White Papers Detail Fannie Mae's Support for Multifamily Market

Risk sharing, strong underwriting, and affordability cited as key to sustainable market

Amy Bonitatibus

202-752-4144

WASHINGTON, DC — Fannie Mae has released two white papers detailing the company's work in the multifamily housing market and focusing on the growing need for decent, affordable housing for renters even as demand and prices soar. As the nation increasingly turns to rental housing as a preferable option for more households, the white papers lay out Fannie Mae's activities and the outlook for affordable rental housing and the small multifamily loan market.

"Fannie Mae and its DUS partners have deep experience providing financing for multifamily rental housing, particularly housing that is affordable to most Americans," said Ken Bacon, Executive Vice President, Fannie Mae's Multifamily Mortgage Business. "As the country continues to face difficult economic times, all of us involved in housing must redouble our efforts to provide quality housing that is affordable to every segment of the population."

The first white paper, Fannie Mae and Workforce Rental Housing, describes the increasing need for rental housing, particularly affordable rental housing. Typically, 90% of Fannie Mae's multifamily financing supports rental housing that is affordable to households earning at or below their area's median income level.

While the paper describes the current improving economic conditions impacting the multifamily housing sector, it also describes the challenges facing rental housing. For example, in recent years, the number of units in the country that are affordable to households earning 50% or less of an area's median income has declined. Furthermore, the financial crisis has forced many multifamily housing investors out of the market.

According to the white paper, Fannie Mae's successful, ongoing work in the multifamily market has been made possible in large part to its Delegated Underwriting and Servicing (DUS®) program. In that program, lenders underwrite loans for multifamily projects following Fannie Mae guidelines and retain a portion of the credit risk.

Due to this risk sharing model, there is better alignment with our lenders, which results in better loans and reduced delinquency. Fannie Mae's total multifamily DUS book of business has consistently performed very well, with just a 0.56% delinquency rate (60+ days) as of December 31, 2010, compared with 13.25% for commercial mortgage backed securities (60+ days) and 3.74% for banks and thrifts (90+ days).

"Our multifamily business has long served as a reliable source of funding for apartment owners," Bacon said. "Working with our lenders, we will continue to focus on serving workforce housing by providing access to capital for multifamily loans that produce housing that is sustainable to families looking for affordable options."

Small loans — those typically less than $3 million in most markets and less than $5 million in certain high-cost areas — play a unique role in ensuring quality, affordable housing. Usually, properties consisting of 5-50 units are financed with these loans, according to the second white paper, Fannie Mae's Role in the Small Multifamily Loan Market.

As of mid-year 2010, Fannie Mae's $34 billion book of business on smaller rental properties tends to finance units that are more affordable on the whole, serve as a key source of housing for working families, and are concentrated in urban areas in close proximity to transportation and jobs.

"If you think about it, most average, working families that rent, live in smaller buildings — they don't tend to live in high-rises with hundreds of units," said Bacon. "So when we talk about small loans and small properties, we're talking about working families. By supporting the small loan market we support housing that is utilized by the average working family who works hard to realize the American dream."

Due to its fragmented nature, with over 2,600 lenders originating an average of six loans each, the small loan market is a difficult one to navigate. Again, Fannie Mae's multifamily small loan model of working with lenders to ensure strong underwriting guidelines and shared risk has proved essential in providing stable, ongoing funding to the small loan market through all economic conditions, according to the white paper.

"We're proud of the results we have produced in continuing to provide liquidity and stability to all segments of the multifamily market in recent years," said Bacon. "That's our mission and we're sticking to it."

To read Fannie Mae and Workforce Rental Housing

To read, Fannie Mae's role in the Small Multifamily Loan Market