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Freddie Mac's Leopold says GSE pushing to expand affordable multifamily financing

Government-sponsored enterprise (GSE) Freddie Mac financed a total of $34.1 billion in multifamily loans through the first nine months of the year, which exceeds its total of roughly $28 billion for all of 2014. About 30 percent of this volume was associated with deals involving affordable-housing units or other multifamily projects that qualified for an exemption from Freddie's annual dollar-volume cap established by the Federal Housing Finance Agency (FHFA). David Leopold, Freddie Mac’s vice president for targeted affordable-housing production and investment, spoke this week to Scotsman Guide News about trends in multifamily financing and the outlook for next year.

Freddie Mac has already surpassed its multifamily financing volume for all of 2014. What does this say about the demand for multifamily?

David LeopoldMultifamily, in general, is having perhaps a record year in terms of debt originations. We think the total market is around $225 billion, maybe a little more. Our cap, at $30 billion, is for that portion that is under the FHFA cap, but there is a great deal that isn’t under the cap. Our goal at Freddie Mac multifamily generally, not just the affordable space that I run, is to be actively engaged in all sectors of multifamily. That is everything from high rises in New  York to rural, to manufactured [housing communities], to small properties and affordable. A lot of that falls outside of the cap because there is just not enough capital there. What Freddie Mac has chosen to do is make sure that we are deeply relevant in all of those segments. That has resulted in growth in the uncapped business.  

Given that multifamily has been strong for several years, what is driving this demand?

A lot of it is fundamentals, meaning that multifamily as an asset class has demonstrated continued strong performance. Some of it is just basic arithmetic. Values are up, so if we are lending at 75 percent loan-to-value and values are materially higher than they were a year or two ago, [it is] a much higher number. And then there is just a lot of new product coming online.

Do you expect this to continue?

We expect it to continue through 2016. Again, the reason for that is the fundamentals. The number of households demanding rental housing continues to increase, even though supply has continued to increase. We think that aggregate demand will continue to outstrip aggregate supply for a period, and the fundamentals in multifamily will remain strong.

Are you seeing mostly purchase or refinance business?

The GSEs, by charter, don’t lend against new construction. We come in once [the building is completed with a construction loan and] they are newly stabilized. The loan is made once the property is occupied.The answer is it is a mix. We are doing a fair amount of acquisition. In the targeted affordable space, we actually provide commitments to take mortgages out or make loans or buy loans once a property is stabilized. That is a core part of our business and it is a big chunk of our growth. That is new supply. We are also doing a lot of acquisitions and refinancing. Another thing that is driving up the numbers in my space, the targeted affordable space, is our focus on preserving affordable housing. That has been a concerted effort of ours for about two years, but it is really coming into its own this year. In the past, that was probably about 25 percent of our business. This year it will be well over that.

When you refer to "preservation" deals, could you define that?

These are deals that are [for] affordable [housing] that have some restrictions to provide for ongoing affordability. We are refinancing [the properties] and recapitalizing them to continue their affordability, as opposed to a property that was affordable [and] going to market rates. Those units are lost to the affordable stock.

Where do you expect Freddie’s multifamily volume to end in 2015, and do you have any predictions for next year?

For 2015, we are seeing about $45 billion, which is fantastic in growth year over year. The forecast for 2016 is that we would want to grow with the market. We would grow commensurately, but really focus on that uncapped business — so, primarily affordable, but also the other uncapped space. The other parts are the small properties, five-to-50 unit properties, the manufactured-housing space [and] affordable [housing for] seniors. We are not passively following the market. We are aggressively investing and building out new product offerings. We have opened up new offices. We have rolled out new product, and we have hired a whole lot of new people, all with the goal of making capital available as efficiently as possible to grow affordable. The need for affordable housing has never been stronger. 


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