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July 21, 2017  

Fannie, Freddie Head to Another Record Year

Fannie Mae and Freddie Mac are on track to set new records again this year for purchases of multi-family mortgages.

Fannie acquired $29.7 billion of loans in the first half, up 34% from a year earlier. And while Freddie’s $19.5 billion of purchases through May was down 19%, according to the latest data available, the agency expects to erase that shortfall over the rest of the year.

“We continue to anticipate another record year in terms of mortgage-purchase activity,” said David Brickman, Freddie’s executive vice president for multi-family business, noting that the agency has a “very robust issuance calendar” for multi-family MBS offerings in the second half.

Last year, Fannie and Freddie combined to purchase $112.1 billion of multi-family mortgages from agency lenders, smashing the previous record of $89.6 billion set the year before. Each agency also set individual records. Freddie acquired $56.8 billion of mortgages, up 20% from the previous record of $47.3 billion in 2015. And Fannie’s acquisitions totaled $55.3 billion, up 31% from the $42.3 billion record set the previous year.

The agencies are benefiting because banks have become more cautious. “There is a void, and it is being filled in large part by Freddie and Fannie,” said Brian Stoffers, global president of debt and structured finance at CBRE.

Jamie Woodwell, vice president of commercial real estate research for the Mortgage Bankers Association, said the agencies’ growing multi-family business can no longer be attributed to a rebound from the downturn. “The growth is being driven by economic fundamentals and the balance between supply and demand, and that’s a good thing,” he said, noting that vacancy rates remain at historically low levels, even if growth in rents and net operating income have slowed.

In the first half, Fannie’s purchases were flat to up from a year earlier in each category, including conventional loans and mortgages on manufactured, senior and student housing, said Hilary Provinse, Fannie’s senior vice president for customer engagement.

Lending is also being spurred by new supply. Provinse said that 400,000 apartments are due to come on line this year, “but we keep absorbing it.”

Both agencies have expanded “green” lending programs, which offer attractive rates and more proceeds to borrowers who install energy- or water-saving devices. For example, Freddie purchased $3.4 billion of green loans in the second quarter, up from $166.5 million a year earlier, when its program was ramping up.

Freddie attributed its slower pace of purchases early in the year to a pullback by borrowers when long-term interest rates spiked following last November’s presidential election.

In recent weeks, the prospect of higher interest rates prompted some borrowers to lock in rates, said Berkadia executive vice president Ernie Katai. Last month, the Federal Reserve raised the federal funds rate by a quarter point and said it expects to make another quarter-point increase by yearend. It also outlined plans for shrinking its $4.5 trillion balance sheet. Berkadia’s pipeline increased by 6% after the announcement, Katai said.

The Federal Housing Finance Agency, which regulates Fannie and Freddie, has set a $36.5 billion limit on multi-family purchases for each agency this year, but loans on affordable and workforce housing and some other categories are exempt, giving the agencies additional leeway.

In the first half, Fannie purchased $15.7 billion of loans subject to the cap and $14 billion of exempt loans. That left the agency $20.8 billion below the limit for this year.