Why It’s a Great Time to Borrow for Affordable Housing

Affordable housing rates still remain at historic lows, and that continues to be great news. But the better news is that Fannie Mae, Freddie Mac and HUD have all improved their lending platforms for affordable borrowers, stemming from what may have been a shift toward refocusing their efforts on more
Anthony Cinquini

Affordable housing rates still remain at historic lows, and that continues to be great news. But the better news is that Fannie Mae, Freddie Mac and HUD have all improved their lending platforms for affordable borrowers, stemming from what may have been a shift toward refocusing their efforts on more lending related to the uncapped side of the industry. Not only have they dedicated intellectual capital to streamline their processes but they’ve identified creative solutions over the past 12 months in rolling out some new products and features. Whether you are simply looking to preserve affordability or want to execute ground-up construction utilizing bonds and low income tax credits, all three agencies have a product for you.

Listen to Fannie Mae ROAR

For Fannie Mae, the notable new product is the Reduced Occupancy Affordable Rehabilitation Execution (ROAR). ROAR provides no less than five years and up to a maximum of 30 years of permanent financing for borrowers with experience in tax credit and rehabilitation projects, eliminating the need for a construction lender. As more borrowers seek to tie up properties and organize the tax credits and/or bonds, not having to line up a construction lender saves time, money and extra work. Furthermore, it prohibits the project from falling to less than 50 percent occupancy, and commitments and rate locks can be completed as quickly as 30 days or as long as 180 days. According to Angela Kelcher, Fannie Mae’s director of multifamily affordable lending, Fannie Mae has provided quotes on more than $100 million worth of transactions since the first ROAR transaction closed in November 2015.

Consider a Freddie Mac Combo

Having a single lender provide the bridge financing to take down the asset, provide an early rate lock on the tax-exempt loan and have that tax-exempt loan provide for in-place rehabilitation is something that cannot be matched in the marketplace.  Freddie Mac’s Tax-Exempt Loan (TEL) product continues to be an excellent execution for 4 percent Section 42 deals. It has low closing costs, and for a slightly higher rate a borrower can forward rate lock up to 30 months with one six-month extension. For more seasoned borrowers, Freddie rolled out its Bridge to Resyndication product, which sounds exactly like its name: If you have an existing project where you need a quick close, Freddie Mac will “bridge” you until the time comes when you are ready to close on a more permanent execution. The trick as a borrower is to make certain you’ve clearly considered your political and economic plan of attack, ensuring performance covenants are in place to secure your bonds and tax credits so Freddie Mac can provide the permanent financing, too. Combining Freddie Mac’s TEL product and the Bridge to Resyndication is an option that borrowers may want to consider in order to be the most effective and efficient with the value of their loan.

Check Out FHA’s Revamp

Although the FHA hasn’t released any “new” products as of late, it’s made recent improvements to existing products. For example, mortgage insurance premiums (MIP) for Green and Energy Efficient or Broadly Affordable Housing were reduced to 25 basis points and Affordable Housing MIP to 35 basis points. Furthermore, loan-to-costs have returned to pre-2007 levels at 1.11 debt-service coverage for projects with 90 percent Section 8 HAP contracts. HUD has also become less restrictive on other common underwriting and processing activities, such as increasing the amount of repairs allowed in a refinance (up to $40,000 in some regions) and evaluating reserves for replacement with a focus on the initial 10 years (instead of 20 years) for reserves for replacements. These changes, combined with HUD’s improved timelines, have improved the timing, process and proceeds associated with securing an FHA commitment. Having a reinvigorated FHA platform that understands and responds to the important timing considerations of an affordable housing project is something to be seriously considered on your next transaction.

All in all, if you are an affordable borrower, several intriguing execution options await your attention. Couple these attractive products with tax credit pricing and it surely seems like an exciting time to be a borrower in affordable housing.

Anthony Cinquini, managing director & head of the affordable housing group, joined Berkadia in 2014. He has more than 32 years of multifamily mortgage and investment banking experience, focused primarily on affordable housing. Throughout his career, he has originated, structured and closed over $13 billion in debt transactions, including taxable and tax-exempt financings, FHA transactions, and many large Fannie Mae and Freddie Mac credit facilities. Notable accomplishments include the largest FHA 221(d)4 loan ever completed to date ($193 million); structuring a $1.3 billion single credit facility with Fannie Mae; in 2014, a $1.4 billion single credit facility with Freddie Mac; and, in 2015, a $5.1 billion single credit facility, also with Freddie Mac, the largest single loan to date for Freddie Mac.  Also in 2015, Mr. Cinquini originated, structured, and closed the first-ever Freddie Mac financing to serve the needs of the developmentally disabled group home market.  Mr. Cinquini maintains ongoing advisory, lending and investment banking relationships with many large national REITs, as well as other national multifamily owners and operators. He began his career in the public finance department of First Interstate Bank as a senior analyst, structuring various types of public finance debt, with an emphasis on multifamily housing bonds.  Mr. Cinquini also spent over 20 years with Red Capital as an investment banker and mortgage banker in the taxable and tax exempt financing market, prior to joining Berkadia.