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Fannie Mae Redefines Small Multifamily Loans in Push for More Workforce Housing

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Borrowers and renters alike could benefit from Fannie Mae significantly raising the limit on what constitutes a small multifamily loan. Fannie Mae kicked off the first quarter of 2019 with the announcement in hopes of increasing the availability of affordable workforce housing in more markets around the U.S.

Fannie Mae increased their small mortgage loan amount to $6 million nationwide, thanks in part to rising multifamily property values. Smaller properties often have specific financing needs and are usually situated in inner cities close to transportation and jobs, according to Fannie Mae. This makes these properties a popular option for working families, prompting Fannie Mae to enhance the small loan platform to serve this niche market.

By redefining the meaning of "small loan" and putting more capital in the market, the goal is for more developers to build affordable housing geared specifically toward workforce housing. In today's market, renter households have become older and more affluent, and developers have responded to the market demand.

According to a 2018 housing report by the Joint Center of Housing Studies for Harvard University, “The cumulative effect of strong growth in housing costs and modest gains in household incomes has left nearly half of today's renters with cost burdens, including a quarter with severe burdens." The report noted that rising construction costs and added amenities have pushed up asking rents.

Fannie Mae hopes to alleviate some of that burden. “Increasing the loan limit for our small mortgage loan program will provide more capital and liquidity to the small loan marketplace and help address the significant affordable workforce housing supply issues," said Michael Winters, Fannie Mae's Vice President of Multifamily Customer Engagement. Fannie Mae also said the change will provide additional opportunities for borrowers to realize the benefits of streamlined third-party reports, underwriting and asset management requirements.

Workforce Housing Demand to Grow

The demand for workforce housing is expected to rise, as working families increasingly can't find housing with rent they can afford, according to the National Multifamily Housing Council (NMHC). This includes everyone from teachers and police officers to restaurant workers and carpenters who can't afford to live in the communities in which they work.

“Over one-third of American households paid more than 30 percent of their income on housing costs in 2017, and the problem grows worse every year as supply fails to keep up with demand, according to the NMHC. In order to keep up with the demand, the NMHC said the U.S. would need to build an average of 328,000 new apartments every year by 2030 — a benchmark tallied just one time since 1989.

The National Association of Realtors (NAR) noted that "communities across the country increasingly are recognizing the connection between workforce housing and their communities' economic and social well-being." Affordable housing shortages close to where families work “can lead to longer commutes, sprawl and traffic congestion that degrade the quality of life for all residents," the group said. Moreover, NAR explained that businesses are also paying attention, since housing costs "create challenges" for attracting and retaining workers.

More Markets Can Receive Pricing, Underwriting Benefits

In another move to help boost affordable multifamily housing, Fannie Mae announced that it has added new markets that are eligible to receive certain pricing and underwriting benefits. These new metropolitan statistical areas (MSAs) include Denver, Miami, Minneapolis and Salt Lake City. They were added because they have witnessed "credit and economic performance" that compares to Fannie Mae's other eligible MSAs, such as Baltimore, Chicago, Los Angeles and New York.

The multifamily business continues to grow with Fannie Mae having reported providing more than $65 billion in financing last year through its Delegated Underwriting and Servicing (DUS®) program.

As the top producer of small loans for Fannie Mae in 2018, Greystone also ranks in the Top 10 of overall DUS lenders for 2018, and in the top 5 for multifamily lenders providing affordable housing. In 2018, Greystone closed more than 400 small loans totaling upwards of $1 billion.

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