Freddie Mac to buy and securitize tax-exempt multifamily housing loans
Expect $300M M-Deal offering
Freddie Mac Multifamily will now purchase multifamily tax-exempt loans from its Targeted Affordable Housing lender network, and aggregate and securitize them into a new series called M-Deals.
In a bid to help keep rental housing affordable for lower-income families and increase cost-effective financing for tax-exempt multifamily properties, Freddie Mac is launching the Direct Purchase of Tax-Exempt Loans.
"Freddie Mac is further reducing its credit risk by securitizing more of its targeted affordable business volume and helping to increase access to credit for affordable rental housing borrowers," said David Brickman, Freddie Mac Multifamily executive vice president. "Through our M-Deals, we will shift taxpayer risk to private investors who will have a first-loss position. We are creating an Agency alternative for investing in tax-exempt bonds whose collateral is from multiple borrowers."
These are tax-exempt loans issued by a city, county or state housing finance entity for apartments that have affordable rents for lower-income individuals.
This new execution provides another option for TAH Seller/Servicers and borrowers that is more efficient and costs less than publicly offered credit enhanced bonds.
Kimball Griffith, Freddie Mac Multifamily vice president of affordable sales and investment, added, "This execution can lower a borrower's issuance costs and ongoing cost of capital significantly, as well as simplify the closing process. It is an alternative financing solution to our bond credit enhancement execution and is particularly attractive for 4% Low-Income Housing Tax Credit developments."
Benefits of use include reduced legal fees due to simplified documents and processes, a 40% reduction in closing costs due to private purchase efficiencies when compared to a publicly offered credit enhanced bond and the same underwriting and credit standards as the Freddie Mac credit enhanced 4% LIHTC bond financing.
M-Deal features include senior/subordinate structure with a guaranteed A-piece being publicly sold and the first loss B-piece being sold to private investors and collateral backing the senior/subordinate securities are fixed-rate loans and up to 35 year amortization with up to an 18 year balloon.
They have an expected offering size of about $300 million of aggregated direct purchase tax-exempt loans and related taxable securities.