Agency Lenders May Be Key to Affordable Housing

There is no doubt that there is a critical housing shortage in this country, especially in the affordable housing segment of the housing market.

Earlier this year, the National Association of Realtors estimated the shortage to be approximately 6.8 million homes.

This eye-opening supply and demand dilemma, coupled with record low interest rates, has resulted in a substantial increase in residential home prices.

Additionally, we are experiencing record increases in multifamily rent growth. According to December 2021 Yardi Matrix, there was a 13.5% increase in multifamily rents year over year.

Simply put, the amount of people that can neither afford to purchase or rent a home seems to increase each day. The time to act is now.

Thankfully, there are various initiatives (local, state and federal) already in motion. Leading the charge is the Federal Housing Finance Agency (FHFA) which oversees and regulates Fannie Mae and Freddie Mac, the two largest government-sponsored mortgage enterprises (GSEs).

Following the money is the easiest way to determine what is a priority of either federal or state governments. In this case, FHFA has recently directed Freddie Mac and Fannie Mae to increase their existing volume cap levels and allocate a portion of their multifamily business to finance affordable housing projects and underserved market segments.

In December 2021, FHFA established its goals for both the single family and multifamily markets. As shown in tables below, FHFA increased the benchmark for affordable housing loan purchases and the amount of necessary funds to make them a reality. Although some argue these measures aren’t enough, they are certainly a step in the right direction and all parties engaged in Fannie Mae/Freddie Mac loan transactions are taking note and doing their part.

Single Family Goals

With increased benchmarks in each of the existing categories and the creation of two new categories (Minority Census Tracts Home Purchase & Low-Income Census Tracts Home Purchase), Fannie Mae and Freddie Mac have been given the green light to increase affordable housing loan purchases.

Multifamily Goals

FHFA’s positive impact in the affordable housing sector is even more apparent in the multifamily market. As demonstrated below, the low-income goal was increased by 100,000 units while very low- income and small multifamily low-income goals were increased by 28,000 and 13,000 units (7,000 for Fannie Mae) respectively.

Multifamily Loan Purchase Caps - $78 Billion for Both Fannie & Freddie

In October 2021, FHFA announced that Fannie Mae and Freddie Mac will each have a $78 billion cap in their multifamily loan purchase volume for the calendar year 2022, for a total of $156 billion.

This volume cap will mainly help support liquidity in the multifamily market without using private capital. That is approximately a 10% increase from the prior year.

However, to foster each GSE’s continued commitment to finance and invest in affordable housing projects, FHFA is requiring that at least 50% of the GSE’s multifamily business be allocated to "mission-driven affordable housing," as such term is defined in Appendix A of the Conservatorship Scorecard. Additionally, at least 25% of the GSEs’ multifamily business must be affordable to individuals with income levels at 60% of the area median income (AMI) or below.

Following the money here, these measures are poised to be a much-needed game changer to the affordable housing market and underserved communities.

Michael Romer is Managing Partner and Carmen Pagan is a Partner at Romer Debbas, LLP, a New York City-based law firm uniquely focused on commercial and residential real estate transactions, development projects, and litigation. The firm’s practice also extends to include Bankruptcy, Corporate and Business Law, Immigration, Litigation, Taxation, Trusts and Estates.

Romer Debbas LLP is approved counsel for various Fannie Mae and Freddie Mac Seller/Servicers and Optigo Lenders originating single and multifamily loans under each GSE’s loan origination programs throughout the U.S. Its Agency Lending and Affordable Housing practice is led by industry veteran Carmen I. Pagan, Esq.