Fannie Mae is still providing debt financing for the affordable housing industry, despite a capital markets meltdown and its takeover by the federal government.
For 9 percent transactions, Fannie Mae continues to provide loans with 90 percent loan-to-value ratios and 1.15x debt-service coverage ratios (DSCRs).
Unfunded forward commitments for 9 percent tax credit deals feature all-in rates of about 7.6 percent, as of early December. Funded forward commitments are being quoted at about 75 basis points less, closer to 6.9 percent.
However, as of early December, Fannie Mae was again out of the market for variable-rate bond credit enhancements, unable to figure out how to price them due to the volatility in the bond markets.
While debt financing rates have stayed pretty consistent since the conservatorship was announced, aspects of Fannie Mae’s underwriting continue to grow more conservative.
Beginning Nov. 14, Fannie Mae removed the “strong market” designation from its underwriting criteria. That designation listed certain markets, such as Seattle, Los Angeles, and Portland, Ore., where lenders could underwrite conventional deals at a 1.20x DSCR and acquisition loans as low as 1.15x DSCR.
Now, no market is considered a “strong market,” and a 1.25x DSCR is the baseline for all Fannie Mae loans. For preservation deals, such as refinancing or acquisition loans on a property with rent restrictions, it means a 1.25x DSCR, regardless of where the property is located. The change doesn’t affect the DSCR of forward commitments, however.
The pace of product development at the company has slowed. Fannie Mae had been working on a construction-to-permanent loan program, piloting the concept with several of its large lenders. But the conservatorship slowed the momentum of that program, which the company had hoped to roll out in the fourth quarter of 2008.
Fannie Mae is still struggling to dig out from under the single-family housing meltdown. Fannie Mae has taken over so many foreclosed homes that if it were a town, it would be bigger than Dayton, Ohio, the company said on a conference call in November. Fannie Mae now owns 67,519 foreclosed properties.
In November, the company reported a $29 billion loss in the third quarter, driven by a $21.4 billion write-down on tax credits that the agency doesn’t think it will be profitable enough to use in the foreseeable future.
This write-down of tax credits is mostly good news for the affordable housing industry. For much of 2008, the industry feared that Fannie Mae would flood the market with its unused tax credits, further depressing tax credit equity pricing.
By writing those credits down, Fannie Mae is basically signaling that no such sell-off will occur in the near term. But the move also illustrated that Fannie Mae won’t be getting back into the tax credit investment business any time soon.