Earlier this month, Freddie Mac unveiled a new borrowing plan designed to help both property owners and their residents. Freddie rolled out a new Mezzanine Loan program in which borrowers will receive attractive financing by maintaining affordable rents during the life of the loan. According to the announcement on Freddie Mac.com, they also provide capital to fill any gap between debt and equity. This loan is designed to create affordable rental communities, all while providing borrowers with appealing, solid financing.
Freddie Takes Aim at Targeted Goal
According to the official Freddie Mac announcement shared on the company site, the Multifamily head and executive vice president, David Brickman, states that they’re using “industry leadership” to help “create and preserve affordable rental housing communities across the nation.” Freddie has an ambitious goal right off the bat: they’re shooting to finance 50,000 units and keep them affordable every year, just through this new offering alone.
Some of the Mezzanine Loan Details
According to the official statement, possible properties would start with at least half their rents affordable to households earning 100 percent of the area’s median income or less. The borrower then must “keep rents affordable for 80 percent of the units for at least the 10-year loan term.” The Freddie page also mentions their annual rent monitoring to ensure borrower compliance. According to the more detailed information about the mezzanine loan programs, the annual compliance verification consists of checking to ensure that rents are kept at the agreed upon percentage of affordable units. Should borrowers not be in compliance with the terms of the new Mezzanine Loan program and the annual rental check find that rents are higher than agreed upon, the borrower will be assessed a fine until they return to compliance.
The loan program is designed specifically for workforce and affordable housing. It’s available for workforce housing through the Workforce Housing Mezzanine Loan via Freddie’s Multifamily Conventional platform. The loan product is available for affordable housing through Freddie’s Targeted Affordable Housing platform and the Targeted Affordable Mezzanine Loan.
For the Workforce Housing Mezzanine Loan, the program offers up to 90 percent leverage for eligible properties, a combined debt-cover ratio as low as 1.05x, and streamlined simultaneous origination with a 10-year Conventional Freddie Mac loan. Interest rates are available at fixed or floating with best-in-market pricing. Floating-rate Mezzanine loans will not require the purchase of an interest rate cap. The Targeted Affordable Housing loan has many of the same terms: up to 90 percent leverage for eligible properties, combined DCR as low as 1.05x, and a streamlined simultaneous origination with a 10-year Freddie Mac TAH loan. The interest rate terms are the same as the Workforce Housing Mezzanine loan: with both fixed and floating available and no required purchase of an interest rate cap for floating-rate loans.
For the qualified multifamily borrower who intends to have a well-managed property, the Freddie Mac program may provide favorable loan terms as well as appealing affordable rent to workforce and affordable housing via the new Mezzanine Loan program.
