Wednesday, May 27, 2015

Freddie Mac & Fannie Mae Position in the Market: What to Expect Through 2015

Current positioning of Freddie Mac and Fannie Mae, discuss what this means for you and touch on what you might be able to expect this year.

Background and recap of what happened in 2014/early 2015:
  • Freddie Mac and Fannie Mae were both given $30 billion volume caps for multifamily production, for the 2015 calendar year.
  • The 2015 volume cap is a sizeable increase for Freddie Mac compared to their former $25.9 billion cap, and slightly less than Fannie Mae’s $30.6 billion (although Fannie had not come close to their cap the last 2 years).
  • Freddie Mac and Fannie Mae both rolled over into 2015 large pipelines from 2014. This included about $14 billion for Freddie Mac and about $8 Billion for Fannie Mae.
  • Both Freddie Mac and Fannie Mae have had robust starts to 2015 and both currently sit at $25-26 billion in 2015 YTD closed and committed volume.
  • Both Freddie Mac and Fannie Mae have affordable Housing goals that both admit to being “behind” in achieving their targets.
  • In response to this, and as an attempt to slow the pipeline, both Freddie Mac and Fannie Mae have increased spreads 35-40 bps and dialed back interest-only over the past 10 days.
  • Both Freddie Mac and Fannie Mae have petitioned the FHFA (regulator) for additional cap volume. (above the $30 billion)
Present position:
  • Both Freddie Mac and Fannie Mae are awaiting a response from the FHFA to their request for an additional volume cap
  • It is speculated that both may receive (in the best case scenario) an extra $5 Billion in volume cap.
  • A $5 billion increase will not allow them to fully return to the level of activity prior to the last 30 days, but will allow both to stay “in the market.”
What you can expect going forward:
  • Freddie Mac and Fannie Mae “rack” pricing will not win them any business
  • Freddie and Fannie are going to triage their remaining volume cap allocation (including any additional volume cap that may be approved by the FHFA)
  • Waivers from “rack/matrix” pricing in the form of better spreads, interest-only and other winning deal terms will be granted to:
    • Loan requests that meet the mandated affordability guidelines
    • Loan requests from “loyal, repeat clients”
    • Loan requests that are “very conservative” – say 50-60% LTV; 1.50x DSC, etc.
 Dustin Dulin/JLL