Fannie Mae wants borrowers to know that mezz is back.

The company has revived its DUS Plus and CI Mezz-Mod Rehab programs, which combine a standard first mortgage with mezzanine financing to achieve up to 80 percent leverage.

The programs have been in limbo for the past year or two, but the company is now dusting them off the shelves, albeit with less generous terms than before the credit crunch. The re-introduction comes on the heels of a similar announcement by Freddie Mac last week.

“When the credit market tightened in late 2008, the viability of these programs, particularly with respect to rehabilitation loans, became strained,” says Manny Menendez, vice president of product development at Washington, D.C.-based Fannie Mae. “For all intents and purposes, we stopped doing mezzanine financing under both programs. But now we see an opportunity. We think the market is starting to turn and that there are selective cases where mezz financing makes sense.”

Basically, the company has updated the program’s terms to align them with today’s DUS underwriting parameters. Before the credit crisis, DUS Plus provided a maximum 85 percent loan-to-value (LTV) ratio, and the CI Mezz-Mod Rehab program maxed out at 95 percent LTV. Now, 80 percent LTV is the max for both programs.

The minimum debt service coverage ratio offered is 1.10x combined, though Fannie Mae said it may go down to 1.05x in some cases.

While Fannie Mae hasn’t yet closed such a loan this year, it is starting to build a pipeline of deals. And so far, the clear trend is defensive refinancing. “There are a lot of refinance situations, where borrowers essentially need to re-margin the loan,” says Tom Eberhardt, director of credit risk management for mezzanine debt at Fannie Mae. “So, the borrower is putting in fresh equity and looking for mezz to help bridge the gap. Those are the kind of deals we’re seeking.”

Defensive refis will likely drive demand in the near term, but the company was clear that such deals were only one part of the rationale behind the re-introduction.

“We’re not just re-introducing this because of defensive refinance opportunities; that’s one potential use, but not the only use,” Menendez says. “We have to keep the options that we offer current, so that when markets shift, we have the right products and parameters to take advantage.”

In essence, there isn’t that much difference between DUS Plus and CI Mezz-Mod Rehab anymore. The main difference is whether Fannie Mae wants to participate in the mezz loan or not. Under DUS Plus, the mezz is solely the domain of RCG Longview, but under the Mezz-Mod Rehab program, Fannie Mae takes a stake in the mezz along with RCG Longview.

While this re-introduction is welcome news for the borrower community, it may suffer in comparison to Freddie Mac’s program, which offers up to 90 percent LTV compared to Fannie’s 80 percent.