Fannie Mae, Freddie Mac Lead the Fight for Affordable Housing

Evan Blau and Beth Budnick. Images by Gittings

With 2021 in the rearview mirror, 2022 is starting to take focus. And as the COVID-19 pandemic grinds on, so does the affordability crisis in American housing: in 2021, approximately 70 percent of the country’s extremely low-income renter households were severely housing cost-burdened, spending more than half of their incomes on rent and utilities. We can expect such trends to continue into the new year.

Loans to acquire, construct and rehabilitate affordable housing are a critical piece of the affordable housing puzzle. By providing attractive financing for affordable housing, lenders can encourage developers to build new apartment buildings with all or majority affordable units. And infusing existing affordable housing stock with new capital can keep low-income families in safe, decent housing.

Fannie Mae and Freddie Mac act as the engine behind these multifamily affordable housing loans. By providing liquidity to lenders who sell their loans to Fannie Mae and Freddie Mac, Fannie and Freddie provide the funds to keep the multifamily lending machine running. Through several recent developments, Fannie Mae and Freddie Mac are taking a leading role in addressing the affordable housing crisis.

Volume Cap Increases

Fannie and Freddie are government-sponsored enterprises (Enterprises), subject to oversight and limitations set by the Federal Housing Finance Agency (FHFA). A key limitation is the volume cap for each Enterprise. In 2021, FHFA set a $70 billion volume cap for each Enterprise, requiring that a minimum 20 percent of units be affordable (meaning no more than 30 percent of family income spent on rent) to residents with incomes at or below 60 percent Area Median income (AMI). Just a year later, FHFA increased 2022’s volume caps by $8 billion, setting a $78 billion volume cap for each Enterprise.

FHFA also increased the minimum percentage of units affordable to 60 percent AMI households from 20 percent of all units to 25 percent of all units. As part of the 2022 volume caps, FHFA continues to require that at least 50 percent of the Enterprises’ multifamily business be “mission driven” which generally includes affordable housing and has been expanded to include certain green efficient properties as well as those included in high cost areas that otherwise would not fall within the standard requirements for affordable housing transactions.

The increased volume cap and affordability requirements send a powerful message—and provide powerful tools—for affordable housing lenders. The issue in America’s affordable housing crisis is supply, particularly at the lowest income levels.  For every 100 extremely low income households, there are only 29 adequate, affordable, and available rental units. By making available funding for loans and requiring that 25 percent of all units be affordable to low-income or extremely low-income households, the Enterprises can make more and larger loans to affordable housing developers. Combined with low-income housing tax credits, rental assistance and local and state subsidies, the Enterprises can increase the supply of affordable housing units, particularly for renters in need.

New FHFA Leadership With Mission Background

Volume cap increases are the start, but not the end, of the story. On June 23, 2021, the White House appointed Sandra L. Thompson as the Acting Director of the FHFA. Thompson previously served as the Deputy Director of FHFA’s Division of Housing Mission and Goals for eight years. In such capacity, Thompson oversaw the FHFA’s policy development and analysis and oversight of the mission and goals of the Enterprises. The appointment signals the strong focus on affordable housing of the Enterprises in the coming years.

Affordable Housing Tools

To reach these affordable housing goals, Fannie Mae and Freddie Mac lenders have a number of loan products at their disposal. The Enterprises have made available certain loan products specifically designed for the affordable housing sector. These include, but are not limited to, 9 percent unfunded forward commitments whereby the permanent financing interest rate can be set at construction loan closing and bond credit enhancements through Fannie Mae MBS as Tax-Exempt Bond Collateral and Freddie Mac Tax-Exempt Loan. These attractive financings allow for tax-exempt financing options with lower costs and shorter closing time-frames than traditional tax-exempt issuances.

Through volume cap increases, mission-driven requirements, and affordable housing loan products, FHFA, Freddie Mac and Fannie Mae have provided the necessary means to increase the supply of affordable housing in 2022. Now it’s time to start the engine.

Evan E. Blau, partner & chair of the Agency Lending and Affordable Housing Practices at Cassin & Cassin LLP, focuses on representing lenders in the financing of all asset classes of multifamily properties through the Fannie Mae Delegated Underwriting & Servicing program and the Freddie Mac Seller-Servicer program, with an emphasis on affordable housing transactions across the country.

Beth R. Budnick, an associate at Cassin & Cassin LLP, primarily focuses on representing lenders in the financing of multifamily properties through the Fannie Mae Delegated Underwriting & Servicing program and the Freddie Mac Seller-Servicer program, with an emphasis on affordable housing.