Capital Corner: Fannie Mae, with significant cap space, remains aggressive on pricing all transactions

Mid-year highlights

  • Inflows have grown month-over-month every month in 2020, with $6.8 billion delivered in May, indicating Fannie’s commitment to providing liquidity to the multifamily market.
  • Despite the significant business volumes, Fannie Mae is not experiencing any capacity issues, thanks largely to Fannie’s delegated model.
  • The Recovery Reserve Escrows implemented in response to COVID-19 have been reevaluated from the initial requirements. Fannie Mae now requires significantly reduced Recovery Reserve Escrows and allows the release of those funds as early as nine months after closing.
  • Fannie Mae recently announced several technological enhancements including an automated pricing system. This will enhance deliverability while simultaneously reducing the amount of time it takes to quote new business.

Mission-critical: Providing liquidity to the multifamily market
Throughout the pandemic and resultant economic disruption, Fannie Mae has maintained focus on their critical mission to provide liquidity to the multifamily market. Recent announcements and activity from Fannie Mae indicate an expectation of increasing return to economic normalcy and a continued “risk-on” attitude toward business. Fannie Mae continues to aggressively pursue conventional acquisition and refinance business, while also evaluating when it will be appropriate to reinstate certain temporarily suspended specialty products.

Rental collections have been on par with 2019 levels in most markets over the past few months, but economists and industry experts continue to watch closely for signs of a slowdown. Industry-wide, there is an eye toward the impact of the expiration of extended unemployment benefits, as provided by the CARES Act, at the end of July. Industry advocates, borrowers, and lenders alike continue to look to Washington for indications as to what, if anything, policymakers will do to extend these benefits or otherwise address this risk.

The 10-year U.S. Treasury has traded in a range of 0.90% to 0.64% over the last month, with new lows recognized this week. Despite this volatility, all-in mortgage rates remain at or near record lows. The implementation of a UST floor, combined with stable spreads, has largely shielded borrowers from UST increases throughout this period and kept DUS note rates extremely attractive.

Since the implementation of the five-quarter, $100 billion volume cap, Fannie Mae has delivered $44.3 billion in loan volume through May 2020. Fannie Mae’s commitment to provide affordable housing remains a high priority. This goal, combined with the current cap utilization level, will result in extremely competitive pricing on mission-focused business.

In spite of the increased transaction volume, Fannie Mae is not experiencing any capacity issues, due to Fannie’s delegated model. Delegation enhances deliverability, customer service, accelerates processing at all stages, and eliminates bottlenecks. It also allows us to quote all deals competitively, regardless of size.

As the market evolves and the programs change, the NorthMarq teams will keep borrowers on the cutting edge of the best products and opportunities offered by Fannie Mae for their transaction, identifying the right program for each lending situation, while working with buyers and sellers to evaluate the right structure and timing. We know that deliverability is a given as the most important aspect of any deal, so the importance of understanding the best options during busy and volatile times is magnified right now.

Jeffrey Erxleben
Patrick S. Minea
William Ross
William Ross