McLEAN, VA—Freddie Mac has launched a tax-exempt loan program for affordable housing development that is a variation on the 4% Low-Income Housing Tax Credit execution.
Essentially this is how it will work: a Freddie Mac Targeted Affordable Housing seller or servicer, typically a lender, will make a direct loan to a government entity such as a city, county or state housing authority in exchange for a tax-exempt note.
Freddie Mac will then purchase the tax-exempt loan from the seller. The city, county or state housing authority that issued the note then lends the loan proceeds to a borrower to finance a multifamily housing community that has affordable rents.
To be sure, this is not a new product in the market—direct placement of bonds and loans for affordable housing have been around for a while and in profitable times are particularly popular with banks eager to sweep up CRE credits.
The GSE's new program shares with the rest of the industry the goal of furthering affordable housing development. However, it is proposing to do so via an intriguing twist: it expects it will significantly trim the costs associated with such placements.
"We have wanted to do something like this for a while because we believe it lowers costs," Shaun Smith, senior director, Targeted Affordable Production with Freddie Mac, tells GlobeSt.com. With many 4% LIHTC bond executions, costs can run up depending on the number of players involved, she says.
"Because this is a direct placement with us, instead of the purchase of credit-enhanced bonds," it is less costly and more efficient, Smith says.
Smith says the GSE has calculated it could bring down costs with a transaction by 40%. "From one recent transaction we estimated the savings to be 4 basis points or $400,000."
Freddie Mac Multifamily plans to purchase from its Targeted Affordable Housing lender network these multifamily tax-exempt loans. It hopes to purchase between $200 million to $300 million this year, she says.
Then will follow the second part of this initiative: the GSE plans to aggregate these tax-exempt loans and securitize them though a M-Deal structure. The GSE hopes to launch an M-Deal by year-end, Smith says.
Come back later this afternoon as we provide more details about the new M-series.
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Also check in with us on Monday as we reveal the results of our GlobeSt.com poll on affordable housing
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
