The Federal Housing Finance Agency (FHFA) has set a cap of $30 billion each in multifamily loan purchases for Fannie Mae and Freddie Mac for 2015. With both agencies off to a great start through the first quarter of 2015, the government-sponsored agencies could reach their respective caps well before yearend. With interest rates predicted to remain at low levels in the near term, there is no slowdown in sight for lending activity for Fannie’s and Freddie’s multifamily loan products. Worried about the cap, lenders that sell multifamily loans to Fannie and Freddie are involved in discussions to lobby the FHFA to increase the limits, perhaps by up to $5 billion each. Another reason for lenders that sell to Fannie and Freddie to lobby for an increase is the potential that Fannie/Freddie will increase their interest rates to slow originations, making it harder for multifamily loan sellers to compete for multifamily loans.
Multifamily CMBS conduit loans secured by multifamily properties compete directly with Fannie and Freddie lenders that originate and sell loans to Fannie and Freddie. The loan structure offered by CMBS and Fannie/Freddie originators is virtually identical. However, Fannie and Freddie lenders generally have a rate advantage of about 0.25%. A 10-year term/30-year amortization deal in CMBS that is priced at 4.25% today is priced at roughly 4.0% with a Fannie or Freddie lender. As a result, CMBS tends to get the Fannie/Freddie rejects with credit issues, underwriting challenges, poor property quality and the like.
“If Fannie and Freddie are out of the picture, this would open up a whole slew of business for the period they are out of the market,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “Our product is just slightly less competitive on rate, so I believe we would be able to capture the majority of the business that would have gone to Fannie Mae and Freddie Mac for the period they are shut out of the market.”