New Freddie Mac incentive looks to keep rents affordable

Pilot offers favorable pricing to investors, IF…

Freddie Mac announced Tuesday its new program to keep rents more affordable by incentivizing investors with favorable loan pricing.

Recently, both Fannie Mae and Freddie Mac have increased their market share in the multifamily sector. Freddie Mac posted a 13% increase in multifamily originations during the second quarter this year.

Back in December, the company announced the launch of its single-family rental financing pilot program as part of its efforts to increase the availability of affordable rental housing across the U.S.

Although the Federal Housing Finance Agency put caps on the government-sponsored enterprise's multifamily business of $36.5 billion, it designed exclusions from the cap to support affordable and underserved multifamily segments of the multifamily market, saying these segments are not being adequately served by the private sector.

Now, Freddie Mac announced it will incentivize multifamily property owners to keep rents at levels affordable to working families without any federal, state or municipal subsidy. The new Mezzanine Loan pilot program provides favorable pricing and additional debt capital if investors voluntarily keep a majority of rents at levels affordable to low- and moderate-income families.

“Once again, Freddie Mac Multifamily is using its industry leadership to find creative ways to create and preserve rental units that are affordable to working families in communities across the United States,” said David Brickman, executive vice president and head of Freddie Mac Multifamily.

“The Workforce Housing and Targeted Affordable Mezzanine Loan offerings provide low-cost financing that incentivizes property owners to keep units affordable for working families, while limiting rent growth over the term of the loan,” Brickman said. “At a time when rents continue to price families out of markets, this initiative gives us the opportunity to test a new solution to a persistent challenge.”

The program will operate as a subordinate loan, and deliver any additional debt capital needed to fill in the gap between borrower equity and the first lien mortgage amount. Under the Mezzanine Loan, borrowers will receive favorable pricing in exchange for limiting rent growth on 80% of the units in the property and keeping them at levels considered workforce housing for the life of the loan.

Freddie Mac explained rents will be checked on an annual basis and property owners out of compliance will be hit with a penalty fee until they return rents to compliant levels.

The Mezzanine loan-to-value ratio can only be 10% above the LTV of the Freddie Mac first mortgage loan, or up to 15% for experienced nonprofits with a history of successful multifamily property operations. The total combined LTV cannot exceed 90%.

“This offering brings our innovative approach to market challenges together with our best-in-class execution to deliver affordable housing to every corner of the multifamily market,” Brickman said. “Most important, it has the potential to help address challenges of access and affordability for working families across the country.”

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