Fannie Mae and Freddie Mac Small Loans Serve as Backbone of Multifamily Market
When the COVID-19 pandemic brought the country to a halt in March 2020, there was a lot of uncertainty—especially when it came to forecasting the economic impact. In the wake of the pandemic, Fannie Mae and Freddie Mac acted swiftly and enacted measures to protect against potential defaults or issues with collections or vacancies. The most significant move the Agencies made was the requirement for cash reserves by borrowers in order to deal with the potential market volatility brough on by the pandemic.
As the country continues reopening, the Agencies are relaxing certain credit criteria in order to best serve the markets and make their lending programs more competitive. Fannie Mae has recently eliminated the requirement for collection of additional reserves due to the uncertainties of the pandemic. Freddie Mac has eliminated COVID reserves for larger loans and has reduced the requirement for additional reserves for certain segments of their small loan business and offers very competitive pricing across all small loan products.
With all of the recent changes, there is a high level of optimism for the second half of the year and going into 2022. And as a result, small loans from Fannie Mae and Freddie Mac are appealing options.
“One of the more positive moves from the Agencies is the reduction of the stringent criteria that was put in place surrounding commercial income. This is definitely a step in the right direction as the Agencies move back to pre-COVID standards,” said Rick Wolf, head of small loan production at Greystone, a leading national multifamily lender.
Overall, the trends in the marketplace are quite positive right now, though it is important to note that there are still certain COVID measures in place. For instance, the eviction moratorium has recently been extended to the end of July, which provides much needed protection to those that live in the buildings who have suffered job losses or other issues resulting from the pandemic. Additionally, there are forbearance programs that the Agencies have put in place that allow borrowers to delay payment of their mortgage as they deal with the economic impact of COVID-19.
These measures that have created healthy protection for borrowers and tenants also change how properties are evaluated in the marketplace. Given that the market has not completely returned to normal, it becomes difficult for owners to transact with so many questions looming, such as how a building is valued or whether cash flow will continue. Yet overall, as the protective measures taken by the agencies begin to relax—and as the special COVID reserves are coming back into the borrower’s pockets—borrowers can return to their previous growth plans.
As we continue to move forward from pre-pandemic levels, Fannie Mae and Freddie Mac have established themselves as appealing options versus other sources of financing. Though other debt options exist, the Agencies also provide something that others typically cannot: consistent liquidity and market stability. For other lenders, the capital sources are not always there, and they operate cyclically. This doesn’t appear to be the case with Fannie Mae and Freddie Mac. Additionally, the Agencies provide longer-term debt that is competitively priced. Where traditional banks are generally offering five-year terms, the agencies can offer longer options like seven- and ten-year terms—or longer. Fannie Mae and Freddie Mac also provide the opportunity under certain circumstances for cash-out transactions, and flexible interest-only terms as well.
“Now more than ever, property owners are going to want stability and flexibility, which is where the agencies can truly fit a need,” said Wolf.
Ultimately, we believe we are at a point where the markets continue to head back to pre-pandemic levels and there is much optimism as we head into the second half of 2021, with the prospects of 2022 looking quite promising. For those in the multifamily market, there are many reasons to be excited about the coming months and year, especially for those who are looking at Fannie Mae and Freddie Mac small loans for their properties.