Freddie Mac has kicked off 2007 with a reorganization of its multifamily division, hoping to make both its conventional and affordable housing divisions more competitive and customer-focused.

The company also seeks to double its roster of affordable housing lenders in its delegated underwriting targeted network, release a framework delegated underwriting guide for those lenders, and enhance existing product lines in 2007.

The reorganization will be centered on streamlining divisions of labor, said Mitch Kiffe, who has led all conventional production and sales efforts since the reorganization went into effect Jan. 31.

“We’re basically breaking out production and sales functions from underwriting functions,” said Kiffe. The main intent of the reorganization is to “bring more focus to the people in the organization that are transaction-oriented, as opposed to people who are more initiative or product or strategy oriented.”

To that end, W. Kimball “Kim” Griffith’s role in the affordable housing division will be expanded. He previously served as director of targeted affordable housing, the retail lending side of targeted affordable debt.

Under the new structure, Griffith will head up a new division, affordable sales and investments, which will be responsible for all of Freddie Mac’s affordable production, sales, and investment activities in both debt and equity transactions, including deal negotiation, price quotes, and commitments.

The reorganization “means that the division is going to put a little more emphasis on the affordable group,” Griffith said. “We will really be focused on doing transactions on the debt side and the equity side—combining all the relationships that we have within the targeted group, both on the debt and equity side, to make it work better for us.”

Additionally, Freddie has established an underwriting department under the leadership of Mike McRoberts, previously vice president of multifamily structured and affordable sourcing. In his new role, McRoberts will be in charge of all home, office, and regional underwriting, working closely with the sales functions to help streamline transactions.

Freddie will also form an offerings and customer management department, which will work with the sales team to research potential new products, implement new product lines, and monitor products and executions in the marketplace. Freddie also created a terms and business management department, responsible for transaction-level credit and servicing policy, credit support for new product development, and customer compliance management.

The basic intent of the reorganization is to make the multifamily division more competitive and customer-focused, as well as “introduce new products and executions in the marketplace, both affordable and conventional, in a more rapid fashion,” said Kiffe.

Beefing up the roster

Freddie Mac is working on expanding its targeted affordable seller/servicer roster, which currently consists of five providers: Capmark Finance, Inc.; CharterMac Mortgage Capital Corp.; MMA Financial; PNC MultiFamily Finance, Inc.; and Prudential Affordable Mortgage Co.

“Freddie is working to create some special relationships with lenders who are already active in the affordable sector to help provide a competitive execution,” said Tom Szydlowski, executive vice president of Wells Fargo Multifamily Capital. “That’s really been their focus on the affordable side, to try to find new players.”

Key to expanding the program is a formal delegated underwriting guide for the targeted affordable housing lenders. Griffith said that a preliminary version would be finished in January. “We’re going to use that with a couple of lenders, and then after we see how it works with them, we’ll be ready to hit the streets with it by the end of next year [2007] with what we’re calling an ‘institutional delegated guide,’” Griffith said.

This development has been a long time coming. Freddie Mac announced the delegated underwriting initiative for affordable housing more than two years ago (as reported in the September 2004 Affordable Housing Finance), and in the meantime has used an approach customized for each lender. “In the last two years, we have been using an underwriting standard that we set up in each agreement with an affected lender,” Griffith said. “Having a framework, and ultimately an institutional guide, will mean that we move from a contractual standard to a guide-based standard.”

Chris Tawa, senior vice president with MMA Financial, LLC, said that Freddie is gradually delegating more authority to the lenders, “and I expect them to continue to delegate more aspects of the underwriting to the lender.”

Tawa believes the release of the delegated underwriting guidelines for affordable housing is “the next great step in the evolution of the program. The real key to delegation is having the rules down on a piece of paper.”

Freddie is also working on expanding its Program Plus roster of targeted affordable housing lenders. Griffith said he could see that program’s roster more than doubling in size, from five to 12 firms, in 2007.

Small loans, TEBS enhancements

Freddie is set to focus on small loans, which it describes as loans of $1 million and below, in 2007. The firm intends to extend its delegated underwriting model to small loan products in an effort to capture a bigger slice of the market in this niche area. “We’ve been working with our delegated network to do those deals, and I think that’s where the delegated underwriting risk-share relationship really does make that kind of lending a much more feasible focus,” said Griffith.

Philip Melton, a director at Collateral Real Estate Capital, LLC, believes that Freddie Mac’s proprietary tax-exempt bond securitization (TEBS) program will be a focal point in 2007. That program allows for the creation of a senior/subordinate securities structure backed by tax-exempt and taxable bonds, as well as conventional debt.

Freddie Mac says enhancements to TEBS are on the way. In 2007, “There definitely is going to be a push in the TEBS area,” said Griffith. “In the last few months we’ve found a way to combine TEBS with a forward-commitment, an enhancement to the TEBS execution, which we’re calling forward-TEBS.” Griffith said that the division has already signed up one lender for the program and has been in discussion with a few more recently on the enhanced product.

Melton believes that there will be continual enhancements and adaptations to the TEBS product, “both in pricing and in structure, and the way the product is delivered,” he said. “I think there’s some expectation on their side that wholesale deliveries may become a very big driving force of their affordable business and product line. They are putting a lot of energy and effort into developing that wholesale delivery route.”