Federal Agency Requires Fannie, Freddie to Steer More Loans to Affordable Housing

Caps for 2021 Reduce Mortgage Companies’ Combined Lending Capacity to $140 Billion

By Mark Heschmeyer


The Federal Housing Finance Agency, in its role as overseer of Fannie Mae and Freddie Mac, has cut the total amount of multifamily lending the two can complete next year.

At the same time, the FHFA is requiring the mortgage companies to tackle the growing need for affordable housing in the United States, a situation underscored by the economic dislocation caused by the coronavirus pandemic.

The FHFA’s lending caps for 2021 give Fannie Mae and Freddie Mac the ability to loan up to $70 billion each, for a total of $140 billion. That is down from the $160 billion annually in caps they have been working under since October of last year.

Starting in January, each government-sponsored enterprise also must make sure that at least 50% of its lending goes for affordable housing. That is up from 37.5%. The revised percentage has the effect of upping the amount of Fannie Mae and Freddie Mac’s combined affordable housing lending from $60 billion per year to $70 billion. It effectively shrinks their market-rate lending down from $100 billion a year.

Walker & Dunlop, one of the largest providers of capital to the multifamily industry and the largest Fannie Mae lender in 2019, called the new caps adequate to meet borrowing demand. It also praised the FHFA for focusing on affordable housing during the health crisis.

“At a time when millions of Americans are protecting themselves from the pandemic in the shelter of their homes, it is encouraging to see the FHFA establish 2021 multifamily lending caps of $140 billion,” Walker & Dunlop chairman and CEO Willy Walker said in a statement.

Walker & Dunlop has originated $17 billion over the past three years on affordable properties for Fannie Mae and Freddie Mac.

Walker said the FHFA’s move to increase lending for affordable housing was “positive for the market and our business.”

That’s true for Sabal Capital Partners too, Pat Jackson, its CEO, told CoStar News in an interview.

Sabal specializes in the small-balance multifamily lending space with both Fannie Mae and Freddie Mac. This month, Freddie Mac approved Sabal as one of its conventional mortgage lenders as well.

“The smaller loans are almost exclusively workforce housing affordable. So, I feel that we’re really positioned well to sell both an important niche and to have this capability to be able to do the larger loans but still focusing on what we think is our sweet spot, which is mid-market sub-$25 million,” Jackson said.

Analysts at Morgan Stanley & Co. said the changes reflect the dynamics of the market.

“The reduction in caps may reflect the FHFA’s desire to reduce [Fannie Mae and Freddie Mac] market share that increased to approximately 59% in the second quarter of this year from approximately 43% in the first quarter and 50% in 2019 as other lenders pulled back due to uncertainty caused by the pandemic,” Morgan Stanley wrote in a note to clients and emailed to CoStar.

Lisa Pendergast, executive director of the CRE Finance Council, a trade association for the commercial real estate finance industry, told CoStar that there is more than enough liquidity from private lenders to pick up what Fannie Mae and Freddie Mac won’t be allowed to transact next year.

“As a private lender, and oftentimes a regulated lender, you really wanted to always see multifamily loans on your balance sheet, because they are known for being the most stable asset class,” Pendergast said.

Pendergast added that the shift in emphasis to more affordable lending was anticipated in the industry and “frankly, was something that they should be pursuing.”

The attention to affordable housing will only grow, Morgan Stanley wrote, noting that there is an unfilled gap between supply and demand of 7.5 million units for households earning 50% of area median income, according to the National Low-Income Housing Coalition.

Freddie Mac is currently on a multifamily lending pace that under the revised guidelines would see it have to proceed more slowly next year.

As of Sept. 30, Freddie Mac’s loan purchase activity subject to the current higher cap was $65.5 billion, a total that would be pushing up against the new lower annual cap of $70 billion.

“We will work within FHFA’s mandated structure to continue serving our mission of providing stability, liquidity and affordability to the multifamily market,” Debby Jenkins, executive vice president and head of multifamily for Freddie Mac, said in an email.

Fannie Mae, on the other hand, is currently on pace to do less than $70 billion a year in lending. New multifamily business volume was $49 billion in the first nine months of 2020.

Under the revised lending caps, the FHFA’s targeted affordable housing loans are restricted to properties for occupancy by tenants with incomes at 80% of the area’s median income. The agency also requires at least 20% of Fannie Mae and Freddie Mac’s multifamily businesses be affordable to residents at 60% or less of the median.

In announcing the revised caps, FHFA Director Mark Calabria said, “As we continue to address the shortage of affordable housing, especially amid the COVID crisis, FHFA will keep a close eye on the multifamily caps to ensure that they are sufficient and serve to increase the supply of affordable housing but do not crowd out private capital.”

Fannie Mae and Freddie Mac were taken over by the U.S. government to stabilize the mortgage market during the Great Recession. The FHFA, through its conservatorship, has since sought to reduce the lenders’ dominant presence with the goal of returning them to private operation.

In August 2013, the FHFA sought public input on strategies for limiting Fannie Mae and Freddie Mac’s role in the multifamily housing market, and in December 2015, the agency announced the first imposed caps. They have been adjusted annually as market conditions change.