The GSEs’ 2021 Market Caps Could Mean Scarce Market-Rate Capital By Yearend

Last month, the Federal Housing Finance Agency announced $70 billion in multifamily lending caps for Fannie Mae and Freddie Mac in 2021. In 2020, those caps were $80 billion each for Freddie and Fannie.

At least 50% of the GSE’s loan originations must be dedicated to affordable housing, which is an increase from 37.5% in 2020. The caps apply to the four quarters in the 2021 calendar year, compared to five quarters totaling $100 billion in the previous cap, according to Marcus & Millichap.

The new lending caps come with a mandate that at least 20% of Fannie and Freddie multifamily lending target affordable housing for residents at 60% area median income or less. This ensures that the agencies will continue to finance communities for residents most in need of affordable housing options.

FHFA also revised the definition of affordable housing as well. The property must be affordable for residents at 80% of area median income or below to qualify as affordable housing. The agency included special provisions for rural housing and manufactured housing communities. In rural communities, affordable housing must qualify residents making 100% of the median area income.

Fewer Deals, Scarce Market-Rate Capital 

Now that we know what the GSEs’ 2021 mandate will be, the next question is how will these new caps affect multifamily lending? 

Marcus & Millichap thinks there could be fewer deals in 2021. It expects wider spreads, opening up the market and making insurance companies, banks and commercial mortgage-backed securities (CMBS) lenders more competitive. It thinks those lenders could be especially competitive on better-quality product with loan-to-values up to 70 percent as fewer banks play in the space of $50 million and up.

Marcus & Millichap anticipates that the GSEs will likely accelerate buying small balance loans, affordable housing products and Low-Income Housing Tax Credit deals.

Capital for market-rate housing could be scarce by the end of the year. Because of that, Marcus & Millichap recommends that borrowers who want to refinance higher-end housing start the process early in the year.

With deals at 60% AMI or below, Marcus & Millichap says that investors may have more leeway with timing. It notes that the FHFA has considered deals outside the cap that fulfill its affordable housing mission in the past and will probably do some again.