Freddie Mac closed $28.8 billion in new multifamily transactions in 2006, a 10 percent increase over last year’s $26.2 billion, financing about 478,000 apartment units in the process.
The company also is reorganizing its multifamily division while ramping up a new acquisition/rehabilitation product and enhancements to its popular early rate-lock program.
The debt financing market will again be a borrower’s market in 2007, as a flood of capital targets multifamily, forcing Freddie to focus on areas outside of its mainstream programs.
“The volume we’re going to see next year will probably be comparable to this year; I don’t see us growing the business in a big way,” said Mike May, senior vice president of multifamily sourcing at Freddie Mac. “We want to be in competition for all business, but some of the current pricing and some of the current credit is getting to the point where we just want to pick our spots.”
In 2006, the government-sponsored enterprise (GSE) produced more than $12 billion in its flow programs, a nearly $2 billion improvement over 2005, though the targeted affordable housing share of that declined to $800 million, down from $1.1 billion in 2005. The company also nearly doubled production of its structured programs year over year, from around $1 billion to $2 billion in 2006.
Freddie Mac also severely reduced its production of capped adjustable-rate mortgage (ARM) flow financings, from $2.2 billion in 2005 to just $480 million in 2006.
But the biggest gains of 2006 were in the seniors housing sector, where the GSE nearly doubled its mortgage volume from $800 million in 2005 to nearly $1.5 billion in 2006. The seniors housing product, aimed mainly at market-rate properties, including independent and assisted-living properties with a limited amount of skilled nursing, has come to fruition.
“We started on that product a couple of years ago, and the word has gotten out that we’re competitive in that space,” said May. Financing options for the seniors product include conventional fixed-rate, standard, and capped ARMs; Freddie Mac’s bond credit enhancement program; and supplemental mortgages.
In January, Freddie Mac reorganized its multifamily division in an attempt to make both its conventional and affordable housing divisions more competitive and customer-focused.
The reorganization will be centered on increasing production through streamlining divisions of labor, said Mitch Kiffe, who now leads all conventional production and sales efforts for Freddie Mac.
“We’re basically breaking out production and sales functions from underwriting functions,” said Kiffe. The main intent is to “bring more focus to the people in the organization that are transaction-oriented, as opposed to people who are more initiative or product or strategy-oriented,” he said.
The GSE has established an underwriting department led by Mike McRoberts, previously vice president of multifamily structured and affordable sourcing. In his new role, McRoberts will be in charge of all home office and regional underwriting, working closely with the sales functions to help streamline transactions.
“Our structure relied too heavily on single points of support across all areas of the business,” said May. “Rather than giving customers a single person who is a generalist to support your needs, now we’re giving you an entire team of specialists.”
Freddie will also form an offerings and customer management department that will work with the sales and underwriting teams and its customers to address customer needs. The department will also create a terms of business management department, responsible for transaction-level credit and servicing policy, credit support for new product development, and customer compliance management.
New and improved
The basic intent of the reorganization is to make the multifamily division more competitive and customer-focused, as well as “introduce new products and executions in the marketplace, both affordable and conventional, in a more rapid fashion,” said Kiffe.
As an opening salvo, Freddie is focusing on enhancements to its early rate-lock process. “We got some feedback that the competition has kind of caught up, so we’ve been trying to sharpen up the program,” said May.
Shortening cycle time is the goal. “The intent is to speed things up, get to a rate-lock faster,” Kiffe said. “Between the time we’re getting the preliminary information, [the length of time] that we need to authorize a rate-lock is typically five to 10 days. We’d like to speed that up.”
Freddie Mac intends to announce the adjustments in the early part of 2007.
And following last year’s introduction of a moderate rehabilitation product, Freddie is planning to roll out an acquisition/rehabilitation product in the first half of 2007.
While the company doesn’t have any comparable product on the conventional side, “We had one on the targeted affordable side, and we’re using that as the blueprint and tweak[ing] it from there,” May said.