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Multifamily Viewpoints

A Golden Age for Multifamily

By David Brickman
Published on October 17, 2014
David Brickman

Thank you to everyone who joined us at our recent Freddie Mac Multifamily® Customer Conference in New Orleans. We were very pleased by the turnout and the strong enthusiasm expressed by those attending. At the conference, I had the opportunity to share some thoughts on where our business and the multifamily industry are headed. Following is a brief recap.

Multifamily is in the midst of a golden age, and we do not see it ending anytime soon. Indeed, Freddie Mac Multifamily is working to help keep it shining bright for years to come.

Supporting an Evolving Multifamily Market

We’ve seen a major shift toward renting, with rentership rates rising for nine straight years so far and the number of new renter households growing steadily in recent years. Renting increasingly is a lifestyle choice for households of all ages, sizes, and income levels.

This rising demand is in turn fueling robust activity in the multifamily mortgage market. It drives demand for capital to provide permanent mortgage finance for new construction as well as renovation and rehabilitation. Add to that refinancing, recapitalization, and a tide of loans reaching maturity. We expect volume to keep increasing in coming years – and believe there’s still plenty of room for more multifamily supply, given current conditions:

  • Vacancy rates remain very low and rents keep rising.
  • Renter households will continue to form at rates higher than those experienced in the recent past.
  • Adults who, for financial reasons, have been living with family or friends will form their own households as the employment situation continues to improve.

Setting a New Standard

We plan to support this growth with market-leading offerings and creative ways of delivering capital. Through our leadership, innovation, expertise, and dedication, we’re setting new standards for the industry. We took on more than 30 initiatives this year with the goal of better serving the market today and positioning ourselves for tomorrow. Our efforts – from small but significant improvements to paradigm changes in how the business works – fell into three main categories, which are listed below along with some highlights:

  • Providing liquidity to the entire market – Float-to-Fixed Execution, Lease-Up Loans, and Value-Add Loans
  • Supporting affordable housing – Direct Purchase of Tax-Exempt Loans and Manufactured Housing Community Loans
  • Building a better multifamily housing finance system – Servicing Standards, Master Servicer on K-X01, and Single Sponsor Executions

Cutting across all categories is our newest offering: Small Balance Loans. Smaller properties comprise 29 percent of the multifamily rental market and a large portion of units that are affordable to low- and moderate-income households, so it’s important that we play in this space. And we’re changing the game. We intend to clear away many of the hurdles often met when funding smaller properties by applying our strengths: our credit standards, our ability to innovate in the capital markets, and our network of experienced lenders who know their markets.

Learn about our initiatives on the Freddie Mac Multifamily web site.

Helping to Make Rental Housing Affordable

Importantly, expanding our offerings helps channel more funding to expanding the supply of affordable housing by supporting new construction, rehabilitation, and preservation of existing properties. Half of all renters today live in apartments deemed unaffordable, as defined by the U.S. Department of Housing and Urban Development. This is an issue of supply (or lack of) as well as incomes (which have stagnated). Adding any type of supply increases overall affordability. At the same time, promoting housing that’s affordable especially to lower-income renters is a priority. It’s part of our mission. Even more, it’s part of who we are.

Delivering Results and Value

While carrying out our mission, we continue to deliver exceptional business results, proving the durability of our securitization business model.

  • More than $114 billion funding 1.7 million apartments (1Q 2009 – 2Q 2014)
  • More than $6 billion in comprehensive income (1Q 2012 – 2Q 2014)
  • $84 billion through 67 K-Deals (9/30/14)
  • 0 credit losses (2Q 2014)
  • Delinquency rate of 3 basis points, or 0.03 percent (9/30/14)
  • 0 real estate owned (REO) property (9/30/14)

Our business results speak not only to our ability to succeed in conservatorship, but also to why we would be largely unaffected by a wide range of potential regulatory or legislative changes proposed to address housing finance reform – we already operate largely in the way that many policy makers envision.

Leading the Way Forward

A couple of recent developments bolstered our confidence to keep showing our leadership, innovation, expertise, and dedication going forward.

FHFA Director Mel Watt signaled a gear shift last May when he told a Brookings Institution gathering that the GSEs have “a critical ongoing role in the multifamily sector, particularly for affordable multifamily properties.” In step, FHFA changed our strategic goal from shrinking our footprint to maintaining market liquidity, with a focus on housing affordable to lower-income renters (but not to the exclusion of other business).

FHFA also directed us to look for more ways to transfer risk away from taxpayers. Freddie Mac Multifamily already transfers nearly all of our risk via our K-Deal structure, but we have some great ideas for other creative, innovative solutions to help attract private capital.

All in all, we feel very positive – about the future we’re creating, the customers we work with, and the difference we make to renters and communities nationwide.

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David is executive vice president of the Multifamily business
Have a question or comment? Contact David

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