Freddie Mac is focusing on both the beginning and end of a loan’s life cycle to help lenders and borrowers get through the credit crisis.

The McLean, Va.-based company has started a new pilot program to help its lenders access warehouse lines of credit. At the same time, Freddie Mac has kept its delinquency rate among the lowest in the industry through a number of portfolio management strategies.

The pilot program to expand warehouse lines of credit will be done in conjunction with warehouse lender Natty Mac, a Guggenheim Partners company. Freddie Mac will basically provide a guarantee to Natty Mac, and Natty Mac will enter into a separate agreement with lenders who need the extra capacity.

“There’s a lack of liquidity in the marketplace, especially for the smaller and midsized Seller/Servicers,” says Patti Saylor, Freddie Mac’s vice president of offerings and customer management. “Warehouse lines have decreased over the past two years, the fees have been dramatically increased, and the few that are still out there tend to not take on new customers.”

Non-depository mortgage bankers rely on warehouse lines of credit to fund the loans they eventually sell to Fannie Mae and Freddie Mac. The warehouse credit funds the loans while they sit on a company’s books, before they are sold to a government-sponsored enterprise (GSE). 

But over the last two years, nearly 90 percent of the warehouse lending capacity has exited the market, according to the Mortgage Bankers Association. Since March, two leading warehouse lenders, Guaranty Bank and PNC/National City, have announced plans to exit the market. Saylor estimates that about a third of all multifamily Seller/Servicers will need to take advantage of the pilot.

In the past, a lender would hold a Freddie Mac loan on its books for about a month before selling it to the GSE. But over the last two years, as access to warehouse lines deteriorated, the company began making more exceptions, expediting the sales to free up credit lines so that lenders could make more loans.

The pilot is good news for borrowers as the program expands the capacity of some Freddie Mac lenders, giving borrowers more options and giving lenders the freedom to make loans without fear of temporarily bloating their books.

Oddly, Fannie Mae declined to comment when asked if it would have a similar program for its lenders.

Staving off losses

Meanwhile, Freddie Mac has launched several portfolio management techniques to keep its delinquency rate in check. The company is extending maturities, providing market refinancing terms, and even lowering the balance of existing loans in some cases this year.

“They all require a recommitment to the property, where borrowers have to come up with some cash either for repairs and maintenance, or to pay down the balance of the mortgage,” says Daryl Hall, head of Freddie Mac’s multifamily asset management division.

The company also offers short-term floating-rate financing to help borrowers steer through the recession, though there are a lot of requirements to the program. Freddie Mac captures the property’s cash flow, and requires full replacement reserves and extra cash to be pumped into the property. “But it gives someone an option, other than us trying to foreclose on a property that’s cash-flowing,” says Hall. “It buys them a little bit of time to get through the downturn.”

Freddie Mac’s delinquency rate of 0.15 percent is far below the multifamily delinquencies of the CMBS industry (about 6 percent), and even Fannie Mae, whose rate was 0.56 percent in July (the most recent data available). Banks and thrifts were seeing a commercial real estate delinquency rate of about 3 percent as of July, according to the MBA.

“We had over $1 billion in maturities in 2009, but we have only eight or nine loans past maturity,” says Hall. “And a good portion of those are either refinancing or have extensions in place.”

The company has also put together an REO acquisition program to move the assets it has taken back from borrowers. Buyers can pay all cash, of course, but the company also offers market financing for the properties, and the availability of that capital helps entice buyers,

The company currently has seven REO (representing about $52 million), though only four are on the market as the others are being prepped for sale. Most of its REO assets this year have been in the Atlanta area, which is struggling with oversupply. And Freddie Mac’s watchlist of troubled loans has grown in the Southeast, Midwest and Texas over the last few months, pointing to an uncertain future.

“We can’t continue at the level we’re at right now; we expect delinquencies and losses to be up,” says Hall. “Everybody is expecting it to get worse before it gets better.”