At Fannie Mae, we're passionate about serving the multifamily affordable housing market. We're committed to working with our lenders to provide innovative products, faster decisions, and quicker closings. Because our loans are securitized on a single-asset basis, we can customize solutions for borrowers that meet the distinct needs of an affordable transaction. Our unique risk-sharing model means that a borrower never has to work with a master servicer or a B-piece buyer. We believe in building long-term relationships and we are with you over the life of every loan.
Product innovation is a key component of our Multifamily Affordable Housing (MAH) strategy for 2015, and we've launched several new enhancements over the past few months.
MBS Pass Through Structure for Tax-Exempt Bonds
The Fannie Mae MBS pass-through structure delivers very competitive pricing to borrowers along with the speed and certainty of the Fannie Mae execution. Fannie Mae issues a mortgage-backed security (MBS) that serves as collateral for tax-exempt bonds passing through the interest monthly on a tax-exempt basis to the bond holders. This structure benefits from reduced pricing relative to a standard Bond Credit Enhancement and works really well for tenant-in-place rehab deals.
Fannie Mae's new ARM 7-4 rate option gives borrowers the benefit of a variable rate loan with today's attractive low rates. It has a built-in maximum interest rate (4.00% plus guaranty & servicing fees), eliminating the need to purchase an external cap and offering the added flexibility of a fixed-rate conversion option. The ARM 7-4 is initially available for all properties with 5 to 50 units, and for MAH properties of any size. This option works really well for projects that need a flexible rate option as they work towards resyndication.
Fannie Mae's Preservation Rehab execution provides permanent fixed- and variable-rate financing for qualified borrowers for MAH moderate rehabilitation transactions. Because this execution begins as a cash loan before stabilization and securitization, it offers borrowers greater flexibility to complete the rehabilitation more efficiently. The minimum debt service coverage ratio during the rehabilitation period is 1.0x (on an interest only basis), the minimum occupancy is 50%, and the properties must achieve stabilization within 12-18 months of origination. This execution works really well when the level of rehabilitation requires relocation of tenants for a longer period of time.
Fannie Mae provides credit enhancement for a refunding of existing variable-rate tax-exempt bonds or new variable-rate tax-exempt bonds issued to finance MAH properties. The bondholder agrees to hold the bonds for a specific period of time without remarketing and without a put option, accepting a set spread over the Securities Industry and Financial Markets Association (SIFMA) Index. As a result, there is no liquidity fee. This structure works really well for 80/20 deals.
For more information about the MAH product options, click here and contact your MAH Deal Team.