The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are together the single biggest force in multifamily mortgages. Not only do they hold close to 40% of all the mortgage paper, but their caps on new mortgages increased to $78 billion each in 2022.

Understanding them and their direction gives investors and developers a better sense of where the agencies are going and how to fit strategies to create the best chance of success and avoid getting stepped on.

“Historically, Fannie and Freddie have won deals based on pricing,” says Ahmed Hasan, head of Agency Capital Markets at Capital One, a top-6 Agency lender by total agency loan volume and the highest ranking bank among GSE lenders. “As rates have risen, they’re able to make their terms for affordable housing and mission-driven deals more attractive, for example, with lower debt-service coverage ratios or 35-year amortization.” While they’re unlikely to reach their $78 billion caps this year, they’re going to keep focused on affordable housing.

Inflation and Green Programs

That’s good to know as the Federal Reserve keeps pushing up rates to fight inflation and the cost of financing keeps rising. Ironically, while many deals that targeted more affluent renters might no longer work under current interest rates, something through the agencies for affordable housing might. “Eligible deals may receive lower interest rates, flexible underwriting and loan terms and greater loan proceeds,” Evan Williams, senior vice president of Agency Finance at Capital One says.

In addition, the Inflation Reduction Act offers benefits for energy efficiency improvements in affordable housing, which then makes Fannie Mae’s Green Rewards and Freddie Mac’s Green Up Plus programs increasingly attractive. The Index Lock program from Freddie Mac is good for tax-exempt loans—and the positive rent payment programs that both agencies have can help improve on-time rent payments.

Knowing the Alternatives

Other lending sources, flush with capital, had become more competitive with Freddie and Fannie. “While they lost some market share to other capital sources with competitive terms, that trend started to balance out and swing in the opposite direction in Q2,” says Hasan. But there is still a potential alternative coming up fast: the Federal Housing Administration in the Department of Housing and Urban Development.

“In recent years, the low interest rate environment drove such demand for HUD loans that they had to institute a queueing process,” says Mark Dellonte, senior vice president, FHA Production at Capital One. “As these queues dwindle, HUD is returning to its normal processing times, making loan approval timing not only shorter, but also more predictable.”

Even in a tough multifamily market, watching the trends in agency and government lenders can offer opportunities to make project plans work through their consistent underwriting standards, loan terms, and relatively favorable interest rates.