Dear Multifamily Partners,
Happy New Year! "Feeling gratitude and not expressing it is like wrapping a present and not giving it," according to William Arthur Ward. So let me take this opportunity to thank you for your business, your partnership, and a most remarkable 2015. We accomplished so much together in support of the multifamily market, including more than $42 billion in new production -- nearly the highest volume in the history of our Delegated Underwriting and Servicing (DUS®) program. We also had one of the best years ever for our Affordable business -- close to $3 billion in 2015, an increase of approximately $400 million over 2014, reinforcing our long-term leadership and commitment to this market, as well as our continued support of workforce rental housing.
OUR DUS MODEL CONTINUES TO DIFFERENTIATE US FROM THE COMPETITION
Unlike other business models that have experienced significant volatility over the past year, the DUS model has been stable and strong. Our model generates ongoing Guarantee Fee and Servicing Fee revenue for Fannie Mae and our DUS Lenders. Thanks to our risk-sharing model, we place credit risk in the hands of private capital -- with our lenders -- without exposing ourselves to the aggregation risk and spread volatility associated with selling the credit risk in securitized form, like a CMBS conduit. Our single-asset MBS continues to provide you with customizable loan structures, including prepayment options, and life-of-loan servicing, with no aggregation risk to the taxpayer.
Delegation has always been a core component of our business model and is our primary differentiator, providing you with certainty of execution, faster decisions, and quicker loan closings so that you can provide your customers with better service. We made great strides this past year in increasing Lender delegation and will continue to expand on this in 2016 to leverage our unique risk-sharing platform.
WE DELIVERED ON OUR PROMISE TO ENHANCE OUR PLATFORM TO BE MORE COMPETITIVE IN THE MARKETPLACE
Product enhancements were key in maintaining our success in 2015, not only across our conventional business but in affordable, small loans, and green financing as well, and included:
- Streamlined Rate Lock, allowing borrowers to manage interest rate risk by locking the entire fixed-rate very shortly after application;
- Green Rewards, providing pricing breaks and higher loan proceeds for energy- and water-saving property investments and upgrades;
- MBS as Tax-Exempt Bond Collateral, combining the ease of our MBS execution with all the benefits of tax-exempt bonds, so borrowers get a lower interest rate and significant savings over the life of the loan, and
- Reduced Occupancy Affordable Rehab, providing a permanent loan solution to renovate affordable properties, eliminating the need for a construction loan.
Technology also played an important role in our success in 2015. With the rollout of DUS Gateway® to manage loan sourcing and acquisition, we have all gained greater efficiencies so that we can focus on doing more business. Now that we created this fantastic platform, we can effectively track our customer service and measure our performance to gain even greater efficiencies for our customers. We will continue to enhance our products and technology in 2016 to help you be more competitive.
WE SUCCESSFULLY MANAGED TO THE VOLUME CAP TO MAINTAIN MARKET LIQUIDITY THAT YOU NEEDED
The $30 billion FHFA volume cap was a challenge, but together with your help, we managed through it and we provided consistent liquidity to the market throughout the year. We anticipate our volume counted under the cap to be close to $30 billion. Working in a capital-restricted environment is the norm for all financial institutions and with the tools and processes we now have in place and by working closely with you to manage our pipelines, we are confident that we will have another outstanding year in managing to the 2016 FHFA volume cap of $31 billion.
We believe 2016 will be another large multifamily debt market for both acquisitions and refis, due to an increase in loan maturities, a robust construction pipeline, and interest rates that are still below their historical averages. As a result, we project the market may exceed $200 billion. Economic fundamentals also are expected to be strong, due to solid demographic trends, lower homeownership rates, and steady job growth. Given these trends, we feel confident about our ability to manage liquidity and meet the demands of the market throughout the course of the year.
WE WILL CONTINUE TO MANAGE OUR BUSINESS TO ACHIEVE A BALANCED PORTFOLIO IN 2016
Our goal has always been to build a balanced portfolio with high credit quality. Credit is always our first consideration when pricing any transaction. Our GSE status requires us to pursue certain categories of business and we look at these segments based on the same sound business principles we apply to all of our decisions. We also focus on continuing to build strong relationships with our loyal borrowers. Managing by these principles, we produce a portfolio that is broadly diversified by asset type, location, leverage level, and borrower mix.
Given that markets are dynamic, we know it is important for you to understand how we view and respond to changing conditions, and we are committed to communicating with you early and often. Throughout the year, we will continue to approach our business in a balanced way -- ensuring that we retain quality credit standards, meet our Multifamily Housing Goals, and obtain adequate compensation for the risk we take.
IN 2016 WE'LL CONTINUE TO BUILD ON OUR APPROACH FROM 2015
We will continue to be your reliable source of financing and securitization for workforce rental housing. We expect our Affordable business will continue to grow, with special emphasis on small loans and green financing. Expanding Lender delegation will remain an important priority and will continue to be a key differentiator of our DUS model. We will continue our work with our priority borrowers, including working to grow our structured transactions business to support their needs and building relationships with new priority borrowers. We will continue our commitment to provide you transparent and consistent communications, including monthly volume reporting, production calls, and weekly e-mail summaries so you will always know where production stands against our volume. We look forward to new ideas and enhancements from our Originator Advisory Subcommittee and the Chief Underwriters Forum. And, we will continue to invest in technology to enhance our platform and increase efficiencies for all of the business we will be doing together in 2016.
Thank you again for choosing us as your partner of choice -- 2015 has been a phenomenal year and 2016 will be even better!