The government-sponsored enterprises are providing certainty of execution in a market that has seen conduit lenders either grow more conservative or disappear completely, according to panelists from “Debt Financing Strategies in an Unpredictable Market” at the recent AHF Live conference.
In a volatile economic climate, tax credit investors are looking for deals that hedge against interest-rate risk by locking in rates as early as possible, a feature that both Fannie Mae and Freddie Mac offer.
Both agencies have stepped up their loan delivery systems in recent months. In the past, Freddie Mac was criticized for not delegating enough authority to its lenders, a stance that lengthened transaction timelines. But in September, Centerline Capital Group became the first fully delegated lender of Freddie Mac’s Targeted Affordable Housing Seller/Servicers, allowing it to shave about 30 days off of the time it takes to process a typical affordable housing loan.
Fannie Mae’s Delegated Underwriting and Servicing network of lenders has been established for more than a decade. But as the debt market moved to lower debt service coverage ratios and longer terms, so many waivers were requested that the process became lengthy, panelists said. Fannie Mae recently revamped its DUS guide, granting lenders more authority to underwrite at terms that previously required waivers.
In the past, loans with 35-year amortization required a waiver from Fannie Mae, but now both agencies offer such terms for experienced developers working in strong markets. “35 is the new 30,” said Paul Weisman with Credit Suisse/Column Capital.
For developments of 50 units or less in towns of up to 25,000 people, the USDA’s Rural Housing 538 program can be promising. The program offers many of the same terms of HUD’s Sec. 221(d)4 program, “but it’s an easier process than HUD, it works quicker, and it has an interest-subsidy component that lowers interest rates,” said Todd Sears of Herman & Kittle.
