Fannie Mae is probably sorry to see 2012 in the rearview mirror.

For many Fannie Mae affordable housing lenders, 2012 was a banner year, fueled by a robust preservation and acquisition market. In fact, the government-sponsored enterprise (GSE) will likely set a new record for overall affordable housing debt production when the final tally is done on 2012.

“In 2011, we did over $2.3 billion in affordable housing transactions, and in 2012, as of August, we had already beaten that goal,” says Sarah Garland, national director of multifamily affordable housing at Fannie Mae. “We had an extremely strong year and mostly saw acquisitions and refinancings.”

It wasn’t just the dollar volume that went up last year, but the overall amount of transactions as well. The company’s average deal size was on the low end in 2012, around $8 million.

And the year only grew stronger as it progressed, providing strong momentum heading into 2013. The fourth quarter is always the most hectic season for multifamily financiers, as buyers rush to complete transactions before the year ends, and 2012 was no different.

“Everyone held their deals until the last two months again [in 2012],” says Richard Gerwitz, managing director at Fannie Mae lender Citi Community Capital. “We had 140 transactions trying to close in the last three months of the year.”

Much of Citi’s agency business is attributable to preservation deals, an area of particular focus for both Fannie Mae and Freddie Mac. “There’s a huge volume of year 15 deals coming down the pike, and that’s where we’re getting most of our business on the agency side,” Gerwitz says.

Citi certainly isn’t alone. Tom Booher, who runs PNC Real Estate’s multifamily division, says it too will have a record year on the agency side in 2012.

Freddie was no slouch either in 2012. Freddie Mac expected to see a 20 percent to 25 percent increase in its overall multifamily volume, according to Kim Griffith, the head of Freddie’s affordable division. And while preservation deals drove affordable housing debt volume last year, Griffith wonders if all this focus on preservation comes at the expense of new construction.

“We can talk about preservation all day long, and preservation is a good thing,” he says, “but as an industry, we really have to crack the code on how to get new production, on how to lower construction costs.”

Rehab redux

The ever-increasing volume of deals reaching the end of their compliance period has given rise to more demand for the GSEs’ moderate-rehabilitation programs.

But while the demand is great, the underwriting is tight. The deals being done today are conservative affairs as lenders shy away from taking any lease-up risk if they can help it.

“Both GSEs have good mod-rehab programs, but the rehab really does need to be done tenant-in-place,” says PNC’s Booher. “It’s been a great tool for properties at the end of their compliance period.”

Conservatorship has made new product creation a difficult process for the GSEs. But the companies have been working hard to roll out new features in their bond credit-enhancement program in 2013.

“We are working on some product enhancements,” Garland says. “We did our first short-term bond deal [in the fall], and that’s a very good alternative to doing it as a forward.”

Fannie and Freddie saw healthy demand for bond credit enhancements last year, with Fannie exclusively focusing on fixed rate (it pulled out of the variable-rate market a few years ago), while Freddie offered both fixed and floating.

The GSEs, together with the Federal Housing Administration, were pretty much the only games in town throughout the recession if you were looking to credit-enhance a tax-exempt bond. Today, however, the agencies are seeing spirited competition from the banking sector, as the private-placement market re-emerges.

“In 2009, the phone just stopped ringing,” says Wade Norris, a partner at law firm Eichner Norris & Neumann. “Back then, I thought it would take four or five years for the market to come back, but today we’re obviously in an up cycle.”

Tighter underwriting

For borrowers, the capital environment today is a mixed blessing. Interest rates are at historic lows, with many borrowers locking in long-term permanent loans in the 3.5 percent range. And most industry watchers believe this low-rate environment will last through 2013, based on the Federal Reserve’s stated goal to continue to compress the yield on the 10-year Treasury.

But a hangover from the Great Recession has caused most lenders to remain maybe a little too vigilant.

“Underwriting is far more detailed, critical, and severe than at any time in my 30 years in this business,” says Rob Hoskins, chairman of affordable housing developer The NuRock Cos. “You better be real sure about your revenue—they’re going to stress-test it because everyone still remembers the tremors we’ve been through the last 36 months.”