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Kelly Brady Talks MHC: The Journey from One Loan to $1 Billion

October 15, 2015

Today, we announced that we’ve purchased more than $1 billion in Manufactured Housing Community (MHC) Loans. In this interview, Kelly Brady, Vice President of Underwriting and Credit, talks about the journey from one loan to $1 billion and how we’re positioning our MHC offering for growth in 2016.

What does reaching $1 billion in MHC loans mean for Freddie Mac Multifamily?

This time last year we had just purchased our first loan for $10.575 million. Since then, we’ve increased our volume and broadened our footprint significantly—covering over 26,786 units across 23 states for 96 funded loans. We’ve purchased loans as small as $2 million and as large as $45 million.  With the ability to purchase MHC loans, we are serving new geographic markets where added liquidity is critical and where manufactured housing communities are an important source (sometimes the only source) of affordable rental housing.

How does MHC help meet the growing demand for affordable rental housing?

About 7 million households reside in manufactured housing and one-third of them are renters [according to the 2014 American Community Survey]. We can’t bridge the affordable housing gap without serving this segment. In fact, owners of MHC’s have a growing need to allow for more rentals within their communities. So, we responded by developing a program that allows for rentals in up to 25% of the homes, a significantly higher ratio of rentals than our competition allowed. Our purchases are predominantly all age or family communities—the segment with the most critical need for liquidity.  The age restricted retirement communities already had ample liquidity from the market. These areas offer a couple of aspects of how we’re helping meet the demand for affordable rental housing through our MHC offering.

Freddie Mac is the “new kid on the block” in this space. How did you overcome being an outsider?

It really comes down to our people. This segment of the industry is very loyal and relationship driven. So, we built a team that comprises over 50 years of collective experience in MHC lending. We understand the nuances of the industry and that has given us a lot of credibility. And for many of us on the team, it is like coming home. I started my career in this business—in fact, my first property inspection fresh out of college was an MHC in Texas.  We also have spent a lot of time—and still do— meeting with borrowers to understand the current markets needs and building a track record that they can trust.

How has Freddie Mac’s presence in the MHC loans changed or influenced the market?

When we entered the market, we saw our competitors drop their prices and adjust their credit box to meet the affordable market. We’re also now seeing lending on properties with a higher percentage of rentals and more lending on properties that have collateral quality that is more affordable  We are willing to structure around issues such as properties located in flood zones, properties with private well and septic systems, and properties located in rural locations. As a result, we have expanded the market liquidity to more broadly serve this segment.

Freddie Mac has targeted the affordable segment of MHC lending which was previously dominated by CMBS lending.  We offer better pricing, but at the same time, set higher credit and operating standards on those properties.  For example: requirements to solve for properties in flood zones and for property owners to have proper rules and regulations with enforcement at their communities.

What feedback have you received from borrowers about your offering?

Our approach seems to be resonating in the areas of consistency and flexibility. Our decision to place dedicated underwriters and producers in each region has a lot to do with that. This is a highly nuanced industry. Deep familiarity of the industry and taking the time to fully understand each property’s unique situation is key. Having this expertise means we can avoid a rigid, one-size-fits-all model.

What’s next for Freddie Mac in this space?

I have an informal goal with my team to be in all 50 states in five years. We track our progress with a push pin map hung in the center of our team’s office space. And, believe it or not, we’ve already checked the box on Alaska! I’m still waiting for that Hawaii property. Beyond that, we’re working on ways to deepen our presence without oversaturating the market. That means being innovative and finding ways to serve communities that have previously faced decline or have not reached stabilization in hopes that we will increase the MHC housing stock.

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