Supporting Affordable Rental Housing
Freddie Mac Multifamily is one of the largest supporters of affordable rental housing in the nation, providing financing that has enabled at least six million renters to live in apartments with affordable rents. Roughly 94 percent of these renter households earn incomes at or below the local area median income.
Our lower cost of funds helps us keep financing affordable for many properties that likely would have trouble securing funding elsewhere. A large majority of these properties are more than 10 years old, and many are in need of capital improvements.
Providing A Constant Market Presence
We provide a reliable source of funding in all economic conditions to help ensure that financing is readily available and to provide market stability. To accomplish this, Multifamily operates in an accordion-like manner by expanding to provide stability when other sources of mortgage funding are not actively lending in the market, as typically occurs during times of economic distress, and contracting when conditions improve. For example, during the economic recession of 2008-2011, our fundings peaked at 32 percent of market originations. Now that the markets are recovering and private capital sources are re-entering the markets, our market share has declined to an estimated 20 percent in 2012.
Reducing Taxpayer Risk Through Structured Securitization
Freddie Mac finances about 95 percent of its loan purchases through mortgage securitization. Our unique structured pass-through certificates, known as K-Deals to capital market investors, are each backed by about $1 billion of multifamily mortgages. We are the largest issuer of multifamily structured debt in the U.S. capital markets.
Our Multifamily securities are structured in a way in which private investors, not U.S. taxpayers, bear most of the losses that might come in any one security. We do this by including a non-guaranteed portion, a subordinate bond, which takes on a first-loss position and is held by private investors. The subordinate bonds act like a shock absorber for the senior bonds that are guaranteed by
Freddie Mac. Such a structure has been embraced by policymakers as a model for securitization in housing finance.
Operating A Sound Business
Since the launch of our multifamily business in 1993, we have provided more than $290 billion in financing for about 60,000 multifamily properties. Our business is built on effective risk management and prudent credit underwriting. We have among the industry’s lowest delinquency rate and credit losses on our $138 billion loan portfolio. In contrast, the recent delinquency rates on non-Freddie commercial mortgage-backed securities are much higher by a factor of 50 or more. What’s more, unlike many others, our Multifamily business did not experience dramatic losses during the economic downturn. Instead, we provided strong returns to taxpayers and have produced several billion in earnings since 2010.