Our Multifamily Business – Meeting Market Needs With an Eye Toward the Future
Throughout the public debate about the future of the GSEs, Freddie Mac's multifamily business has remained focused on two main goals: meeting the funding needs of the apartment financing market and being innovative, even while in conservatorship.
During the economic crisis, U.S. housing markets collapsed and rental housing became more important. Most sources of liquidity for apartment lenders left the market. But not Freddie Mac – we were ready and stepped up to the plate to be a continuous and reliable source of liquidity. As one of the main funders of multifamily loans, we've purchased about 30-40 percent of the multifamily loans made in the marketplace in the last two years.
In response to fluctuating market conditions, we organized our business operations to be able to scale up or down. For example, we have contracts with external underwriters who can help us when loan volume soars. We have talented staff with many years of experience who are capable of doing several types of jobs based on loan volume.
We've also found innovative ways to prepare for the markets' recovery and increased competition.
For example, a few years ago we created a very successful product – the Capital Markets Execution (CME) – for loans that we intend to securitize. It features more competitive pricing for borrowers than loans held in our portfolio. Most CME loans are securitized as part of our K-Deals, a type of multifamily mortgage-backed security that is unique to Freddie Mac. With more than $16 billion in issuances to date, our K-Deals have set a new standard for how securities investors participate in the multifamily market.
Our issuances helped to jumpstart a stagnant commercial mortgage-backed securities (CMBS) market. In 2010, non-GSE CMBS issuance was about $12 billion. We issued half of what the private market issued just in K Certificates last year, and have already surpassed that amount by issuing $7.7 billion in the first six months of 2011. Today, over 80 percent of the apartment loans we purchase are slated for securitization. Our securities enjoy strong investor support, with the issuances being oversubscribed.
We've also established new security issuance standards that set us apart in the eyes of our investors as the premier issuer of multifamily or commercial MBS. To that end, we recently improved our disclosures by adding a multifamily loan performance database to our website that will be updated quarterly and includes historical information on original loan terms; identifiers for prepaid loans, defaulted loans and delinquencies; property information; and dates of real estate owned (REO) sales. Investors and researchers have requested this additional information to help them better understand the historical performance of our multifamily whole loan mortgages.
We will continue to enhance disclosures for our securities issuance. Our goal is to provide the most comprehensive and accurate information about our mortgages both at securitization and post-securitization.
Credit risk management is another area of strength. Our $98 billion multifamily portfolio is among the best in the industry today with one of the lowest delinquency rates – .38 percent, or less than one-half percent of our loans. We attribute this to our prudent underwriting, investment discipline and good lender network that does business with reputable apartment owners and operators.
The bottom line is that no matter the market conditions, Freddie Mac offers some of the lowest cost of capital to the multifamily mortgage market – while continuing to prepare for the future.
(David Brickman recently became the head of Multifamily for Freddie Mac. He's worked in the Multifamily Division for 12 years and has a background in capital markets, real estate, finance, portfolio management, credit analysis, pricing and economics.)
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