WASHINGTON -- The Federal National Mortgage Association is launching a program under which it will provide credit enhancement for refundings and remarketings of tax-exempt multifamily housing bonds and 501(c)(3) bonds now being backed by banks and other private institutions.

Fannie Mae officials said the program is needed because issuers who want to do current refundings of their bonds to take advantage of low interest rates are running into a roadblock: Their current credit enhancers are dropping away and they cannot find other private backers to replace them.

According to Fannie Mae officials, a $6.26 million remarketing in August of the Florida Housing Finance Agency's 1985 Series KK multifamily housing issue served as the pilot deal for the program. But the program itself will not get underway until next year the officials said.

Susanne Hiegel, a multifamily public finance consultant for the association, said Fannie Mae expects to enhance as much as $900 million of bonds under the program.

Most of the bonds that Fannie Mae is targeting for the program were sold before passage of the Tax Reform Act of 1986. At that time, project owners were required to rent at least 20% of the units to tenants earning no more than 80% of the area's median income. Tax reform instituted more onerous restrictions, but by refunding their bonds, issuers can keep the old restrictions in place.

The bonds will be enhanced by a Fannie Mae mortgage-backed security held by the bond trustee. This will give the bonds a triple-A rating, "thereby allowing the bonds to be sold at the lowest market rate of interest," the association said in a statement.

Fanie Mae is stepping forward because "we know that a lot of the old credit enhancers, for a lot of reasons, would like to get out of the enhancement," said Thomas W. White, Fannie Mae's senior vice president for multifamily activities.

Some banks are unable to provide new letters of credit for issuers who want to refund because the banks are constrained by the Federal Reserve's new risk-based capital requirements. Others "are just not in real estate to the same degree" as in the 1980s, White said. "Even if they have the capital, they would just as soon get out of the hassle of [having] these bonds on their books."

John T. McEvoy, the executive director of the National Council of State Housing Agencies, said the Fannie Mae program "is a welcome development because of the scarcity, in fact the virtual absence, of credit enhancement from traditional sources in recent years."

In addition to providing credit enhancement on a deal-by-deal basis, Fannie Mae also expects to work with banks to form pools that would be backed by the association, White said.

Fannie Mae said stabilized properties that meet the association's delegated underwriting and servicing standards are eligible for the program. Properties that need significant rehabilitation or fall short of 90% occupied are not eligible.

In Florida, proceeds o the 1985 deal, originally sized at $9.57 million, provided a loan to the initial project developer, Fisherman's Landing of Temple Terrace Limited Partnership. The partnership used the funds to build a 256-unit apartment complex north of Tampa.

Under the remarketing, for which Little Rock-based Stephens Inc. serve as agent, a Fannie Mae mortgage-backed security replaced the original credit enhancement, a letter of credit provided by First Nationwide Bank.

As explained by Ed Boze, senior investment baker at Stephens, Fannie Mae's participation was crucial because it allowed a new developer to take over the property, which had been acquired in 1991 by First Nationwide after the builder defaulted in 1989.

"In situations like this the bank is often eager to get the project off its books, but potential buyers are not there given the lack of alternative credit enhancers," he said. "In this instance obtaining the Fannie Mae pass-through was the key to bringing on a new developer."

Boze said the new developer, Fisherman's Landing Limited Partnership, a unit of Alex. Brown Realty Inc., helped along the deal by putting up a $3.17 million equity share. This, he said, reduced the size of the bond issue being remarketed, allowing the transaction to meet Fannie Mae's underwriting guidelines.

The remarketed bonds were rated AAA by strength of the pass-through certificate, Boze said.

"We were very pleased with how the Fannie Mae remarketing worked out, and would consider it for other issues," said Mark Hendrickson, executive director of the Florida Housing Finance Agency.

Hendrickson said that he was not troubled that the deal took more than six months to close. " I wish every program that involves a new wrinkle could close so fast," he said.

Boze said there are many other situations similar to the Fishmerman's Landing project, where the original credit enhancers of multifamily bond issues have acquired apartment projects through foreclosure and are willing to sell them at a significant discount from original value.

But until the Fannie Mae program, he said, new developers have had trouble obtaining the credit enhancment.

Boze said the Fannie Mae program will also help project owners who have honored their loan obligations but now face balloon payments triggered by a mandatory bond redemption following prescheduled termination of the credit enhancement policy.

"Many of the banks that have provided the enhancement simply don't want to be in the business any more and are not rolling over their LOCs," he said. "Fannie Mae's credit enhancement program will help deal with this transition."

He said Stephens is working with a developer that faces just this kind of problem with a $12.5 million tax-exempt bond issue sold in 1983 by the Housing Authority of the City of Roswell, Ga., to fund a 340-unit apartment complex.

Boze said the bond issue is currently facing a mandatory tender in March 1994, at which time the original credit enhancement expires.

He said he hopes to soon receive a commitment from Fannie Mae to provide a substitute credit enhancement, permitting a refunding of the Roswell housing bond issue by early February. He said a refunding would also permit a present-value savings on the original transaction.

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