The government-sponsored enterprises (GSEs) have been able to define their affordable housing goals this year more so than in the recent past.
Officials credit the new clarity to the appointment of a permanent director of Federal Housing Finance Agency, the regulator overseeing the GSEs. Both Fannie Mae and Freddie Mac have also become increasingly aggressive in competing against short-term bonds in the tax-exempt financing space.
Freddie Mac has become increasingly interested in moderate rehabs, and the launching of its tax-exempt loan program has been competitive with short-term bond financing.
Kimball Griffith, Freddie Mac's multifamily vice president of affordable sales and investment, spoke as a panelist at AHF Live: The Affordable Housing Developers Summit in November. He said Freddie Mac leaders want the tax-exempt loans to be cheaper than short-term bonds.
“It’s harder for us to sell off the credit risk in a 15-year loan,” he said. “So we are going to be aggressive on pricing. So that when we look at pricing for one of these tax-exempt loans, we tee it up directly against what we think the taxable short-term bond would be including issuer fees. We have to run out what we think issuer fees would be, keeping the tax-exempt paper outstanding for the 15 or 16 years, versus what the issue would be if the loan was paid off in two or three years.”
Although the new program has only been executed on larger-scale communities so far, Griffith said 40- to 60-unit deals will also be feasible as momentum for the program builds and issuers become more familiar with it.
“We believe over time, if we can squeeze the cost, we will be able to execute in the tax-exempt space using this product type,” he said.
At Fannie Mae, its mortgage-backed securities (MBS) program is making strides in regaining the trust of the marketplace when it comes to fixed-rate, tax-exempt bond financing, according to another AHF Live panelist Angela Kelcher.
Kelcher, director of multifamily affordable production for Fannie Mae, said officials were working to close the first multifamily credit enhancement deal as she spoke at the November conference.
“With the multifamily [mortgage-backed securities], when we issue that, we guarantee the timely payment of principal interest on the MBS certificates,” she said. “And because the bonds are collateralized by the MBS, bond holders are paid whether or not the borrower pays on the deal. And after the financial crisis, bond buyers placed a greater emphasis on this direct pay sort of structure.”
And with the growing interest in the direct-pay structure, there’s downward pressure on pricing, Kelcher said.
“Some estimates are about eight basis points is what it can equate to in terms of savings,” she said.
Lindsay Machak is an Associate Editor for Affordable Housing Finance. Connect with her on Twitter @LMachak.