According to a Wednesday, May 6th article in Bloomberg, the Federal Housing Finance Agency is planning on lifting the current $30 billion annual cap on multifamily residential loans by Fannie Mae and Freddie Mac to prevent a slowdown in apartment construction. The Bloomberg sources say the FHFA will inform the companies later this week of its plans to loosen the limits it set back in January.
More on FHFA lifting multifamily loans caps for Fannie Mae and Freddie Mac
Analysts point out that without an easing of the current cap, Fannie Mae and Freddie Mac could have to stop making loans in the second half, resulting in higher costs to borrowers and less available credit in the multifamily sector. Moreover, Fannie Mae may also need to reduce sales of loans to investors.
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The Bloomberg sources noted that FHFA officials discussed a number of options for loosening the limits during the month, in particular, increasing the limits by $5 billion each. The housing agency is also mulling the idea of widening the criteria to make additional mortgages exempt from the current $30 billion limit.
The multifamily/apartment business for Fannie Mae and Freddie Mac jumped 400% through April from one year prior, driven by low interest rates and increasing demand for rentals. Freddie Mac signed off $10 billion in multifamily loans in the first quarter of this year, and Fannie Mae finalized $10.4 billion for the three-month period.
In the U.S., total commercial mortgage lending soared 49% in the first quarter year-over-year, according to data from the Mortgage Bankers Association. Moreover, multifamily mortgages were up by a scintillating 71%.
Statement from analyst
“Our sense is that the current situation is unsustainable as the lack of market clarity will ultimately have an impact on multifamily credit availability,” commented Isaac Boltansky, a policy analyst at Compass Point Research & Trading.
Fannie and Freddie also boosting interest rates
Willy Walker, the CEO of multifamily lender Walker & Dunlop, says that Fannie Mae and Freddie Mac have recently begun boosting their costs of borrowing, which will probably cause business to shift to private lenders.
“Freddie and Fannie got ahead of themselves, and now they’re trying to temper themselves by raising their rates,” Walker noted.
Freddie Mac increased the costs on its 10-year mortgage on four occasions in April, according to Walker & Dunlop data. Freddie Mac’s floating-rate loan was up 62 basis points from April 1st to May 1st.
Of note, Fannie Mae’s multifamily loans also became more expensive. The spreads on its 10-year mortgage were up a total of 45 basis points from late March to April 30th.