When you talk about the competition between Fannie Mae and Freddie Mac, interest rates are almost always the defining metric.
And indeed, the multifamily industry’s two leading debt sources continue to engage in basis point (bps) wars, like rival gas stations fighting over pennies on opposing corners.
But another key consideration for many borrowers is deal cycle time, and at the moment, Fannie Mae is leading the charge. Lenders and borrowers report that from beginning to end, Fannie Mae now has the quicker execution.
Freddie Mac is well aware of its lagging turnaround times, which have gotten worse as a result of its increasing pipeline. For the first half of the year, the company was processing about $600 million in multifamily deals a month. That figure has nearly doubled to $1.1 billion in the second half.
“We’re slower than we’d like to be,” says Mike McRoberts, national head of production and sales for the McLean, Va.-based Freddie Mac. “We know that’s our No. 1 objective right now because our process has gotten a little bit cumbersome, and when you throw a bunch of volume on it, it’s just going to slow down the pipe.”
A few years ago, the company’s early rate lock program could lock a rate in just a few days, “but it's probably getting into the one- to two-week timeframe,” McRoberts says. “We’d like to be able to lock rates from receipt of all the information we need, within one to three days.”
Plan of Action
The company is taking several steps to quicken its pace. In the short term, Freddie Mac is streamlining its internal documentation to eliminate redundancies. The company currently prepares several different briefs and reports for each loan in the system, making it a longer process for reviewers and approvers.
“We have to change, so that there’s one document that just builds as the process goes along,” McRoberts says. “That will have a dramatic impact and we’re going to implement that pretty quickly.”
And next year, Freddie Mac hopes to roll out a new internal underwriting system that it’s been working on for two years with software developer North Shore Systems. The company’s present system, built in the mid-'90s, is heavily segmented and inefficient.
“We’ll tie together all the systems within Freddie Mac, as opposed to going to our pricing system, then to the underwriting system, then a different part of the underwriting system, then to legal,” McRoberts says. “A lot of different silos will all be encapsulated into one.”
The company also hopes to throw more resources at loan production, partly by moving some folks over from the asset management side of the house or through new hires.
Battle for Big Borrowers
Fannie Mae reorganized its multifamily division earlier this year, separating its division into borrower and lender channels with the hope of making its process more efficient and competitive.
In the past, Freddie Mac had a competitive advantage in borrower differentiation—that is, working with the industry’s largest premier borrowers to win their business—while Fannie’s delegated model didn’t lend itself well to that segment of the market. But thanks to its recent reorganization, Fannie Mae is now taking some large borrower market share from Freddie.
“Fannie Mae’s large loan initiative has really made an impact,” says John Cannon, executive vice president at Horsham, Pa.-based Berkadia Commercial Mortgage. “But the pendulum always swings back and forth, and I’m sure Freddie will address it.”
For its part, Freddie Mac said it wouldn’t respond in a dramatic way, but rather emphasize its steady approach. “We feel like we work consistently with our borrowers, we’re a reliable source of funds, we’re very long-term relationship-oriented,” McRoberts says. “There may be some things we can do for the bigger players in terms of speed and processing relief and documentation relief, and we may do that.”