Fannie Mae Update

Fannie promises reinvigorated multifamily effort

By John Zipperer

Affordable Housing Finance • September 2005

At a late-July meeting with its Delegated Underwriting and Servicing (DUS) lenders, Fannie Mae President and CEO Daniel H. Mudd and other leaders from the government-sponsored enterprise (GSE) showed up with “a renewed vigor,” said Herman Bulls, president and CEO of Bulls Capital Partners, a DUS lender. “There’s a sense of being competitive and a sense of teamwork going on.”

The initiatives – some of which could happen in the next month or so and others that are longer term – involve changes in process and execution within the DUS system, according to Rodrigo Lopez, president of AmeriSphere Multifamily Finance and the vice chairman of Fannie’s advisory group of DUS lenders. He described his fellow DUS lenders as “energized” to compete “in a very, very liquid market.”Bulls expects Fannie to be “super-aggressive in terms of going below their standard … 75% loan-to-value ratio, [and] I think in exceptional cases there will be opportunities to be more aggressive in pricing. I think one of the things you’re going to see is … more flexibility in their early rate lock,” said Bulls.

Several informed sources have noted that the agency is working on an unfunded forward commitment product for 9% low-income housing tax credit deals, but it would be one of the long-term items on Fannie’s list because it is still in early development and at press time, lenders did not know when it would appear. “I have heard they are working on the unfunded forward product, but I do not know the projected release date,” said Liz Diamond, vice president and deputy chief production officer at Green Park Financial. Other future refinements to its forward commitment product line may include more competitive pricing and reduced negative arbitrage.

Focus on affordability

Fannie released its rental housing investment report for the first half of 2005 on July 25, noting that more than 92% of its $11.8 billion in multifamily rental housing investment had been for housing targeted to families at or below the area median income (AMI). More than 60% of the total units were reserved for very low and low-income families, and about 62% of all of the loans were for under-served markets and areas. For all of 2004, Fannie’s multifamily investments totaled $21.2 billion, with almost 90% of the funded units affordable to families at or below AMI and 54% affordable to very low and low-income families. “Many people have asked if our current regulatory issues are impacting our affordable housing businesses. The answer is ‘no,’” Mudd told Affordable Housing Finance. “The need for affordable multifamily housing grows every day, as do the challenges that face those trying to provide housing. Fannie Mae is constantly working with its affordable housing partners to address these challenges, and to provide much-needed capital to the development and preservation of affordable rental housing. We’ve made great strides, but we need to do much more. Millions of Americans need affordable rental housing. Serving them is central to Fannie Mae’s mission.”

Some Fannie Mae DUS lenders have praised Fannie’s resolve. Despite the pressure on Fannie from politicians and regulatory bodies worried about the GSE’s size and risk patterns, Diamond believes the agency still has the room to maneuver that it needs to serve its markets.

Freddie Mac reports

Though Freddie Mac does not issue a mid-year multifamily report like Fannie does, Freddie did announce in July that its portfolio of low-income housing tax credit investments had grown to more than $5 billion.

Freddie Mac has also been picking up some of the slack left by Fannie Mae’s indefinite exit from private purchases of tax-exempt bonds (see Affordable Housing Finance, August 2005, page 2). Fannie stopped buying them because it had run up against a tax-rule ceiling on the percentage of its assets that could be in tax-exempt obligations.

“We’re delighted Fannie has stepped aside a bit; we expected they might,” said Adrian Corbiere, senior vice president of multifamily sourcing at Freddie Mac. “We don’t have any problems picking up the slack. Fannie will be back; it’s an important business to them, too,” he said, noting that the tax-exempt bond business helps the GSEs meet their affordable housing investment goals.

New Freddie multifamily head: Investors can’t leave apartments

During the leadership transition this year at Freddie Mac’s multifamily sourcing division, developers can look forward to the government-sponsored enterprise (GSE) focusing on cutting loan-production time, as well as continuing to offer flexibility on certain deal terms.

In June, Freddie Mac announced that Mike May would succeed Adrian Corbiere as senior vice president of multifamily sourcing after a year of transitioning into the position (see Affordable Housing Finance, August 2005, page 2). May’s experience is heavily on the single-family side of Freddie Mac’s operations, but he is not a total newcomer to the multifamily world, having been exposed to it while working in the capital markets industry before joining Freddie. He expects to continue the work of Corbiere, with whom he will share duties over the next year. “One of the directions Adrian has [identified] is to be much more customer-centric. I think that’s right,” said May. “If you look at our process and our loan closure, the timeline to actually produce the loan, we’re probably not nearly as timely as we should be. Adrian and the whole group recognizes that, so we’re focused on how to shorten that.”It may be a good time to be a borrower, May said, but it can be a nerve-wracking time to be an investor. “The loan products people are looking for and the amount of money they’re looking to take out of a deal are kind of scary from an investor’s point of view. You’re getting these higher loan-to-value levels. That’s the same thing going on in the single-family market. [Investors] are taking lower returns, so there’s much lower cap rates. [An investor] might say, ‘Maybe I don’t want to be out [there investing],’ but [we] can’t do that. We’re a major market player; we intend to remain the investor of choice, so we need to be in all markets. We’re doing aggressive business as we should, but we do recognize there is an awful lot of capital [in the market], and some of it’s not that smart.”

May believes that the flexibility in terms and the innovation in loan products that multifamily professionals have seen in the past couple years will continue, even after the current multifamily market cycle changes. “The market has changed dramatically just from the competition we’re in,” he said. “Investors will learn what’s a good loan and what’s a bad loan.” As the market goes through a downturn, he said, lenders will say, ‘Wait a minute, these terms are dangerous and the only way I’ll do that again is I have got to get paid a risk premium.’ These loan products will be around, but I think the pricing will be different.”