Freddie Mac's Targeted Affordable Housing
(TAH) network raked in about $1.5 billion in loan volume last year,
pretty much the same as in 2010.
And that consistency is telling. The overall market for
affordable housing debt grew last year, yet the TAH network stayed
the same. And that means Freddie Mac lost market share in 2011.
Fannie Mae, meanwhile, grew its affordable housing volume 282
percent, to $2.3 billion, last year, as it processed preservation
deals hand over fist.
Those numbers tell a tale of two different business
models—Freddie focused on bond deals the last
couple of years, and the New Issue Bond Program (NIBP) fueled its
volume. But the NIBP is a limited-time stimulus program.
Fannie's focus on preservation deals provided a
longer-term horizon and drove its copious production last year.
Affordable Housing Finance recently sat down with Kim Griffith,
Freddie's vice president of affordable sales and
investment, to discuss how the TAH network will respond to the
increased competitive landscape.
AHF: So how's business? What kind of
deals are you seeing the most in the first quarter?
GRIFFITH: We're seeing a lot
of people that have a bond allocation and want the credit
enhancement for their bonds. And we're seeing
that on a whole variety of bonds—the 80-20 bonds
and forwards for low-income housing tax credit (LIHTC) deals, and
we're also seeing it with what we call
moderate-rehab deals, where instead of being a forward we provide
direct credit enhancement for those bonds.
AHF: Are you seeing more action in the private-placement
market? Has it come back in earnest, or is it just talk at this
GRIFFITH: It depends on where you sit. If
you're in California, I would say
it's back in earnest. New York state just
amended its legislation to permit unenhanced bonds, so I think
we'll start to see it a little bit more in New
York once they get the program set up. But it's
not everywhere yet. If you think of the major buyers of unenhanced
bonds as banks, then that leads you into the Community Reinvestment
Act (CRA) footprints, and that leads you to the coasts
AHF: Last year, Freddie Mac did about $1.5 billion in
affordable housing deals, pretty much the same as the year before.
Why would your volume remain flat in a growing market?
GRIFFITH: There was generally increased
competition in the affordable world. If you look back the last two
or three years and recognize why Treasury came in and did the NIBP
and its temporary credit liquidity facility, it was because the
bond market was in disarray. And we have been particularly focused
on providing bond credit enhancements, and we had a very
substantial market share of bonds, but bonds
weren't increasing as much as they had in the
AHF: Some have said that Fannie Mae's
focus on preservation deals was a longer-term model and that
Freddie Mac's focus on the NIBP was more
shortsighted. How would you respond?
GRIFFITH: When we were more focused on bonds,
[Fannie Mae was] able to slip ahead of us. I would say we ate their
lunch in bonds, and they ate our lunch in Year 11 deals. And now
we're going to dine at its table on the Year 11
We have two focus areas this year. One is to be sure that we
stay extremely relevant in bond credit enhancements, and the other
is that we become much more relevant in preservation cash mortgages
for these LIHTC properties that have cleared their 10-year mark and
are now in Year 11.
AHF: How will your focus on preservation deals manifest
itself this year?
GRIFFITH: We're focused on
making sure our process works quickly. We understand that in order
to be successful, we have to be able to review transactions and get
back to folks and stay within a timeframe of about two months,
start to finish.
Many of these deals are acquisitions, and within two weeks or so
of a party signing a contract they have to go hard with their
earnest money. So we have to be pretty crisp about an initial look,
and then we've got to deliver a commitment
within two months from start to finish. We focused on that with our
We also looked at our credit standards to be sure that they
market-appropriate. And we looked to see whether we were pricing
our bid appropriately based on market conditions.
So we're a lot crisper with our lenders about
exactly what we're looking for, exactly what we
want to do, and where we can jump when they say jump.
AHF: What can you tell me about Freddie
Mac's Green Financing Initiative, your
partnership with the Community Preservation Corp.? Where is that
now? Last year, Fannie started something similar with the
Department of Housing and Urban Development (HUD).
GRIFFITH: We hadn't done
much business with that, but I will say we are signing our own HUD
risk share amendment to put us in a comparable, if not exactly the
same, green initiative position with HUD risk share.
AHF: What do you see happening right now in the LIHTC
GRIFFITH: In LIHTCs, particularly in the CRA
hot areas, it's back almost as much as it was in
the glory days. So we're breaking the buck going
up, not down—I've heard more
than $1.10 in New York recently.
But most important, there was a time when if you were in the
“no sea/no sand” states, for almost
any price you couldn't sell your credits. There
is a big gap between the sea/sand and the no sea/no sand states,
and it's driven by the investors. But there is
money available in those locations where it
wasn't available two and three years ago. And
frankly, that's the headline in
LIHTCs—that it's back, and
it's also back in those areas.
The challenge is going to be, are all the capital needs being
covered by hard debt and equity? And there's
still a need for soft money in many different properties, and it
will be harder to get soft money.