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Affordable Housing Outlook for 2020: Greystone's Jeff Englund

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Over the next year, Freddie Mac and Fannie Mae will be more focused than ever on providing financing to affordable housing. That's because the mortgage giants now have new "mission-rich" production goals. Freddie Mac and Fannie Mae can each purchase up to $100 billion in apartment loans through the end of 2020 (five quarters), according to the latest limits set by the Federal Housing Finance Agency (FHFA). And, 37.5% of that $100 billion will have to qualify as “mission-rich” loans to affordable housing or workforce housing properties.

That's a big change from prior years, in which loans to affordable housing properties did not count towards FHFA's limits. Previously, government-sponsored entities (GSEs) would often experiment with new lending programs, usually announced in the fall, designed to attract affordable housing borrowers.

This latest five-quarter $100-billion limit is on pace to the volume Freddie Mac and Fannie Mae generated in the four quarters of 2018. In 2018, each GSE was limited to $35 billion of uncapped business, plus an unlimited amount of loans to qualified green and affordable apartment properties. That year, Freddie Mac bought a total of about $78 billion in multifamily loans, and Fannie Mae bought a total of about $65 billion.

The new targets for the GSEs have been set to keep mission-rich business coming. In fact, Freddie Mac and Fannie Mae continue to offer incentives under their affordable housing programs, which have led some multifamily lenders to offer more favorable interest rates.

Affordable housing projects are already receiving these favorable terms. GSEs are likely to continue to manage their production pipelines through pricing and other loan incentives based on how close they get to their lending goals, which they measure on a weekly basis.

Freddie Mac and Fannie Mae also added a few new product enhancements for affordable housing borrowers. For qualifying loans, borrowers utilizing the GSEs to credit enhance tax exempt bonds for permanent financing using 4% Low-Income Housing Tax Credits (LIHTCs) can amortize those loans over 40 years on a case-by-case basis. The longer amortization reduces the mortgage payment, increases cash flow and many times allows for increased permanent loan proceeds. For many affordable housing developers, this translates to less deferred developer fees to balance the developer budget.

Freddie Mac recently released a product designed to assist developers focused on workforce housing communities. The Freddie Mac Non-LIHTC Forward product provides a forward rate lock at a competitive rate for the long-term permanent financing (up to three years in advance). To apply, the developer needs to have found a site for the planned workforce housing development and received approval to build. Freddie Mac anticipates its approved lenders are expected to close $500 million in Freddie Mac forward commitments in 2019 for workforce housing developments.

Jeff Englund is Head of Greystone's Affordable Housing Lending platform.

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