In an effort to compete more effectively with the conduit market and to grow its lending portfolio to include smaller, riskier deals, Freddie Mac has reorganized its multifamily division.
“We're moving away from a structure similar to the life insurance model, where one producer does everything—processing, selling, underwriting, and product development,” says Mike May, senior vice president of multifamily sourcing for McLean, Va.-based Freddie Mac. “We need a business model that will allow us to expand into riskier assets and also allow us to offer portfolio execution.”
The division has been split into several different groups including production, underwriting, and processing. Additionally, two groups have been created: the offerings and customer management department, which addresses customer business needs; and the terms of business management department, which is responsible for transaction-level credit and servicing policy, credit support for new product development, and customer compliance management.
“My impression is that Freddie Mac found that it was not doing as much business as it felt it should be doing,” says Lawrence Stephenson, executive vice president and director of capital markets for NorthMarq Capital, one of Freddie Mac's correspondent lenders. “So, Freddie Mac is trying to take a lesson from its competitors and is following a very proven business practice that the conduits use.”
May acknowledges that Freddie Mac has previously focused on bigger, higher quality assets, but he notes that the organization needs to expand its market share. To do that, he says, it must go where the market is heading. “We plan to start expanding in the small loans space—less than $5 million—and also expand our credit box and push the loan-to-value,” he explains.
May notes that Freddie Mac currently keeps most, if not all, of its loans on its balance sheet, but it plans to do more securitizations in the future. “We did one securitization last year to start to learn the process, and we're going to continue to build that capability and then start moving in that direction,” he says, adding that the organization will substantially enter the commercial-mortgage-backed securities market, or CMBS, in 2008.
“Freddie Mac has a very large appetite for multifamily investment, but there's only so much that can come through the traditional funnel of the Program Plus,” points out John Cannon, executive vice president with Horsham, Pa.-based Capmark Financial Group. “To satisfy that appetite, Freddie has to go the route of CMBS.”
As part of the reorganization, Mitchell Kiffe will lead the production and sales group, which will be responsible for deal negotiation, price quotes, and commitments. Freddie Mac's managing regional directors will remain the lead contacts for customers in the negotiation and execution of deals, and a team of regional underwriting and home office sales and underwriting staff will support them.
Kim Griffith will head up the affordable sales and investments groups, which handles deal negotiation, price quotes and commitments for affordable business. This group will also be supported by regional underwriting and home office sales.
Mike McRoberts will be in charge of Freddie Mac's new multifamily underwriting department, which is responsible for credit decisions. The underwriting department is teaming with the sales functions to make transactions fast and seamless.
Daryl Hall will continue as head of asset management, supporting Freddie Mac's increased focus on new and specialty products while finding new ways to streamline portfolio servicing operations.
“Our hope is that Freddie Mac's reorganization will be a benefit to the industry,” says David Cardwell, vice president of finance and technology for the National Multi Housing Council. “They're trying to improve their execution. If they can do it, it's a good thing.”
