The Federal Housing Finance Agency (FHFA) announced on May 7 that they are revising and expanding the definition of the affordable multifamily loans that are excluded from the $30 billion multifamily lending caps imposed on both Fannie Mae and Freddie Mac. Although the caps will remain unchanged, the excluded loans will provide more lending capacity to the multifamily market through 2015. FHFA’s decision was based on concern expressed by our industry about keeping capital flowing to the multifamily market, which has seen significant growth this year.
NMHC/NAA recently met with FHFA Director Mel Watt at our request. We highlighted the overall strength of the industry and the need for a diverse capital base to effectively serve the needs that the broad multifamily market demands. We quickly followed up with a letter to FHFA on April 29 reemphasizing our concerns.
In the past, the multifamily loans that were excluded from Fannie and Freddie’s caps were defined as targeted affordable loans, small balance loans and manufactured housing communities. FHFA’s announcement provides greater clarity on, as well as broadens the definition of, the excluded loans. Here are the specific changes:
- A pro rata portion of multifamily loan amounts purchased will be excluded from the caps based on the percentage of units in a property affordable to renters at 60 percent of area median income (AMI);
- In higher cost areas, the income threshold for affordability will be increased to 80 percent of AMI;
- For very high cost markets, the income threshold for affordability will be increased to 100 percent of AMI;
- Assisted living units for seniors will also be excluded from the caps as long as they are affordable at 80 percent of AMI; and
- The calculation of specific loan amounts excluded from the caps for mixed income targeted affordable housing properties will also be modified.
The exact impact of these changes is not yet known. Historically, nearly 90 percent of the loans purchased by Fannie and Freddie have been at or below 100 percent of AMI. So we expect that the changes will provide significant relief to the cap constraint for multifamily, but will also help ensure that both entities continue to focus on serving the affordable and workforce housing rental markets.
Please see the Fannie and Freddie charts outlining multifamily acquisitions of units by AMI for additional details on where multifamily market relief might come from.