The Federal Housing Finance Agency will increase caps on the amount of multifamily loans Fannie Mae and Freddie Mac can purchase next year while also closing some loopholes.
The regulatory agency will now limit the two firms to purchasing $100 billion in multifamily-housing residential loans, respectively, between the fourth quarters of 2019 and 2020. The caps are substantially larger than in previous years. In 2018 and 2019, Fannie Mae FNMA, +7.56% and Freddie FMCC, +7.46% were only allowed to purchase $35 billion in multifamily loans each, however “mission-driven” loans excluded from the caps brought the total volume to $142.5 billion in 2018.
The FHFA began setting caps on Fannie and Freddie’s multifamily businesses in 2014 in an effort to support liquidity in the multifamily market while also working to prevent private capital from being crowded out.
Beyond expanding the size of the caps, the FHFA also made other revisions to how Fannie and Freddie can conduct their multifamily businesses. In particular, the agency will now require the two firms to have over one third (37.5%) of their multifamily activities be directed toward affordable housing.
This can include loans on properties subsidized by the Low Income Housing Tax Credit program, loans on developments created under inclusionary zoning rules, loans on properties covered by a Section 8 Housing Assistance Payment contract. Portions of loans can count on a pro-rata basis toward this requirement if a certain percentage of units within a multifamily development are considered affordable, based on the area’s median income.
Furthermore, the new lending caps eliminate exclusions that allowed Fannie and Freddie to purchase loans in excess of the limits previously in place. Notably, the agency threw out a loophole that allowed Fannie and Freddie to buy green loans that were used to finance certain energy and water efficiency improvements without it counting toward their overall spending limits.
Between 2015 and 2017, Fannie and Freddie’s share of new multifamily loans increased from 36% in 2015 to 49% in 2017, the FHFA said. Much of that growth was attributable to the green loans exclusion. Around half of the loans both firms purchased in 2017 and 2018 were excluded from the FHFA’s lending caps.
The FHFA’s choice to expand the lending caps — while also closing the loopholes that allowed lending activity beyond them — comes as the Trump administration called on the Treasury Department and the FHFA to consider limiting Freddie and Fannie’s multifamily footprint as part of its broader plan for housing finance reform.
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