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Feb. 11, 2013

SPECIAL REPORT: Fannie Mae Stresses Loan Quality, Risk-Sharing and Profitability for U.S. Taxpayers

By Keat Foong, Executive Editor

San Diego—Fannie Mae’s priority in 2013 will be to continue focusing diligently on loan quality. “We intend going into 2013 to pay careful attention to the market to make sure we appropriately buy loans that meet our credit standards,” said Jeffrey Hayward, senior vice president, head of the Multifamily Mortgage Business, Fannie Mae.

Hayward was speaking to reporters at a press briefing held during the Mortgage Bankers Association’s annual Commercial Real Estate Finance/Multifamily Housing Convention and Expo.

Fannie Mae has announced that it provided $33.8 billion in financing to the multifamily market in 2012, the third highest acquisition level in its history. The company said it remained the largest source of multifamily financing in 2012, financing nearly 560,000 units of multifamily housing.

The real significance of the total production volume achieved last year “is not necessarily the number, but the fact that we continue to serve all segments of the market, and that we did it through… Delegated Underwriting Servicing. In essence, every dollar that we advanced, there was risk sharing involved,” said Hayward.

Hayward noted the multifamily financing market was also bigger in 2012 compared to the year before. Fannie Mae reported that its loan production increased in the categories of multifamily affordable housing, small loans, large loans, manufactured housing communities, and student housing, while falling slightly for structured transactions and seniors housing. “[In] almost every segment of the market, we were at least flat, or in some cases way ahead of where we were in 2011,” he commented.

Hayward pointed out that Fannie Mae through the first quarter has earned more than $1 billion in net profits for U.S. taxpayers. “We understand that is part of our responsibility to deliver benefits to the taxpayer, and we are proud of our ability to have done that.” According to Fannie Mae, 88 percent of the units in its current book of business support families of modest means earning 100 percent or less of Area Median Income.

Fannie Mae and Freddie Mac are required by the government to reduce their investment portfolios by 15 percent annually. The targeted portfolio size for each of the GSEs is $250 billion, which is projected to be reached in 2018, four years earlier than expected. However, that does not mean that Fannie Mae’s level of participation in the multifamily market will shrink, as the agency is currently securitizing its multifamily loans and not retaining them on its portfolio.

In answer to a question, Hayward said he is not aware of any directive from the government for Fannie Mae to reduce its footprint in the multifamily space. “Our participation in 2013 will be the larger result of what the DUS lenders ask us to do as we work in partnership with them. It will be the result of choices they make in the marketplace… We will be there to provide liquidity when we are called upon. That is how we see our mission.” He also said that Fannie Mae will continue to make financing available to primary, secondary and tertiary markets.

Last year, Fannie Mae multifamily financing achieved averages of 65 to 66 percent on LTVs and slightly below 1.50 in Debt Service Coverage, Hayward reported. He said that the likely greater competition in the financing marketplace this year would be welcome, and he acknowledged that if the conduits start providing greater loan proceeds or more favorable interest-only features, Fannie Mae’s will see its market share decline in 2013.

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