In many ways, Freddie Mac’s single-family side often overshadows the multifamily division.
But last year, more than one out of every three multifamily mortgages was a Freddie Mac origination. So, when Congress debates the fate of the government-sponsored enterprises (GSEs) next year, the future of the apartment market will very much hang in the balance.
In the interim, Freddie Mac’s commitment to the multifamily industry is growing.
“There should be no doubt that we are strongly committed to it. It’s a highly profitable business that is growing well, where we have an exceptional record,” says Ed Haldeman, CEO of McLean, Va.-based Freddie Mac. “One would be just crazy to think about less emphasis; in fact, we want to bring more emphasis to that business.”
To that end, the company is overhauling its multifamily systems platform, software that was built in the mid-’90s and developed for about 100 loans, or $1 billion of annual business. Seeing as how the company did $16.6 billion last year, the system was in dire need of an overhaul.
“That’s going to make us a lot more efficient and move loans through the pipe more quickly, as well as provide better customer service,” says Mike McRoberts, Freddie Mac’s national head of multifamily underwriting and credit.
Closing the Gap
Apartment financing was always a small slice of the company’s overall pie. And today’s single-family housing crisis—with its accompanying sea of red tape—threatens to overwhelm the agency as it struggles to keep homeowners in their homes.
Despite this, the multifamily side of the business, though smaller in size, outpaces the single-family side in a number of critical ways.
For one, Freddie’s multifamily business is profitable, and its multifamily delinquency rate, at just 15 basis points, is much better than the rest of the multifamily lending community. Contrast that with a single-family business that’s bleeding billions, and has a delinquency rate around 400 basis points (though that’s about half of the industry average).
Last year, the GSEs were responsible for more than 80 percent of all multifamily loans. And while that combined market share is unsustainable in the long-term, the competitive gap between the two companies is closing.
In 2008, Fannie Mae had about 40 percent of the market, while Freddie posted a 27 percent market share—a 13 percent gap. Last year, Fannie posted a 45 percent market share, and Freddie a 37 percent share—an 8 percent gap.
“We believe we are closing the gap, but we’re going to be very prudent in our attempts to narrow that gap,” Haldeman says. “The way we’re going to close that gap is not by broadening out our credit box, but rather by emphasizing our strong management team and the great client relationships they’ve made.”
The GSEs are expected to again dominate the multifamily market this year. But McRoberts said that he’s begun to see more competition enter the marketplace: The company recently lost a deal to a life insurance company, which was bittersweet news. “I was upset about losing it, but happy to see that we’ve got some players back in the market,” McRoberts says. “It’s a really good sign for the marketplace today.”