The FHFA's Generous Cap Exclusions

Presumably the additional $15 billion was the result of the Federal Housing Finance Agency's broadening of the categories that could be excluded from cap last year, allowing Fannie Mae and Freddie Mac to underwrite more loans for affordable housing and senior housing. deals. In previous years, the FHFA added exclusions for small properties and loans to manufactured housing rental communities.

For 2016, the $30 billion cap remains in place, but more exclusions were added: loans for low-income apartments in rural areas and loans for energy efficiency improvements that meet its eligibility criteria. The latter suggests that Freddie Mac may well roll out a viable loan program for energy efficiency.

Nonstop Demand for MF Product

Besides the exclusions, the driver behind Freddie Mac's loan and securitization activity is what Brickman describes as a structural change in consumer preferences for housing. Simply put, the US is becoming a nation of renters for various reasons. These include tightening mortgage requirements and the changing living preferences of several age groups including Millennials and Baby Boomers. It is also becoming apparent that at a portion of these people will be content to remain apartment dwellers indefinitely, Brickman says. How else to explain the increasing supply in the nation's apartment pipeline that continues to get absorbed year after year, he adds. "The question has been, 'is the demand for multifamily a flash in the pan?'" he explains. "But I look at the numbers and see permanent changes in the rental markets."

Freddie Mac's Goes to Market Again and Again

At bottom, it is this demand that is bringing Freddie Mac to the market again and again and again. It is financing new products such as the aforementioned small multifamily and manufactured housing products as well as, more recently, the two offerings it just debuted for workforce housing.

And it is also taking care of its bread-and-butter offerings. This month, for example, it has priced 1) approximately $1.25 billion in K Certificates 2) another $1.5 billion in K Certifications but backed floating rate multifamily mortgages with 10-year terms. It also brought to market in November another $312.6 million in K Certificates, a K-VAD deal, backed by 10 properties in Dallas, Texas, called the Village Apartments Dallas.

Freddie Mac is the special servicer on this latter transaction and a few other similar deals. As an aside, Morningstar Credit Ratings reported that as of June 30, 2015, Freddie Mac's active special-servicing portfolio consisted of 27 loans with an unpaid principal balance of approximately $262.7 million.

More Losses Coming? A Hint

Its special servicing portfolio for multifamily is very small for its overall transactions, but Freddie Mac does have problems with its balance sheet. The GSE reported a $475-million third-quarter loss -- its first in four years -- that opened the possibility of a capital infusion by the US Treasury. The loss hasn't affected lending, however, and FHFA Director Melvin Watt said he was not worried about the GSE's overall viability. The loss was due to fair value losses on derivatives that it used to hedge its interest rate risk and as Freddie Mac CEO Don Layton took pains to mention, more than once, during the Q3 earning's call, this loss was only 28% of the allowed capital reserve of $1.8 billion, which means a draw from the US Treasury is unlikely. And while he didn't exactly connect the dots, Layton also noted that "as a broad generalization, we will have an accounting loss if rates decline and a gain if rates increase."

In other words, questions about Freddie Mac and Fannie Mae's financials would better be posed to Federal Reserve Chair Janet Yellen.