New Agency Lending Caps Could Help Small Balance Market

This year, the regulator made a few changes to Fannie Mae and Freddie Mac’s lending caps for the new year. FHFA has set $70 billion in multifamily lending caps for the two housing agencies in 2021, giving them a combined lending power of $140 billion, and it has increased the affordable housing loan origination mandate to 50%, up from 37.5% this year.

These new requirements could mean challenges for large market-rate deals. “A lot of bigger sellers are looking at the new caps and affordability mandates and wondering how they are going to make their numbers in 2021,” Pat Jackson, CEO and founder of Sabal Capital, tells GlobeSt.com.

According to Jackson, the reduced lending availability is the most significant change because it reduces the lending capacity by $20 billion between both agencies. “The cap dropped from $80 billion to $70 billion. That is $10 billion less availability of capital in 2021 than was available in 2020,” says Jackson. “Between Freddie and Fannie, there is $20 billion less available lending options next year. That is the real story. When you add the additional affordability calculation, there could be less availability of agency product for the multifamily marketplace. That is an important point.”

While FHFA increased the affordability mandate, it also changed the definition of affordable housing. “The calculation of affordable also changed,” says Jackson. “So, it is going to be easier in some respects for the agencies to meet the 50% requirement. However, something that is clearly market rate is not going to qualify. That will have to be in the other 50%.”

Ultimately, this could be good news for small balance and middle market multifamily borrowers, the two groups Sabal targets. “The smaller balance market has historically been underserved,” says Jackson. Now that the pond has gotten a little smaller, we think people are going to duke it out more over the larger deals. We say, let them have at it.”

In addition, Sabal has a CMBS product that will help to catch any borrowers that fall through the agency cracks. “Having a really robust CMBS platform is also important. When we are serving a client and they can’t close the loan through the agencies because the cap has fallen off, they won’t have to go searching somewhere else,” says Jackson. “We flip them over and give them a non-agency solution. That is an important distinction.”