Freddie Mac Announces New Forward Commitment Allowance for Multifamily

Freddie Mac announced that it will increase financing for newly constructed or heavily rehabbed multifamily housing.

“The company will leverage new flexibilities granted by FHFA that allow for more use of forward commitments, which are agreements to purchase loans at a later date with certain financing terms locked in today,” the release said. “The agreements provide greater certainty to construction lenders and housing developers by limiting risks they face when executing complex multifamily deals in volatile markets. Freddie Mac proposed greater use of forward commitments in its Equitable Housing Finance Plan.”

Uncertainly is always a problem in any business, including commercial real estate. The condition creates risks and makes it more difficult for a company to plan and arrange suitable financing.

When inflation is high, construction costs keep briskly rising, and the Federal Reserve keeps pushing interest rates further upwards, the problem can become practically insoluble. Too many factors are up in the air. If the project is for affordable housing, then the issue is even more difficult. A hard limit to how high rents can be leaves no available slack in planning to meet future costs.

The Federal Housing Finance Agency (FHFA) had said that future commitments had to fit within Freddie Mac’s annual product cap, $78 billion for 2022. But now, FHFA said that $3 billion in 2022—just under 4%—was exempted from the cap. FHFA is lifting the previous $500 million cap on forward commitments for properties that don’t come under the Low-Income Housing Tax Credit program.

The Biden administration has discussed plans to increase the affordable housing supply since September 2021. As GlobeSt.com reported then, “The plan calls for federal agencies to boost the supply of quality, affordable rental units by relaunching a partnership between the Department of Treasury’s Federal Financing Bank and the Department of HUD Risk Sharing Program.”

In July 2022, the Treasury Department announced “new guidance” to “increase the ability of state, local, and tribal governments to use American Rescue Plan (ARP) funds to boost the supply of affordable housing in their communities.”

The Treasury noted that it had “encouraged” state and local governments to put some of the $350 billion they could receive under the State and Local Fiscal Recovery Funds (SLFRF) toward development and upkeep of affordable housing units. As experts have told GlobeSt.com on repeated occasions, the continuing obsolescence of older, more affordable housing stock makes it more difficult to close the housing gap.