Despite headwinds for the market, Freddie Mac Multifamily surpassed its affordable housing goals in 2023. Its volume last year totaled over $49 billion, including $48.3 billion in multifamily financing and over $883 million in low-income housing tax credit equity investments.
Freddie Mac Multifamily supported over 423,000 affordable rental units, and 66% of its 2023 production volume qualified as mission-driven affordable housing, exceeding the 50% goal set by the Federal Housing Finance Agency.
Kevin Palmer, head of Freddie Mac Multifamily, shares highlights from last year and what’s ahead for the government-sponsored enterprise and the overall lending environment in 2024.
What were the highlights of multifamily and affordable lending for Freddie Mac in 2023?
We were proud to meet and even exceed our ambitious affordable housing goals in 2023, despite the challenging market. That is a credit to the hard work and mission focus of our team, our Optigo lenders, and their borrowers. We all felt the headwinds facing the overall market, but we came together to support not only affordability but liquidity and stability in the multifamily housing market. When other liquidity providers step back or remain on the sidelines, Freddie Mac’s role is to remain a steady provider of market-rate and affordable loans.
While total overall volume for 2023 was down over previous years, we made a significant impact, particularly given market conditions. Last year, Freddie Mac supported close to half a million affordable rental units across the country. In total, 92% of units we financed in 2023 were affordable at or below 120% of area median income, meaning they are essential for working families who want to stay in their communities and build their economic futures.
What do you expect the lending environment to look like for the sector in 2024?
We’re optimistic about the long-term future of our industry and believe the fundamentals are strong. That said, we do expect the headwinds in the market to continue in 2024. We’re all resetting to the new “higher for longer” reality with interest rates, and we’re carefully monitoring expected maturities as a related potential challenge for the market overall. Those issues may be offset by positive trends in occupancy, low unemployment, and the capital that is starting to come off the sidelines.
As a core part of our mission and our role in the market, in all conditions, Freddie Mac will continue to be there as a constant provider of the liquidity that helps create stability and provide the funding needed for affordable housing.
What are Freddie Mac Multifamily’s priorities for 2024?
We’re approaching this year with a real sense of urgency and will be prepared to take smart risks and be a strong provider of liquidity, especially as we continue to serve our countercyclical role in challenging markets. As we work to meet our mission goals in 2024, we will be putting additional focus on affordable and workforce housing and will look to increase forward commitment and housing preservation offerings.
We are also continuing to focus on resident-centered housing, including by sharing best practices across our network and expanding our Impact Sponsor program, which identifies operators who are engaged in and pioneering this work, to our largest-ever class this year.
Another highly successful program we’re expanding is our credit-reporting initiative, which encourages the reporting of on-time rent payments to the major credit bureaus. This helps families who have thin credit files or no credit score at all build the credit they need to eventually become homeowners, receive affordable car loans, and more.
I’d also highlight our Tenant Advance Commitments product, which provides developers conventional financing with favorable pricing and credit terms in exchange for their commitment to keep a portion of their buildings’ units affordable and provide social services for residents.
Are there any new lending initiatives coming online in the near feature?
We’re always looking for new ideas, creativity, and innovations to meet market demand and deliver on our mission.
One way we’re being very intentional about sparking those new ideas and cross-pollinating them across our business lines is with a new program that encourages career agility and continuous learning. We want to give people a chance to learn all aspects of our business, instead of being siloed in a division or a role, and to share what they’ve learned up the management chain.
What advice would you give to borrowers in today’s uncertain environment?
I would not go so far as to give any advice to borrowers, but, based on our data and my own view of the market, I see the sun peeking out from behind the clouds. The Mortgage Bankers Association and others expect market volume to be up significantly in 2024, and our Freddie Mac Multifamily Outlook predicts a return to pre-pandemic levels. That’s good news for everyone in our industry and for families seeking quality, affordable places to call home, too.
In addition to providing liquidity, how else is Freddie Mac addressing the affordability crisis?
While we expect to see a spike in supply in 2024, particularly concentrated in markets like the Sun Belt and the Mountain West, that number goes down significantly in 2025 and beyond. Over the long term, there is still a supply and housing availability problem that we want to help the market solve. We’re looking at how we can support a more consistent supply of housing and rentals, as the demographics are clear that we will see high household formation numbers in the years ahead and additional supply will be needed to preserve affordability in the market.
While Freddie Mac does not provide construction financing, we have products such as our Non-LIHTC (low-income housing tax credit) Forward financing, which can offer construction lenders more confidence. This flexible transaction structuring provides certainty of execution at lower costs to the borrower. In a high interest rate environment, that can make a significant impact, taking interest rate risk off the table prior to construction completion to help preserve and create affordable housing stock.
