Congressional arm-twisting may have been the reason for Fannie and Freddie's recently renewed interest in the residential multifamily market. But while the GSEs tinker with and remold their programs, investors and lenders are finding that wider yield spreads and tax incentives are making multis more attractive anyway.

"The last few quarters have hurt in multifamily because of low [interest] rates," said David Lereah, chief economist for the Mortgage Bankers Association. "Vacancy rates have remained high because renters have been able to become home buyers, which doesn't portend well for [mutlifamily] activity. But there does seem to be some trend toward private conduits, so that does suggest there is some activity."

Lereah said private conduits are attracted to multifamilies because of their higher-yield spreads, particularly deals that minimize risk using credit enhancements, like Fannie Mae's recent deal with Daiwa Securities America.

He said he expects multifamily securities based on multifamily collateral to become more popular in 1994.

The low-income housing tax credit should also help spur construction of multifamily units, particularly in the Northeast, he said.

More than $24.7 billion in residential multifamily originations were recorded from July 1992 to June 1993, according to a HUD survey of lenders. Most came from commercial banks, $13 billion; savings and loans, $6.7 billion; and life insurance companies, $1.6 billion. The rest were distributed among mutual savings banks, federal credit agencies and life insurance companies.

Mortgage bankers have also been heavy originators, tallying $1.1 billion during the first six months of the survey. The remaining six months are still being compiled by the MBA.

But most of those originations were still done in the private market. Fannie Mae, which has reported $1.9 billion in 1993 multifamily commitments through October, is on pace to exceed $2.3 billion. Freddie reported that it expects to have about $100 million-worth by year-end. Both agencies hope to parlay the elements that attract lenders and investors in the private market into theirs.

Freddie climbed back into the saddle of the multifamily horse that threw it in the 1980s with the full-fledged re-entry to the market it announced Nov. 26 - this time with strict restrictions on who it will buy from and under what terms.

When it suspended its multifamily program in 1990, Freddie's losses had soared to more than $500 million, generating more than half of the agency's total losses, this despite the fact that multifamily mortgages made up only 3% of its portfolio.

Now ready to commit $2 billion to its revived program, Freddie will require all of its purchases to be through its licensed Program Plus lenders in specifically designated market areas. Each loan will also have to be at a fixed rate with a debt coverage ratios of 1.30 or better, loan-to-value ratios of less than 75% and with terms between five and 25 years.

Freddie's cautiousness with multifamilies may eventually give way to more complicated structures. such as Fannie's new Alternative Credit Enhancement Structures deal with Daiwa Securities America announced Nov. 29.

The $155.9 million deal creates a Fannie mortgage-backed security originated through Daiwa's multifamily conduit and the transaction provides credit support to Fannie in return for guaranteeing the MBS.

The security uses a senior/subordinate structure and loans originated through Daiwa's conduit were swapped for Fannie MBS pools. As the securities were created, some were designated to be subordinate to provide credit enhancement to the remaining pools. That maneuver strayed from Fannie's normal practice of creating multifamily MBS pools, then requesting subordination from the originator in the form of cash or securities unrelated to the deal.

Fannie said it expects this multiclass structure to increase the funds available for affordable housing by giving portfolio lenders more options to package loans-for-sale on the secondary-mortgage market. The credit support was designed to be marketable to investors who typically buy subordinate classes of other mortgage-backed securities.

Conduit loans exchanged for MBSs in the ACES structure are being used to create a multifamily Remic, the first in an ongoing program, said Paul Nidenberg, managing director in the mortgage and asset-backed securities group at Daiwa.

Fannie upped its ante through a new ACES program with Daiwa Securities that could be attractive to portfolio lenders.

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