The new cap equates to $80 billion of lending annually for each GSE, which is $14 billion more than Fannie Mae and $3 billion more than Freddie Mac financed in 2018.[1]

While the Trump Administration continues to work on a comprehensive reform plan for the housing finance system, the Treasury Department recently released a 50-page whitepaper outlining its plan to recapitalize Fannie Mae and Freddie Mac. Currently, the Government Sponsored Enterprises (GSEs) are in conservatorship.

The Treasury plan detailed Federal Housing Finance Administration (FHFA) and legislative reforms from Congress and raised a huge question: would Fannie Mae and Freddie Mac’s multifamily lending volumes be constrained in 2020, and if so, by how much?

The 2020 Multifamily Scorecard

In mid-September 2019, FHFA released its 2020 Multifamily Scorecard for the GSEs, answering that question. For each enterprise, the new multifamily loan purchase cap will be $100 billion for a combined total of $200 billion to the multifamily market for the five-quarter period of 4Q 2019 to 4Q 2020. The new caps apply to all multifamily business with “no exclusions.”[1]

The new cap equates to $80 billion of lending annually for each GSE, which is $14 billion more than Fannie Mae and $3 billion more than Freddie Mac financed in 2018.[1]

“The expectation is that so long as the total market size doesn’t materially increase, the new scorecard should alleviate any anxiety,” said Kevin Madigan, vice president of Agency Finance at PNC Real Estate. “It reassures the market that Fannie and Freddie are committed to promoting liquidity and supporting affordable rental housing.”

Madigan noted that customers of PNC Bank who are owners of stabilized multifamily properties have a marked preference for agency debt and many prefer to exclusively borrow from Fannie and Freddie, primarily because agency debt is non-recourse and borrowers can obtain long term loans at attractive interest rates.

“PNC continues to provide agency loan options, along with other bank products,” Madigan said, adding that the new scorecard will not change the way PNC underwrites and originates agency loans.

Explaining “No Exclusions”

The “no exclusions” statement by FHFA simplifies the annual scorecard, Madigan explained. Previously, green apartment projects and those with an affordable component were exclusions to the agencies’ lending caps.

The new scorecard explicitly states a hard cap and requires that 37.5% of agency lending must be “mission driven.” A loan is generally considered “mission-driven” if the property is considered “affordable;” either through some type of rent restriction tied to the property or if rents are organically below market rent. 

That doesn’t mean the agencies won’t finance market-rate projects, Madigan said, but it does mean that affordable properties will receive more favorable terms and rates – which has always been the case. “The agencies are still providing very strong terms for market rate projects and we have had a lot of success in that space,” Madigan noted.

Madigan said the scorecard is a key step in GSE reform and helping facilitate Fannie Mae and Freddie Mac’s exit from conservatorship. “It’s not a question of if, but when,” he said. “And regardless of what happens to the agencies, we are dedicated to taking care of our clients. Given that PNC is a bank, we have the ability to offer additional products or services to our clients and some of the other agency lenders don’t have that ability. For example, if the agencies are restructured, PNC will still have other loan programs to offer our customers, which will separate us from some of our competitors.”