Fannie Mae has added another tool to its toolkit to further its mission to create and preserve affordable housing units across the nation—the newly introduced Sponsor-Initiated Affordability product.
The product through Fannie Mae’s Delegated Underwriting and Servicing (DUS) model provides better pricing and underwriting flexibility to incentivize borrowers to voluntarily place income and rent restrictions on a minimum of 20% of the property’s units affordable for residents earning 80% or less of the area median income.
“We’ve created Sponsor-Initiated Affordability to provide pricing incentives to help address the shortage of affordable rental housing,” says Fannie Mae Multifamily senior vice president and chief credit officer Charles Ostroff. “Rent growth is outpacing wages, and affordability has become an issue.”
Instead of purchasing a property and raising rents, Ostroff adds that participating borrowers can provide stability and support affordability by giving residents the opportunity to stay in those units and remain in their communities. Borrowers benefit too because their rent rolls are stable and do not see turnover, says Ostroff.
Existing, stabilized conventional properties are eligible, and product benefits include flexible loan terms, competitive pricing, certainty of execution, and speed in processing and underwriting. Loan terms are five to 30 years, with up to 30-year amortization, fixed- and variable-rate options, 80% maximum loan to value, and 1.25x minimum debt-service coverage ratio with the potential flexibility to go to 1.20x. The rent and income restrictions will be documented through the loan documents, and the affordability compliance requirements must be managed by a third-party administering agent and include annual verification of the rent and income restrictions.
According to market participants, Fannie Mae has been working with its DUS lenders to increase the multifamily industry’s awareness of Sponsor-Initiated Affordability and how the incentives work. So far, there has been a lot of industry interest in the product, with four transactions in the pipeline.
