FINANCE GSEs Ramp Up Affordable Housing Lending Efforts Fannie Mae, Freddie Mac go all-in on loan production in this niche sector following changes made by their regulator. John Nelson few weeks before Thanksgiving last year, the Federal Housing Finance Agency (FHFA) made sweeping changes to Fan-nie Mae and Freddie Mac’s multifamily busi-ness pursuits for 2021. The FHFA revised the previous structure that capped loan production at $200 billion combined for both government-sponsored enterprises (GSEs). And unlike most years, that cap was spread across five quarters spanning from the beginning of fourth-quarter 2019 to the end of 2020. For 2021, the FHFA is once again using the traditional four-quarter time frame but is now directing the agencies to produce $140 billion in multifamily loans combined ($70 billion apiece), which is lower than $159 billion in loans closed by the GSEs and their lending partners last year: $76 billion for Fannie Mae and $83 billion for Freddie Mac. The FHFA is again doing away with its long list of exclusions for loans on properties that don’t count toward the cap. In the past, the agencies had no limits to finance certain multi -family categories, including communities with five to 50 units, seniors housing, rural proper -ties and manufactured housing. The FHFA is maintaining its directive for the agencies to finance properties deemed as “mis -sion-driven affordable housing” — or those af-fordable to households earning 80 percent or less of the area median income (AMI) — but it’s upping the minimum requirement. Affordable housing, which is defined as hous -ing costs not exceeding 30 percent of a house-hold’s monthly income, now must comprise at least 50 percent of the GSEs’ overall multifamily business, a sizable increase from the 37.5 per-cent requirement for FHFA’s previous cap. “It has always been the goal of Fannie Mae and Freddie Mac to allow for more affordable housing production throughout the country,” says Vic Clark, senior managing director and head of conventional multifamily production at Lument. “It is nice to see that affordability is now the major emphasis, because that is how the money should be spent. It provides the most social benefit across the country, and it is what the agencies were established to do.” The FHFA is also raising the threshold that the GSEs need to provide for units affordable to A households earning 60 percent or less of AMI. The new goal is for at least 20 percent of all Fan-nie Mae and Freddie Mac multifamily loans to fall within this bucket. For example, if the GSEs are looking to fi -nance a property in the Atlanta metro statistical area where the AMI is currently $86,200, to meet the 60 percent AMI goal, rents at the property should not exceed $906 per month for a stu-dio apartment, $970 for a one-bedroom unit or $1,164 for a two-bedroom unit. The FHFA’s intensified approach on afford -ability is helping provide more capital to this particular segment of the multifamily sector as renters are becoming increasingly burdened by housing costs. Debby Jenkins, executive vice president and head of multifamily at Fred-die Mac, says the COVID-19 pandemic put the national affordable housing crisis more in the spotlight, though the issue goes back much fur-ther than March 2020. “The pandemic pushed millions of American families to their breaking point, and many were al-ready on the brink before anyone had ever heard of COVID-19,” says Jen-kins. “The country faces an affordable housing crisis, and Freddie Mac has been working to ad-dress this issue for years. DEBBY JENKINS FHFA’s 2021 cap require -Freddie Mac ments certainly upped the ante, but we’re all-in on our mission and hope to surpass the new requirements.” For its part, Fannie Mae recently introduced a new loan product that will help lower bor-rowing costs for owners of naturally occurring affordable housing (NOAH). The new Spon-sored-Initiated Affordability (SIA) incentives are lowering mortgage payments for borrowers that agree to preserve or create at least 20 per-cent of units at a property affordable to renters earning 80 percent of AMI over the life of the loan, as well as agreeing to not have monthly rental rates exceed 30 percent of AMI. “These incentives are aimed to help address the shortage of affordable rental housing in America at a time when rent growth is outpac-ing wages,” says Charles Ostroff, senior vice presi-dent and chief credit offi -cer of Fannie Mae’s mul-tifamily business. “Keep in mind that nearly half of the families and in-dividuals renting their home spend more than 30 percent of their in-CHARLES OSTROFF come on rent, and this Fannie Mae share continues to rise.” Tucker Knight, senior managing director and head of Texas originations at Berkadia, says that the incentives are meant to keep affordability at the property level for the duration of the fi -nancing and reward borrowers with an average savings of up to 30 basis points on their all-in coupon. However, Knight says the SIA incen -tives haven’t gained much traction yet among borrowers. “This business is a herd mentality, and no one wants to be the first one out, so it’s had a slow start because there is some uncertainty,” says Knight. Don King, executive vice president of Walker & Dunlop’s multifamily division, says the SIA incentives are similar to Fannie Mae’s green fi -nancing products in that they will likely prove popular in the long term, but that borrowers need time to warm up to the program. “There are a lot of similarities between green and SIA,” says King. “It’s a great idea and it will work, but right now SIA is in the discovery phase.” Agency Activity Thus Far Fannie Mae’s multifamily production in the first quarter of 2021 was $22 billion, an increase of more than 50 percent compared with its first-quarter 2020 volume of $14.1 billion. Through the first five months of this year, the agency’s multifamily loan volume totaled $28 billion, which represents 40 percent of its annual cap and is a 7 percent increase from the first five months of production in 2020. Ostroff says that Fannie Mae’s production is put under a microscope on a regular basis to www.REBusinessOnline.com 16 | Southeast Multifamily & Affordable Housing Business | July/August 2021