Hyman relates that the characteristics of agency financing also make it more appealing to borrowers, particularly in these uncertain times. For one, he says, the seller-servicer for the loan sticks with the borrower for the life of the loan. "In the case of Fannie Mae, we also share in the credit risk," he adds. "Contrast that with the relatively low value that Wall Street put on servicing. Many borrowers grew very dissatisfied with the level of service they would get from the primary servicers on conduit loans." Also with agency loans, the borrower can come back several times to obtain supplemental financing, which was very difficult to do with a conduit.

[IMGCAP(3)]The agencies have also tweaked their programs to be more effective. Hyman points out that both Wall Street and the agencies "have really streamlined their process and their upfront due diligence procedures, so now it's possible to lock a rate on an agency loan virtually at application. You couldn't do that a few years ago." There has also been an adjustment for rehabilitating permanent financing, Hyman explains, "In the past year and a half, both Fannie and Freddie have introduced acquisition rehab programs, and they're giving borrowers the ability to get five or seven-year loans that are fixed rate and non-recourse on properties that were in transition. That expanded the credit box a little bit so that borrowers could tap the agency loan programs on non-stabilized properties."

There's no doubt the agencies have upped their activity on the multifamily front. Fannie Mae multifamily production volume, which includes debt financing through lender partners, investments in Low Income Housing Tax Credits through syndication partners and multifamily bond purchases, reached a record $60 billion last year. Through its rehab product, meanwhile, the locally-based firm funded $180 million in mezzanine loans in 2007, and an additional $1.7 billion in DUS permanent loans.

Daniel H. Mudd, Fannie's president and CEO, indicated earlier this year that the firm's multifamily guaranty business is also stepping up. "As commercial investors pulled back, our multifamily business grew by 10% last year," he stated. "Second, within our mortgage portfolio and capital constraints, we're purchasing multifamily and other mortgage assets from other segments of the market that need liquidity as loans currently on our books pay off and roll off."

Freddie Mac invested $44.7 billion in new multifamily business last year, marking a 55% increase over the $28.8 billion it clocked in the prior year. And like its counterpart, Freddie has introduced products tailored for new acquisition, rehab and upgrades, having already funded $700 million under the new flexible terms.The firm's CEO, Richard F. Syron, has indicated that "multifamily will play a bigger role going forward" for the McLean, VA-based company.

"We provide value in all market environments and are in this market for the long term," adds Mike May, senior VP of multifamily sourcing for Freddie Mac. "The mid-year exit of conduits from the market drove a significant increase in conventional loans to Freddie Mac at a time when we were managing some of the largest and most complex pool transactions in our history." Those include a $2.8-billion tax-exempt bond securitization execution with Centerline Holding Co. and the purchase of two pools of floating rate mortgages totaling $1.8 billion and the assumption of an additional 15 mortgages with Archstone-Smith.

Still, the executive admits Freddie did take some financial hits in this tough market. "Our situation reminds me of that old Timex commercial: we took a licking, but kept on ticking. And because we did, we were there when [the multifamily market] needed us most," he says.

However, the agencies have certainly become more discerning in what exactly they will finance. Harvey E. Green, president and CEO of Marcus & Millichap Real Estate Investment Services Inc. "Freddie and Fannie are going to be very careful about expanding their feet on the street," he says. "They've been able to gain market share and have been pretty aggressive in the marketplace."

Now, the executive says, they're moving on to better-quality assets, are not as aggressive today as they were late last year and are tightening their underwriting standards. That, he adds, typically translates into lower loan to values.

The firms themselves have said just as much. "We want to encourage a market return to sound underwriting and rational pricing--principles that have faded during the credit explosion of the housing boom," says May. "And so, you have seen us raise prices and tighten credit in recent months. These are not popular things to do, but our moves reflect a big reality for many financial companies today: higher costs for capital and credit-related expenses. And Freddie Mac is not immune from these trends."

Still, he maintains that the firm will continue to be aggressive in the market, attracting more business: "I do not want to see a repeat of the last market cycle, when we lost relevance."Next week, GlobeSt.com examines how firms are responding to the shift, and the potential implications for the greater capital markets.