Fannie Mae and Freddie Mac saw their multifamily debt volumes decrease last year as emerging competition began to cut into their market share.

Fannie Mae provided $16.9 billion and Freddie Mac processed about $15 billion in multifamily loan volume last year, with Fannie Mae down about 14.6 percent, and Freddie Mac declining about 9.6 percent compared to 2009. 

Life insurance companies, banks, even CMBS lenders grew more active as the year went on. Freddie Mac's market share, for instance, fell from 37 percent in 2009 to 30 percent last year. Still, the government-sponsored enterprises (GSEs) accounted for more than 60 percent of the overall multifamily debt market combined last year.

“There weren’t a whole lot of transactions in 2010—this was not like 2007 when people were buying a lot of properties,” says Ken Bacon, executive vice president at Washington, D.C.-based Fannie Mae. “So the amount of business we did, and the way that business breaks out, was indicative of the state of the market.”

Specific Segments Trail
For Fannie Mae, the biggest decline was seen in structured transactions, which fell from $3.4 billion to just $800 million in 2010. In 2009, many REITs flocked to the government-sponsored enterprises (GSEs) to shore up debt in large multi-asset financings, but that need abated last year. “The REITs were able to access the private debt markets on their own at attractive levels, so they didn’t really need to come to us for financing,” says Manny Menendez, Fannie Mae’s vice president of lender strategies and relationships. “That was really the major difference in our numbers between 2009 and 2010.”

While larger loans declined, one bright spot for Fannie Mae was in its small loan production, which rose from $2.2 billion in 2009 to $2.4 billion last year. Many banks are only now stepping back into that arena, and Freddie Mac doesn’t have a small loan program, so Fannie Mae has had a cornerstone on that market for the last few years.

Freddie saw growth in the student housing area, notching $800 million in volume last year, up $25 million from 2009. That success appears to come at Fannie Mae’s expense, as its student-housing program notched just $194 million last year. But both companies saw big declines in seniors housing volumes—Fannie’s fell 36 percent to $640 million, and Freddie’s volume dropped about 26.5 percent to $661 million.

Underwriting Outlook
While competitive pressure will drive more borrower-friendly rates and terms this year, the GSEs say that any underwriting changes will likely be incremental. “There’s a lot of discussion in the marketplace about loosening, because the feeling is we’ve hit the bottom and we should be looking a little bit forward,” says Mike McRoberts, vice president of multifamily production and sales at McLean, Va.-based Freddie Mac. “We are looking at some deals south of a 1.25x coverage, but as far as a formal change to underwriting requirements, that’s not in the offing. We won’t compromise our credit principles to address competition.”

Still, McRoberts believes that Freddie Mac will have a stronger year in 2011, forecasting a 15 percent to 20 percent rise in production volume. Bacon says that Fannie Mae is “guardedly optimistic” about 2011, citing recent macroeconomic trends like job growth, stock market movement and consumer confidence. “Vacancy rates have been going down, and we saw an increase in sales activity toward the end of 2010, so we expect that to continue,” Bacon says. “Things were at the bottom and we’re seeing it turn up.”