Risk. How to manage and mitigate it is a top priority for any finance company. When that company happens to provide more than $73 billion in multifamily mortgage funding over a single year, it’s safe to say they’ve honed their risk-reduction skills to a fine science.
Debby Jenkins is an expert at applying that science on behalf of Freddie Mac. As the senior vice president of underwriting and credit at Freddie Mac Multifamily, she leads a team that is instrumental in helping the company’s multifamily business maintain a default rate that consistently hovers around zero, averaging 0.02% in 2017. And they do so while doing everything they can to improve access to safe, affordable housing in this country.
How does Freddie Mac do it? How do they abate risk without sacrificing multifamily funding liquidity, stability, and affordability? Jenkins recently sat down with us to share her views.
How is Freddie Mac able to maintain exceptionally low delinquency rates? What’s your underwriting philosophy?
Our underwriting philosophy aims to strike a balance that maintains our high credit quality standards while still providing the best customer service to borrowers and investors.
We’re unique among our competitors in that we employ a model known as “prior approval.” That means we underwrite every loan before we commit to financing it. It’s the key to our low delinquency rate. Prior approval means a Freddie Mac underwriting team performs due diligence and approves every transaction prior to loan commitment. We’re directly involved in each loan.
Tell us more about how Freddie Mac helps shield taxpayers from substantial risk.
In the first quarter of this year, 90% of the model capital that would be needed for credit risk was transferred away from taxpayers and assumed by private investors. From the underwriting and credit process to the origination of a loan and through the risk-transfer process, we strive to maintain transparency in providing information that enables us to transfer the vast majority of risk away from the taxpayer.
How important is local market understanding in your underwriting process?
While our underwriting platform is nationally based, we have regional and field offices across the country. Local Freddie Mac professionals know the submarkets and our underwriters actually see the properties there. That localized model is key to maintaining our level of expertise and market knowledge. For example, before we issue a quote on a potential transaction, one of our people can visually inspect the property. We maintain a high level of hands-on attention.
How does Freddie Mac’s credit philosophy serve multifamily developers’ and investors’ best interests?
Our credit philosophy is directly in line with our overall mission of maintaining liquidity, stability, and affordability in the U.S. housing market. Each day, we challenge ourselves to do more to improve access to safe and affordable rental housing. We make sure our products are targeted toward creating and sustaining workforce housing for low- to very low–income renters.
What aspect of your service might surprise a private investor?
If we’re surprising investors, we’re not doing our job. Our goal is to avoid surprises through funding detail and transparency.
