David Leopold, Freddie Mac 
David Leopold, Freddie Mac 

David Leopold is vice president of affordable housing production for the multifamily business at Freddie Mac. He shares what programs are growing and the changes coming in 2016.

What’s one change you expect in the debt market in 2016? 
I’m looking for a good year. Freddie Mac will set a record for the number of low-income units we finance and the total amount of dollars we commit to affordable housing. We’re likely to set a record in 2015, and my intent is to better it in 2016. We also hope to issue our first-ever tax-exempt securitization. That’s something we are hoping to execute in 2016. That would demonstrate our ability to bring the strength and efficiency of our securitization model into the LIHTC space, specifically 4% deals. We’ve already included 9% LIHTC transactions in our K-deal securitizations. Our hope and intent is to issue a tax-exempt securitization, which would demonstrate our ability to bring our capital market strength into the 4% LIHTC space.

What about the overall debt market?
All the analytics we have suggest that 2016 should be a pretty stable and strong year. I don’t see major changes there. The major change that I’m focused on is what we are going to do differently.

Where has Freddie Mac been seeing the most growth in its affordable housing business?

We’ve grown in all segments of the affordable market, but there are two areas I’ll highlight—preservation and our tax-exempt loan space. We’ve worked hard to make sure we’re leading the market in the preservation space. Not only the full product suite but also our underwriting, the way we size the deals, really looking to maximize the value of whatever subsidies are present. This year, we’ll close about $1 billion in preservation business. The second area is in our tax-exempt loans. After closing a handful of deals last year, this year we’re going to close more than half a billion dollars, including forwards and variable-rate tax-exempt loans.

What trends have you been seeing in your affordable housing loans?
In the preservation arena, we have seen lots of refinancings. Borrowers are looking to fix their long-term borrowing costs. As we remain in this persistent low-interest rate environment, more and more borrowers are refinancing as early as possible, often to buy out their limited partner. They’re looking to lock up long-term rates. We’re also seeing more re-fis that don’t involve tax credits. They’re not resyndications per se. They’re re-fis with either modest escrows or renovations or modest renovations done with cash flow over time.

Freddie Mac recently announced the Direct Purchase of Tax-Exempt Loan program. How is that program doing, and what are your expectations for 2016? 
This is the most innovative product Freddie Mac has brought to the space this year. By the end of the year, we’ll close about a half billion dollars. We’ll have executed transactions in 10 or more states. We’re doing both fixed and variable rate. It’s been well received in the market. For the last couple of years, there have been a great number of deals getting done as a short bond and cash-secured bond structure. That’s a fine execution. We do a lot of those deals and will continue to do those deals for borrowers who want that. But, there are some inefficiencies, particularly during the construction period. You need to cash-collateralize the bonds during construction. Our tax-exempt loan overcomes that friction and maximizes the long-term value of the tax-exempt instrument. We structure it as a loan and not a bond, but the tax-exempt instrument remains outstanding over the long term, which issuers like better. 

What’s new with your Small Balance Loan (SBL) offering? 
We’ve recently exceeded $1 billion in these loans. We’re thrilled with how well it has taken off. We have two different ways we execute SBLs. One is the standard retail business, where we have 10 sellers. We have completed three securitizations involving several hundred loans. We have another execution for seasoned pools, where we can either buy or securitize on balance sheets existing pools of SBL loans. This is most frequently done in partnership with banks that want to free up their balance sheets from small balance loans and then go out and do it again. 

These are deals with five- to 50-unit properties. They are naturally occurring affordable housing. When we think of targeted affordable housing we’re talking about deals with regulatory agreements. These generally do not have restrictions but are frequently affordable as it relates to a rent level.

What products or program tweaks are you working on for 2016?
We have a new loan that we are branding Bridge-to-Resyndication loan. We coupled our Bridge-to-Resyndication with a forward commitment for a tax-exempt loan. We’re leveraging two products to provide more predictability by being able to lock the permanent rate during the bridge term. We rolled it out this year, and next year we will be focused on growing it. The second area is we are going to continue to augment our execution for mixed-income properties. When you go around the country, you are hearing more developers and municipalities, particularly those with the most severe affordability crises, talking more about mixed income—80/20 deals and similar. Large-scaled, mixed-income properties have always been a strength of Freddie Mac, and that’s a strength we will build on in 2016.