Bob Simpson is vice president of affordable, green, and small-loan business, at Fannie Mae. He discusses what the government-sponsored enterprise has done this year and what’s in store in 2017.
What is your outlook for the affordable housing market in 2017?
The demand for affordable housing continues to grow. That’s no secret. There continues to be more folks who need affordable housing, especially rental housing. We’re definitely seeing that in the demand for affordable rental housing and how these properties are performing well. We’re seeing low vacancy rates across the board. We’re seeing some new construction, maybe a little bit of an increase, but it’s not enough. We continue to see a high demand for preserving the affordability of expiring tax credit deals. We see a lot of opportunities for mod-rehab deals—older Sec. 8 properties, older tax credit deals—that are looking to use 4% tax credits.
How will the 2017 market differ from this year?
Across the board, we see affordable borrowers have more choices, more sophisticated financing alternatives available to them. The financing is going to continue to be more flexible. As for underwriting, we still maintain a rigorous approach. We always have, and I think everyone in the market does. I don’t think that’s going to change. But, flexibility on terms is going to be more important to borrowers in 2017.
What have been the key changes that you’ve made this year?
We rolled out a number of products in 2016. We have a capped ARM (adjustable-rate mortgage) product. We rolled out a structured ARM product for affordable that goes to up to 80% loan to value. We also unveiled declining prepay options on fixed-rate deals. We found that to have a tremendous amount of traction this year. In the past if you wanted a fixed-rate deal, you could get that, but it came with a rigid yield-maintenance fee and prevented you from being flexible especially in years 10 or 11 of your tax credit deal. We rolled out a declining prepay option across the board for our affordable fixed-rate products, so anywhere from a seven-year term to a 30-year term. We’re finding it popular with borrowers who are putting new credits on a deal who want to make sure they’re maintaining flexibility in years nine, 10, 11, and 12.
We also continue to see more mod-rehab deals. We’ve worked hard for the last year to make our bond credit enhancement executions more competitive, especially on mod-rehab deals. Our tax-exempt bond pass-through product that we rolled at the beginning of the year has picked up steam in the third quarter. We’re starting to see investor spreads narrow from January to August. We’re going to look for ways to make that even more competitive in the future.
What will be new for Fannie Mae in 2017?
There are two areas that we’re looking at next year that we think will be a big part of the market. One, we want to do more to support the renovation of public housing. We think it’s incredibly important. Public housing authorities (PHAs) are great partners, and there’s a tremendous need to modernize the public housing stock. The federal Rental Assistance Demonstration (RAD) program is an outstanding product. We made some enhancements to our underwriting in the middle of the year that will allow us to get PHAs and borrowers more proceeds on RAD deals. We’re going to aggressively go after those transactions.
I also think there’s going to be an increasing connection between preservation and energy efficiency. We see this happening across the market. Green financing is a trend that’s here to stay. We think it’s especially relevant in affordable housing. When you’re rent restricted, being able to keep that property more viable over the long term means you have to manage your operating expenses. One of the best ways to do that is to invest in energy-efficient utilities and features that can keep those expenses down and create a more livable environment for your tenants. All of our Multifamily Green Financing products are available in the affordable world.
How much affordable housing business is Fannie Mae on pace to do this year (2016)?
We did $3.1 billion last year, and we’re going to far exceed that this year. The deal flow has been outstanding. It’s been organic growth across our product lines.
