Fannie Mae had a big year for affordable housing
production in2011, as the agency rejuvenated its offerings
and re-engaged the market.
The company is on track to record about $1.7 billion in
volume for the year spread among preservation, New Issue
Bond Program, and low-income housing tax credit (LIHTCs)
deals, according to preliminary estimates by agency
lenders. The figure would far surpass Freddie
Mac’s estimated $1.1 billion.
It’s a stark turnaround for Fannie Mae, which
had fallen behind in recent years on the multifamily
affordable side. But Fannie Mae sharpened its approach in
early 2011 as Freddie lost a step in underwriting
Affordable Housing Finance recently sat down with Bob
Simpson, Fannie’s head of affordable, to talk
about its banner year and the year ahead.
AHF: I hear that you guys expect to double your
affordable housing production year over year. What drove
Simpson: We’re definitely
going to far exceed last year’s production.
Production was strong starting in the first quarter, and
each quarter has been successfully better than the last.
We’ve seen deals coming from markets throughout
the country, which wasn’t as much the case [in
2010]. And this was the first year of several in which
you’re going to see the preservation market
At the beginning of the year we focused on providing our
lenders with more flexible products, both in the bond space
and the immediate space. We wanted to get more competitive
on pricing and to make sure above and beyond everything
else that we provided the best execution in the market. On
the bond side, obviously that’s an area we
definitely wanted to improve on this year, and I think
we’ve done that, especially when it comes to
AHF: You’re not capping the amount of
per-unit rehab dollars anymore, but give me some other
examples of how you guys tweaked your mod-rehab
Simpson: We’re much more
willing to look at the 35-year amortization, we’re
a little more flexible in terms of partial IO. One of the
things about our products is that the manner in which we
securitize—it’s a single asset
securitization—allows us to be a little more
flexible with our products on specific deals. That really
helps in the affordable space because all deals are
different, and, if they’re different on the front
end, they’re going to be different on the back
end. And that helps particularly in the mod-rehab space
because those deals can get complicated.
AHF: Did you introduce any other product
enhancements this year?
Simpson: In the latter half of the year
we rolled out, both on the conventional and the affordable
side, an ARM 7-6 product, an adjustable-rate mortgage.
It’s been a very attractive option for affordable
borrowers that are looking to acquire or refinance
properties but want the option of going back in for new
credits in a couple of years.
We’re also starting to see traction with the
Green Refinance Plus product, which is our partnership with
FHA. In a low rate environment, a lot of people just went
for the standard affordable preservation execution. But I
think increasingly folks are looking for additional
proceeds that can be used to improve the property, to make
it more energy efficient. We expect to see more business
for that product in the year ahead.
AHF: How will Fannie Mae’s focus on
preservation manifest in 2012? What are you working on for
Simpson: We’ll continue to
provide a flexible approach to specific deals, and do it
very quickly. We’re going to continue to look for
ways to enhance our existing products to meet the market,
and the one thing borrowers can always count on is our
execution. We’re not going to re-trade our
borrowers. And if they have a date certain by which they
need to close, they can rely on the fact that we will get
that deal done in time.
AHF: Do you expect the momentum on the 9 percent
LIHTC side to continue in 2012?
Simpson: I think you might see some
leveling out. There’s an inflection
point—at some point the spread between the yield
and the 10-year makes the difference. If you’re a
yield-driven investor, there reaches a point where yields
can only go so low, and I think we’re reaching a
point where we might be leveling out a little bit. In the
coastal markets, you’re seeing some pretty
aggressive pricing for credits, and yields have gone down
in the non-Community Reinvestment Act markets too, and I
wouldn’t expect that trajectory to continue.
AHF: What are your concerns for the affordable
housing industry for 2012?
Simpson: The availability of gap
financing is still a concern. The gap financing has been
reduced over time, and you’re probably going to
start seeing that really impacted at the local level in
I think new construction is going to continue to face
some headwinds, both because of the lack of gap financing
and also because there’s more competition for
credits by existing properties.
Overall, though, I think you’re going to see
more competition in that market across the
spectrum—from investors, borrowers,
lenders—and with that competition comes increased
pressure. You’re going to see more pressure on
proceeds, terms, sponsor expertise. Regardless,
we’re always going to stay true to our