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Multifamily highlights new initiatives during 2014 Customer Conference

October 30, 2014

John Cannon on Product Innovation

John Cannon, Senior Vice President of Production, Sales and Marketing of Freddie Mac, reviewed several new initiatives and previewed a few new offering videos during the 2014 Customer Conference in New Orleans.

Cannon told a record crowd of over 800 attendees that the Freddie Mac production pipeline has nearly doubled since the beginning of the year. He also referenced over forty-two key accomplishments, some of which included major initiatives launched in the last six months.

“This company thinks big, we don’t accept the status quo, we push boundaries and we don’t accept the fact that we will remain in conservatorship in perpetuity,” said Cannon. “Our track record of delivering strong results exemplifies our durable business model and demonstrates that we could survive a range of economic and political changes in the future.”

Four specific new initiatives highlighted during the conference include:

    1. Float-to-Fixed Execution – Provides borrowers with superior cash-on-cash returns through the first two years of the loan while locking in a low  fixed rate coupon for the later years of the loan. The primary benefits of this new product include:
      • Reduced initial debt service – through a floating-rate, uncapped, interest-only structure
      • Lower lifetime interest rate – by locking the fixed-rate up front for the remaining term
      • Superior return on investment – through better cash flows and the option to resize the first mortgage at fixed rate conversion
    2. Lease-Up Loan – On newly constructed properties, allows Borrowers to lock in a rate and fund a loan before the collateral is fully stabilized. There are two separate executions available for this product:
      • Premier Lease-Up: <=65% LTV and >=1.25x DCR as stabilized in certain markets with a qualifying sponsor
      • Standard Lease-Up: <=75% LTV and >=1.30x DCR as stabilized, or if otherwise does not meet Premier Lease-Up parameters
    3. Single-Sponsor Execution – Ideal for those sponsors who desire a flexible, customized financing for a portfolio of loans and/or have the financial capacity to purchase a subordinate bond that can effectively reduce the cost of first mortgage capital.  Some of the benefits of this execution include:
      • Highly customizable terms, which may include collateral substitutions, fixed and floating-rate loan options, and other features that give the sponsor flexibility.
      • The sponsor may purchase a discounted subordinate bond, which, when combined with the additional annual cash flow stream and redemption of these bonds at par, effectively reduces the cost of the loan.
    4. Value-Add Loan – Provides flexible, cost-effective acquisition financing, allowing for moderate property upgrades during the term of the loan. This new loan offers two funding opportunities, ensuring borrowers are incentivized to aggressively pursue:
      • On-schedule upgrade completion
      • Improved value via improved NOI

Some recent enhancements to existing offerings announced during the conference or shortly after also include:

  1. Supplemental mortgage – Offers an additional financing option in conjunction with a newly originated or seasoned multifamily loan. Recent enhancements:
    • Removed the LTV and DCR adjustments for cash-out supplemental loans to be more in-line with the market
    • Updated our commitment to allow the required LTV on supplemental loans to be rounded up to the next 5% on every loan (newly originated loans only).
    • Adjusted our combined floating rate required DSCR from 1.15x to 1.10x and 1.20x to 1.15x, on both the conventional and seniors housing sides, respectively (newly originated loans only).
  2. Index Lock – Mitigates market risk and prevents potential cuts to proceeds by locking the Treasury index anytime.

Cannon concluded the presentation by reiterating that the people at Freddie Mac not only dream big, but also get things done and have fun doing it. He is very confident in how the Freddie Mac platform can serve our customers now, tomorrow, and, most importantly, five years down the road. “That is the ‘Freddie Mac Difference’ and that is why you should hitch your wagon to the Freddie Mac production platform,” he said.

For more details on these new or enhanced initiatives and to view the new offering videos, please visit our Products page on FreddieMac.com.  And stay tuned for more videos!


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