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Perspectives
February 29, 2016

Crafting Creative Solutions, Staying True to Our Principles

Deborah Jenkins
By
Deborah Jenkins, SVP Multifamily Underwriting & Credit

More important than talking about the dire need for rental housing that's affordable to households earning low or moderate incomes is doing something to help change the situation. Actions, as the saying goes, speak louder than words.

It's encouraging that construction starts and completions finally are back up around historical averages. New apartments are entering the market at the fastest pace since the 1980s and plans for more construction continue to increase in many locations, as described in our Multifamily Outlook 2016. Given the time between starting and completing a property, the pace will continue at least for the next couple of years. Strong renter demand has absorbed most of the new supply so far. And while all new supply helps increase availability and affordability, the overwhelming focus on high-end properties means that the benefits flow only indirectly to the low- and moderate-income renters who need them most.

Also, in the drive to fill demand for rental housing and to take advantage of the market's strength, there could be temptation to relax credit or other standards. But the increased risk could result in trading one problem for another – and no one wants to go down those rapids.

At Freddie Mac Multifamily, our inspiration is our mission to promote liquidity, stability, and affordability in the rental housing market. We support every corner of the multifamily market, committing ourselves every day to help move housing forward.

Each loan we buy goes through our in-house Underwriting & Credit team. Our credit philosophy and standards support the company's efforts. They have stayed steady – calibrated to address current and anticipated market conditions. Also steady is our focus on quality throughout the loan life cycle. So much steadiness sounds kind of boring – but in a good way.

With this firm foundation, coupled with the flexibility to stay open to possibilities, we collaborate across the company and with our customers to craft solutions that achieve positive, meaningful results.

Opportunities to do just that have grown in the last few years, as the business has pivoted toward workforce and targeted affordable housing that is excluded from the FHFA-mandated volume caps and directly benefits households with the greatest need. Loans have ranged from about $1 million all the way up to a structured pool in excess of $5 billion that had a significant affordable component, and we've put particular focus on these areas:

  • Small Balance Loans
  • Manufactured housing communities
  • Seniors housing
  • Preservation of targeted affordable housing for at-risk populations

As the business has grown and evolved, we've been able to scale the team quickly while maintaining service quality. Expanding our regional presence and specialized staff is a big reason why.

Freddie Mac Multifamily's business results reflect leadership and the success of our business model. Last year, we provided more than $47 billion to the industry to acquire, refinance, or preserve 650,000 apartment units nationwide. Importantly, a total of $17 billion went toward "uncapped" housing types. About 90 percent of the apartments financed are affordable to residents earning low or moderate incomes. And because we securitize more than 90 percent of the loans we buy, private investors bear nearly all of the related credit risk.

Can you guess how many individual loans were involved? More than 3,500 – double the 2014 total and a 300 percent increase within five years. Small Balance Loans, just launched in late 2014, accounted for more than 1,000 of these loans. And purchase volumes might be even greater this year as we continue to support the multifamily market in line with our mission.

Whatever the numbers in the future, you can be sure of two things: the persistent need for affordable rental housing and Freddie Mac Multifamily's dedication to addressing multifamily market needs – large and small, across the country, and in every facet. Our industry-leading underwriting and credit quality enable us to make a difference.

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