Fannie Mae has reorganized its affordable multifamily division hoping to speed up deal cycle timelines and maintain a more consistent approach across all of its markets.

In the past, affordable deals were processed in a more regional manner, which sometimes led to inconsistencies in the way deals were underwritten from one market to the next.

But the company centralized its operations, consolidating all of its affordable multifamily lending operations under one roof. The division is now divided into three dedicated teams—one focused on production, another on pricing, and a third on underwriting.

“Having a dedicated underwriting team has allowed us to really look at deals from across the country with the same philosophy,” says Bob Simpson, vice president of multifamily affordable lending within Fannie Mae's Housing and Community Development division. “The ultimate goal is to provide more speed, certainty, and consistency to the execution.”7


The government-sponsored enterprises (GSEs) along with the Federal Housing Administration (FHA) will target preservation deals next year. The agencies see an opportunity as the amount of expiring Sec. 8 contracts, not to mention tax credit properties reaching the end of their 15-year compliance period, is expected to increase over the next several years.

“The focus on 2011 from a market perspective is on preserving the affordability of existing units,” says Simpson. “There's a tremendous preservation market opportunity out there that we think is only going to grow over the next five years.”

Another reason the agencies and their networks of lenders like these deals is the low amount of risk they present. Capital providers see preservation deals as taking governmental risk rather than real estate risk, given the guaranteed payment stream that a housing assistance payment contract provides.

When the FHA unveiled it's sweeping underwriting changes recently— making it tougher on both market-rate and tax-credit deals—the agency gave the most favorable treatment to projects with 90 percent or more of rental assistance.

Fannie Mae is also considering making an underwriting change to sharpen its competitiveness on preservation deals. A couple of months ago, Freddie Mac began allowing properties with long-term Sec. 8 contracts, and loan terms of 10 years or more, to use above-market Sec. 8 rents when sizing a loan. In the past, underwriters had to use the lowest of lowincome housing tax credit (LIHTC), Sec. 8, or market rents, but this new approach allows for higher proceeds.

“There are a lot of people recognizing that preservation is the place to really play,” says Phil Melton, who runs the affordable housing platform of Charlotte, N.C.-based lender Grandbridge Real Estate Capital. “We've seen Fannie and Freddie get aggressive on those type of deals, and the FHA is focusing there as well.”

For borrowers, the choice right now is between rock-bottom rates and speedy execution on preservation deals. The FHA is offering rates at around 4.25 percent for immediate fundings, compared to the mid-5 percent range being offered by Fannie and Freddie.

So, those looking for a quick turnaround through the GSEs will have to pay a premium for it. But the patience required to deal with the FHA's processing times would be rewarded with a signifi cantly lower rate.

Other executions

Elsewhere, Freddie Mac held a pricing and underwriting advantage over Fannie Mae on affordable housing deals in September. The discrepancy seems to be greatest on forward commitments for 9 percent LIHTC transactions. Freddie Mac was offering forwards priced 50 to 100 basis points lower than a comparable Fannie Mae execution, according to agency lenders.

Rates on forward commitments came down somewhat in the late summer thanks to the declining yield on the 10- year Treasury, which is used as a benchmark. But the spread—the difference between the benchmark rate and the all-in rate—was still sky-high, in some cases at more than 650 basis points.

It's a different story on the 4 percent side though. For the last 18 months, Freddie Mac held quite an advantage in this space through its variable-rate bond credit enhancement program, an execution that Fannie hasn't offered in some time. Now, however, fixed-rate and variable- rate bond credit enhancements are pretty much on par.

Slow pace

But the pace of affordable housing deals has slowed considerably this year. Though some agency lenders have been busy with the New Issue Bond Program (NIBP), the volume of LIHTC business has dropped off.

“Affordable housing has historically been about a third of our total production, and it's nowhere close to that right now,” says Don King, head of agency lending at Needham, Mass.- based CWCapital. “It's barely moving the needle.”

CWCapital has seen some action through NIBP, a collaboration involving the Treasury, the Department of Housing and Urban Development, and the GSEs. The program gives state and local housing finance agencies (HFAs) the ability to provide low-rate debt on bond deals. The company completed two deals and had another two in process at press time.

Lenders concentrating in states other than New York, California, and Florida aren't seeing much NIBP activity, however. Nearly half of the $2.9 billion issued for the program went to HFAs in those three states.