Up to 35 years Amortization: Up to 35 years


Fannie Mae/Freddie Mac Taxable Acquisition or Refinancing Loan Parameters (without new LIHTC)

DSCR: 1.20 to 1.25 LTV: 75% to 80% Rate: 3.80% to 5.85% Loan term: 5 to 30 years Amortization: 30 years


Fannie Mae/Freddie Mac Taxable Acquisition or Refinancing Loan Parameters (with new LIHTC)

DSCR: 1.15 LTV: 90% Rate: 5.15% to 5.95% Loan term: 15 to 30 years Amortization: Up to 35 years


Fannie Mae/Freddie Mac Taxable Adjustable Rate Acquisition or Refinancing Loan Parameters (without new LIHTC)

DSCR: 1.20 to 1.25 LTV: 75% to 80% Rate: 2.30% to 2.75% over 1M LIBOR Loan term: 5 to 10 years Amortization: 30 years


  • Note that all rates quotes above assume a full leverage transaction. Transactions with LTV of 70% or less can generate interest rate savings of between 15 bps and 40 bps

Source: Timothy R. Leonhard is the Managing Director of Affordable Housing at Oak Grove Capital, a Fannie Mae, Freddie Mac, and FHA multifamily lender based in Dallas, Texas. Figures as of June 16, 2014. Leonhard may be reached at 817-310-5800, tleonhard@oakgrovecap.com.




Managing Dircetor Specialties: Multifamily, Debt & Investment Sales Timothy Leonhard has been involved in the development and financing of affordable housing since 1998. To date Tim has closed more than $8.0 billion of affordable housing financing and investment sales in more than 40 states. Tim has extensive experience with Fannie Mae, Freddie Mac, and HUD loan programs having financed properties that have combined a variety of subsidies including, federal low income tax credits, state low income tax credits, tax-exempt bonds, federal historic tax credits, state historic tax credits and various forms of subsidy financing from local, state, and federal sources such as IRP decoupling, Tax Increment Financing, various HUD community redevelopment funding sources, tax abatements, tax exemptions, and PILOTs. Additionally, Tim has leveraged this experience to help maximize the value of and has successfully participated in the acquisition financing and sale of several hundred affordable housing assets at or near the end of their initial compliance period. Tim’s tenure includes managing director at MMA Financial, vice president at Glaser Financial Group, vice president at Charter Mac, and project manager at HRI Properties.