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The Federal Housing Finance Agency will cap the amount of multi-family loans that Fannie Mae and Freddie Mac will be able to purchase next year while closing some loopholes.
The regulator will now limit purchases of $ 100 billion of multi-family residential loans to the two companies, respectively between the fourth quarters of 2019 and 2020. The ceilings are significantly higher than those of previous years. In 2018 and 2019, Fannie Mae
FNMA, + 7.56%
and Freddie
HSFC + 7.46%
had the right to purchase only $ 35 billion in multi-family borrowing each. However, the "mission-oriented" loans excluded from the ceilings brought the total volume to $ 142.5 billion in 2018.
FHFA has begun setting ceilings for Fannie and Freddie's multifamily activities in 2014 to support liquidity in the multi-family market while also avoiding the crowding out of private capital.
Beyond increasing the size of ceilings, the FHFA has also made further changes to the way Fannie and Freddie can manage their multi-family activities. In particular, the agency will now require both companies to direct more than one-third (37.5%) of their multi-family activities to affordable housing.
Read more: 5 major changes that the Trump administration wants to bring to housing finance
This may include loans on properties subsidized by the low-income housing tax credit program, loans on facilities created under inclusion zoning rules, loans on properties covered by a housing assistance payment contract under section 8. Portions of loans may be prorated to this requirement if a certain percentage of units of a multi-family development is considered affordable, based on median income of the region.
In addition, the new loan ceilings eliminate the exclusions allowing Fannie and Freddie to purchase loans in excess of the limits previously in effect. The agency has notably eliminated a loophole that allowed Fannie and Freddie to buy green loans used to finance certain improvements in energy efficiency and water management, not to mention their overall spending limit.
Between 2015 and 2017, the share of Fannie and Freddie in new multi-family loans has increased from 36% in 2015 to 49% in 2017, said the FHFA. Much of this growth is attributable to the exclusion of green loans. About half of the loans contracted by the two companies in 2017 and 2018 were excluded from the loan limits of the FHFA.
The choice of the FHFA to extend the loan ceilings – while closing loopholes that allowed lending activity beyond – arises while the Trump administration has asked the Treasury Department and to the FHFA to consider limiting the multifamily footprint of Freddie and Fannie as part of its broader financial reform housing plan.
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