Diverse Loan Options: The Best Bet to Beat the Affordable Housing Crisis

“Every affordable deal that makes sense, let’s try to get that done.” That is the way that Steve Johnson describes Freddie Mac’s affordable housing philosophy. The interim head of production and sales who oversees the affordable business says the GSE is projected to have its biggest year yet in the space. It’s due to a combination of insatiable demand, abundant capital resources and the agency’s expert execution.

“The pandemic proved the quality of our execution. There is an affordable supply problem, but there are also state and federal mechanisms that provide additional support for affordable housing,” Johnson tells GlobeSt.com. “So the affordable business didn’t slow down at all — and performed quite well through the pandemic.”

Critical to the business is a diverse array of loan products that provide liquidity across the affordability spectrum, from Low-Income Housing Tax Credit (LIHTC) properties to workforce housing and everything in between. The availability of capital along with smart execution is key to pushing affordable housing deals across the finish line. “The better you are at this, the more likely that customers are going to want to work with you because you understand the complexity. That is a big part of this. It isn’t all about price; execution absolutely matters,” says Johnson.

Freddie Mac is committed to the best execution. The agency is an established leader in the affordable space, and it understands the nuances of affordable deals. “There are challenges in getting these deals done. The cycle time and the commitment of resources is real opportunity cost. Every deal is a little bit different, and you have to be able to understand the difference and assess the risk differently, and still get it through in a cycle time that makes sense,” says Johnson, explaining that Freddie Mac tailors its underwriting to each specific deal. “Deals don’t always pencil the same way. And it’s important to have a variety of products to support the space.”

Freddie Mac is addressing supply-side challenges, too. While the agency doesn’t offer construction lending, it does have a construction take-out product, a forward commitment, that lets borrowers lock in pricing and a rate in advance of construction. This works for both deals with and without tax credits, and provides a liquidity bridge through stabilization to support the creation of affordable housing. It doesn’t stop there. Freddie Mac also has tax credit and affordable preservation products.

“We are actively driving the creation of new supply while also seeking opportunities to preserve, and rehabilitate, the aging affordable housing stock. But there’s more to be done, and we’ll continue to pursue creative ways to use our forward commitment product. Frankly, it’s exciting because we can focus on the ultimate debt take-out while banks can use their tremendous depth of experience in construction lending,” explains Johnson. “To me, it is a symbiotic solution for supply.”

While the economics always have to make sense to inspire a deal, Johnson believes the response to the affordable housing crisis must be fluid. It requires a diverse breadth of loan products, certainty of execution and specialized expertise. “You need above all the experience, the right products, and a reputation based on sound execution,” he explains.  “Working with our Optigo lenders, we have the tools to drive business forward and make a real impact for renters nationwide.”