This story was originally published in Affordable Housing Finance.
Freddie Mac Multifamily set a company record in 2017, financing $73.2 billion in loan purchase and guarantee volume. With nearly 30 percent over its 2016 total of $56.8 billion and amounting to over 820,000 units, this marks the third consecutive year Freddie Mac has been the nation’s top multifamily financier.
The government-sponsored enterprise (GSE) also saw growth on the affordable housing side. Over 80 percent of eligible units financed by Freddie Mac were considered affordable for households earning no more than 100 percent of the area median income.
In addition, the GSE had a record $8.6 billion in targeted affordable housing loans for properties with some or all units with rent restrictions and/or federal and state subsidies, up from the previous year’s $5.6 billion.
“That’s more than 50 percent year-over-year growth,” says David Leopold, vice president of targeted affordable sales and investments at Freddie Mac. “We’re thrilled with that, and it suggests we’re delivering what the market needs.”
Leopold says a highlight for 2017 was the first two tax-exempt securitizations of its Tax-Exempt Loan (TEL) product portfolio in June and November.
“Institutional investors bought our securities at aggressive enough pricing that we were able to lower our spreads for future TELs,” he says. “We lowered our spreads and are maintaining our leadership in the market.”
The volatility in the low-income housing tax credit (LIHTC) market with the threat of tax reform saw that side of Freddie Mac’s business down by about 20 percent, but Leopold says it made up for that by growing its preservation business.
He expects 2018 to be similar. “We think that it will be roughly the same this year. We think we’ll see some growth, but after double-digit increases for three years running, we don’t think we’ll repeat [at that same level].”
Freddie Mac will help bring some stability to the LIHTC market this year, with its re-entry as an investor. It expects to launch its first fund this spring and plans to be an active proprietary investor throughout most of the year. This also will help the GSE penetrate some of the hardest-to-serve areas.
“The real value proposition is stability,” Leopold says. “Tertiary markets experience the bulk of volatility. They are seeing much less predictable liquidity and demand for equity investments.”
Another threat Leopold will be watching this coming year is a rising interest rate environment.
“Any time you get a rapid run up in rates, deals start falling out,” he says. “However, we think our product set plays really well in a volatile interest rate environment. We allow our borrowers to index-lock, and we also hold spreads for 90 days at no cost to our borrowers. Despite that threat, we’re well-positioned to weather it.”
In addition to its continued to its focus on its TEL product and the tax-exempt securitizations, the GSE is striving to help borrowers finance properties more quickly. Its Targeted Affordable Housing (TAH) Express program, currently a pilot with a goal of launching by the end of February, will provide simplified, efficient, and competitive pricing for transactions that are $10 million or less.
“We want to continue to grow and maintain our market leadership positions,” Leopold adds. “Our product set is growing and adapting as the market is changing.”
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