Trepp: GSE Lenders Issuing More Forbearances to Low/Moderate-Income Properties
Coronavirus is hitting hourly paid and low/moderate income workers' wages hard and their property owners are proactively seeking—and securing—forbearance relief to protect against unpaid rent.
Fannie Mae and Freddie Mac are approving more forbearance, modification and extension requests for multifamily and small apartment properties compared to the private sector, according to a new report from Trepp.
More than half of the properties seeking forbearance relief were from small balance loan borrowers, according to Trepp. Small balance loans are typically used to finance apartments with 100 units or less and are commonly leveraged as federal financing support for affordable or rent-stabilized housing, Trepp wrote. Properties financed by small balance loans usually target lower/moderate-income or hourly paid tenants, who have been recently hit hard by business layoffs and closures.
With their tenants’ income unstable, small balance loan multifamily operators have proactively asked for assistance, Trepp reported. Freddie Mac K-series (43.2%) and Fannie Mae DUS (29.1%) programs have issued the majority of forebearances granted to small balance loan multifamily borrowers.
According to Trepp, 1,692 Fannie Mae and Freddie Mac non-securitized and Agency CMBS properties requested or secured forbearances. Those properties back a combined allocated loan balance of $12.8 billion, with nearly 64% of the requests from Freddie Mac financing ($8.15 billion) and roughly 37% from Fannie Mae loan purchases ($4.65 billion). That amounts to nearly 3% of Freddie Mac’s $274.3 billion non-defeased debt and 1.35% of Fannie Mae’s $344.3 billion non-defeased loans, according to Trepp’s monitoring.
Trepp noted the higher rate of forbearance compared to the private sectors stemmed from a federal guarantee to bondholders.
Indeed, in March, Globe St. reported the Federal Reserve purchased at least $700 billion in Treasury and mortgage bonds and cut its benchmark interest rate to zero. The measures were an attempt to soften the economic blow from the coronavirus.
While coronavirus stoked the need for forbearance relief for residential properties, COVID-19 may delay GSE reform. In early June, credit rating agency Fitch Ratings wrote, “The GSEs’ ability to raise the massive amounts of capital that they would likely need to fully exit government control could be further challenged by the grim and highly uncertain economic outlook.”