Freddie Mac and Fannie Mae are still offering fixed-rate 10-year loans in the 6 percent to 6.5 percent range, but the price wars between the two companies have taken another turn.

Freddie Mac’s pricing was inside of Fannie Mae’s for much of the second half of 2008, as Freddie routinely offered standard 10-year deals that were 10 to 25 basis points (bps) lower than Fannie Mae. But since January that gap has closed, as investor interest in Fannie Mae’s Mortgage-Backed Securities (MBS) program continues to heat up, ultimately lowering rates for Fannie Mae loans.

“The pricing has flip-flopped in the last month, mostly driven by the return of the MBS market,” says Steve Wendel, managing director of Deutsche Bank Berkshire Mortgage. “Right now, Fannie Mae’s got a decent advantage in pricing, anywhere from 25 to 50 bps today on the fixed-rate product.”

That pricing advantage may not last long, as Freddie Mac continues to build out its securitized offering, the Capital Markets Execution (CME) program. Freddie Mac processed about $800 million in loans through the CME program in a limited pilot phase last year. While only five lenders participated in the pilot, the CME program went live late in 2008, so all Program Plus lenders now offer CME loans. Borrowers routinely get a 25-bp reduction in pricing through the CME program compared to the more standard portfolio execution.

Freddie Mac also tightened its underwriting standards in January. The company has moved to a 70 percent loan-to-value (LTV) ratio and a 1.30x debt-service coverage ratio (DSCR) for shorter-term deals, though it still features 75 percent to 80 percent LTV and a 1.25x DSCR for longer term deals. Additionally, Freddie Mac has toughened its underwriting of “cash-out” refinancing deals by raising the DSCR and lowering the LTV for such deals by 5 bps.

Fannie Mae also continues to tighten its credit standards. In late 2008, the company removed the “strong markets” designation from its criteria and now underwrites all deals at a minimum 1.25x DSCR, regardless of where they are located. The company has also recently moved to a 1.30x DSC in some secondary markets.

Both companies are heavily favoring stabilized assets these days. While Fannie Mae’s CI Mezz-Mod Rehab and Freddie Mac’s Acquisition Rehabilitation and Acquisition Upgrade products still exist, they aren’t being priced as competitively as deals for stabilized properties.

“It’s the stabilized, cash-flowing properties that are getting the most attention right now,” says John Cannon, executive vice president and head of agency lending at Capmark Finance. “Why would you stretch for an unstabilized property in this market, especially when you’ve got more business than you know what to do with on stabilized properties?”