National Mortgage News
January 12, 2015
Freddie Mac is poised to add three more lenders, including the first bank, to its program that seeks to stimulate loans for rental-housing developments.
One bank and two nonbank lenders are close to finalizing preparations to join Freddie Mac's small balance multifamily loan program, Nashwa Moussa, the head of Freddie's program said in an interview.
"We are identifying sufficient origination platforms, and will be calling on more banks [to apply]," Moussa said.
The additions, which are expected to occur by February, could boost credit for affordable rental housing by as much as $5 billion a year once the program has matured, Freddie said.
Six firms — all nonbanks — have joined the program since it launched in October. Freddie Mac officials told interested participants during private conversations last year that it would not seek out bank participation, a person involved in those discussions said.
The reasons for that appear logistical. Participating firms are required to have a certain amount of skin in the game on loans purchased by Freddie. But banks cannot retain a portion of the risk without sacrificing the so-called true sale treatment, which provides accounting benefits for issuers' balance sheets.
Freddie officials claim the program has always been open to bank participants, but banks have had trouble working through the true sale problem.
Current participants include Waterfall Asset Management's ReadyCap Commercial, Oaktree Capital Management's Sabal Financial and the not-for-profit Community Preservation Corp.
Inventory of single-family and multifamily homes became undersupplied last year by nearly 400,000 rentals, according to a Freddie presentation for investors from December. That was the first time since 2000 that inventory reflected a shortage relative to average vacancy rates dating back to 1994. The shortage is several times greater than available inventory for sale, the data also show.
Freddie is backing lenders willing to originate multifamily loans between $1 million and $5 million, and it intends to purchase between $1 billion and $1.5 billion from participants this year. Each lender is expected to deliver $50 million to $75 million per quarter after an initial ramp-up phase, which varies in length by lender.
The loans will be bought and then bundled into securitizations, the first of which could be issued in the second or third quarter from Freddie's existing K series platform. Initial securitizations will likely be sized around $100 million.
The securities are expected to be highly coveted because of the strict underwriting standards, Pat Jackson, CEO of Sabal Financial, said in an interview. Sabal, like all participating firms, is required to buy the 10% first-loss piece in the deals, but will likely turn around and resell that investment after fulfilling the repurchase obligation, he said.