Understanding Freddie Mac and Fannie Mae in Multifamily LendingPaul Winterowd
If you own or are considering owning multifamily housing units, you have likely heard the names “Freddie Mac” and “Fannie Mae”, but how much do you know about these two enterprises? It’s important that you clearly understand the services they offer to ensure you get the best loans and best options for acquiring and owning rental housing.
An Overview of Freddie Mac Multifamily
Freddie Mac started as a nickname for the Federal Home Loan Mortgage Corporation (FHLMC), but in 1997 they gave up their acronym and became simply “Freddie Mac.” The government-sponsored enterprise (GSE) was chartered in the 1970s to help lenders access funds for multifamily loans, encouraging more people to develop rental housing to meet the needs of lower- and middle-income Americans. It has since become a premier provider of loans for companies or individuals who want to get the best loan terms, close quickly, and find very attractive interest rates.
The agency is designed to protect the multifamily housing market, expanding in times when liquidity is reduced (such as the recent recession), and contracting when other funding sources are readily available. They also provide affordable lending options to help developers create low- and moderate-income housing units. In 2015, Freddie Mac financed $47 billion in multifamily housing throughout the country, including large, medium, and small rental markets, for a total of 650,000 residential units. Nine out of 10 of those units were available for lower- and moderate-income renters.
An Overview of Fannie Mae Multifamily
Fannie Mae, like her cousin Freddie, got her name from the Federal National Mortgage Association (FNMA), although the tie between the nickname and the acronym are much easier to see in this case. This GSE began during the Great Depression with the goal of expanding the secondary mortgage market by providing mortgage-backed securities so lenders could reinvest their money by lending to others, rather than relying only on local savings and loan associations. This was beneficial to borrowers because it increased their local banking institutions’ ability to fund loans. Banks could now trade loans off their balance sheet, which greatly increased liquidity and their ability to lend.
Fannie Mae only accepts loans originated by what is called a DUS lender. DUS stands for Delegated Underwriting and Servicing. There are only 25 firms in the United States with this designation because there are rigid standards of experience required by Fannie Mae. Ultimately Fannie has delegated the underwriting and servicing of multifamily loans to these 25 firms that are acting in their behalf.
Origination of Fannie Mae loans is typically a faster process than Freddie Mac and the fees are also slightly lower.
Originating Freddie & Fannie Multifamily Loans
Not all lending institutions are able to work with Freddie Mac and Fannie Mae, so if you are interested in the programs that they offer, it’s important that you find a lender who is a correspondent for these agencies. It takes a lot of work for a financial institution to build the necessary trust with these agencies to be able to originate loans using their programs.
By working with a local institution that has the ability to originate Freddie Mac and Fannie Mae loans you have a local resource to answer all your questions and guide you through the process. You also have someone who knows what is required for an efficient and effective application because the last thing you want is for your loan to be denied or delayed. Since all applications are a little bit different, your lender needs to understand your business goals and objectives to avoid mistakes or missteps that might cost your approval.
Typically we recommend looking at both agencies when considering this type of multifamily loan. It makes sense to have the two agencies competing for your business so you get the best rate and terms.