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Quarterly Update to the Refinance Test

August 27, 2012

Freddie Mac is providing our quarterly update to the Refinance Test to reflect the most current multifamily market conditions including forecasted rental growth rates, vacancy rates, interest rates, and cap rates.

New Test Now Available – Required for New Loans Effective September 4

  • We’ve made the new version of the Refinance Test available in the Underwriting References section of the Originate & Underwrite Resource Center.
  • Effective September 4, the new version will be required for new loans.
  • On September 4, we’ll retire the current quarter’s Refinance Test version and update the Quick Link on the Originate & Underwrite main page with the new test.
  • In order to complete the underwriting process with the current quarter’s test, the loan must be under application with the Seller and must be rate-locked by September 30.

Changes in this Quarter’s Refinace Test

In addition to our regular updating of market and treasury curve information in this quarter's version, the new test also has several new metrics added to the Setup and Report sheets. These metrics include items such as Debt Yield, Loan Constant, and Principal Reduction, among others, intended to aid in the evaluation of loan quality and refinance risk.

Additionally, we’ve made the following changes since our last quarterly update:

  • We’ve included year-1 rental growth into the model (where before we ignored this)
  • We’ve reduced the forecasted REIS rental rate growth for 2013 through 2016 across all markets. (This will bring REIS data more in line with other data provider forecasts, such as CBRE and Axiometrics.)

Further changes, including more detailed inputs, are anticipated in releases in the near future.

Using the Results of the Refinance Test

As always, when a loan does not pass the test, this is simply an indicator for you to discuss the parameters sooner with your underwriter. It does not necessarily mean Freddie Mac will not buy
the loan.

Resources for Your Reference

See our Refinance Test Customer Tutorial in the Originate & Underwrite Program Plus Resources section of our website for additional guidance on the use of the test and evaluation of
its results.

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