In a debt financing market flooded with capital, and after accounting scandals led to a sort of suspended animation at the government-sponsored enterprises (GSEs), many lenders say 2007 will be the year the agencies re-engage the market with a vengeance. The GSEs’ recent focus on product innovation and process improvements include the following changes and innovations.
• Lowering debt-service coverage ratios: According to several GSE-affiliated lenders, both agencies are offering more flexibility in their debt-service coverage ratios (DSCRs), beginning mid-2006. The 1.25x DSCR has fallen away, and lenders are reporting that the agencies are even going down to 1.15x, and in some instances, 1.10x. Recently, Freddie Mac has indicated that for acquisition deals with 35 percent equity, it would go down as low as a 1.05x DSCR.
• Extensions of amortization: Lenders are reporting that for the right deals, the GSEs will offer extensions of amortization past the 30-year benchmark, a time span that, in the past, had been pretty much written in stone.
• New products: In October, Fannie Mae introduced a new single-asset substitution feature, which gives the borrower looking for an exit strategy the ability to sell or exchange a property without having to arrange new financing. The product allows borrowers to preserve the original loan terms, and protect against interest-rate fluctuations. Fannie also rolled out a new acquisition-rehabilitation mezzanine product in February, aimed at acquisitions that involved rehab of around $5,000 to $7,000 a unit. Freddie Mac is also ramping up its new product pipeline for 2007. Following last year’s introduction of a moderate rehabilitation product, the firm is planning to roll out an acquisition rehabilitation product aimed at market-rate properties in the first half of 2007.
• Streamlining processes: Both companies have shuffled the administration of their multifamily programs of late. Freddie Mac’s reorganization of its multifamily division is focused on increasing production by streamlining divisions of labor and separating production and sales functions from underwriting functions. In the past, a single contact was responsible for processing, data quality, underwriting and selling the loan, managing the customer relationship, and product development. Fannie Mae also recently created “deal teams” featuring a customer service manager, credit officer, and pricing officer, dedicated to a specific lender. With the new structure, the agency hopes to decrease deal cycle time.
