Agency Lenders Impact on the Market

2015 was a record breaking year for agency lenders Fannie Mae and Freddie Mac multifamily loan programs. Combined, the two institutions purchased an astonishing $89.6 billion of apartment loans. The improving economy and increased investment demand in the multifamily sector has prompted the return of other lenders to the market in a big way.

In 2015 Freddie Mac reported a total volume of $47.3 billion, reaching their $30 billion cap, plus an additional $17.3 billion in exempt loans. Fannie Mae reported a total volume of $42.3 billion without disclosing the sub totals, though it is widely believed that Fannie purchased $28 to $29 billion of loans subject to the cap, with the remaining volume in exempt loans.

For 2016 FHFA has raised the cap to $31 billion each and has instituted a quarterly review of market conditions and volume, which will allow them to adjust caps or exclusions quickly in response to changing market dynamics.

Market turmoil at the start of 2016 has largely caused the CMBS market to hit the pause button. At the same time, with the rapid increase in multifamily values in the primary market and tighter regulatory requirements, banks are beginning to show a tightening of underwriting standards. If private sector financing withdraws further these factors may well prompt the FHFA to raise the caps of agency lenders before the end of 2016.

Existing loans maturing later in 2016 and 2017 will mean continuing demand for financing from the multifamily market. Life insurance companies are well positioned to capture a fair portion of that volume, especially if banks and CMBS continue to pull back.

by Brian Whitney, Commercial Mortgage Banker