Agency Lending: Updated Guides, New Caps for 2023

Fannie Mae and Freddie Mac (the Agencies) recently released updated Multifamily Guides which included a few changes for lenders and borrowers. In addition, the Federal Housing Finance Authority (FHFA), has reduced agency lending caps and revised some definitions related to affordable housing, affecting which loans will qualify as “mission-driven.” Read on for a summary of these recent changes.

FHFA Cap Reduction and Revised “Affordable” Definitions

In anticipation of a contracting multifamily market, FHFA has reduced lending caps from $156 billion in 2022 to $75 billion per Agency for a total of $150 billion in 2023. Their 2023 multifamily cap fact sheet states, “The FHFA anticipates the 2023 cap levels to be appropriate given current market forecasts; however, FHFA has been and will continue to monitor the multifamily  mortgage market and will update the multifamily cap and mission-driven minimum requirements if the data shows changes in the market that warrant adjustments. However, if FHFA determines that the actual size of the 2023 market is smaller than initially projected, FHFA will not reduce the caps.”

As it did in 2022, FHFA requires that at least 50% of Agency lenders multifamily business be “mission-driven affordable housing.” For 2023, it has revised certain requirements to meet “mission-driven” standards:

• FHFA has removed the requirement that 25% of the Agency multifamily business be affordable at 60% of AMI or below.
• To encourage financing of “properties with rent or income restrictions affordable at levels that meet market needs,” FHFA has created a new category focused on preserving affordability in workforce housing. This is intended to support residents living closer to places of employment, hospitals, and schools.
• To streamline mission-driven definitions but keep the focus on affordability, loans on senior housing and small, five- to 50-unit multifamily properties will now be included in the “Other Affordable” category.
• In 2023, loans to finance energy and water efficiency improvements will qualify as mission-driven at properties with units affordable at or below 80% of area median income (up from 60% of AMI in 2022).

Freddie Mac Changes Seismic Report Requirements

Freddie Mac’s guidance documents, updated in December 2022, reflect changes to seismic report requirements, including some important construction date changes that will capture more properties under Level 1 seismic reporting requirements.

Most of the revisions add clarification but do not alter what would typically be required in a Seismic Risk Assessment (SRA).  However, a few material revisions based on age, building types/configuration, and/or other aspects newly classified as seismic risk factors will trigger Level 1 SRA requirements for properties that might not have previously required that level of seismic assessment.  Other important revisions include timing of reports and expanded coverage requirements for retrofitting and non-structural items. Minor clarification was also provided regarding USGS mapping for Alaska and Hawaii.

Here’s a list of the more impactful revisions:

1. Reports must document the sufficiency of non-structural elements including natural gas seismic shut-off valves, bracing and anchorage of secondary building systems, such as mechanical equipment and ceilings. The Consultant must provide photographic documentation that characterizes the Property’s overall construction and configuration and that identifies specific vulnerabilities or signs of physical distress.
2. Should non-retrofitted unreinforced masonry (URM) buildings be present on-site, the report should provide discussions of typical retrofit schemes and budget estimates for consideration.
3. For wood-framed buildings constructed prior to 2000 with tuck under parking, the Guide now considers a “Tuck Under” scenario for properties that have commercial/retail units under residential dwelling units regardless of whether there is a retrofit. This is also included to re-affirm the “weak or soft-story” building design scenario.
4. Concrete and CMU buildings constructed prior to 2000 require Level 1 SRA (previous cut-off was 1994).
5. All wood-framed buildings constructed prior to 1960 require a Level 1 SRA (previous cut-off was 1950.)
6. Buildings with wood-framed construction over a concrete podium structure constructed prior to 2000 require a Level 1 SRA (previously 1994).

Change to Fannie Mae PCA Interview Requirements

Regarding Property Condition Assessments (PCAs), Field Observers were formerly permitted to interview residents/tenants with the permission of the property owner. Per the December 2022 update, resident interviews are no longer permitted. Field Observers should make reasonable efforts to interview the maintenance supervisor and the on-site property manager. If property management is not available for interview, this should be noted as a limitation in the PCA report. Furthermore, Field Observers should not discuss property condition during casual interactions with tenants, unless property condition issues are raised by the tenant.