Freddie Mac recently announced a new initiative aimed at broadening the availability of financing for affordable rental properties financed with tax-exempt bonds, in order to keep rental housing affordable for low-income families. The Direct Purchase of Tax-Exempt Loans “program” will increase the liquidity needed for more affordable housing while creating investment opportunities for investors.
How does it work?
An approved Freddie Mac Targeted Affordable Housing (TAH) Seller/Servicer originates a direct tax-exempt loan, also called the Funding Loan, to a government entity such as a state, city or county housing authority that has the capacity to issue tax-exempt multifamily housing bonds. Simultaneously, using the proceeds of the Funding Loan, the issuer makes another loan, known as the Project Loan, to the borrower to finance a specific multifamily residential housing project. Freddie Mac Multifamily purchases the Funding Loan from the TAH Seller/Servicer based on a commitment signed prior to origination of the Project Loan. Freddie Mac holds the Funding Loan on its balance sheet for a period of time before aggregating it with other tax-exempt loans. The pool of tax-exempt loans is securitized through Freddie Mac Multifamily M-Deals, which are sold to third-party investors.
The Direct Purchase of Tax-Exempt Loans can lower a borrower’s issuance costs and ongoing cost of capital significantly, as well as simplify the closing process. Freddie Mac anticipates that there will be about 40 percent lower closing costs compared to bond credit enhancements and less paperwork and legal fees without the need for securities offerings documents. It also eliminates the need to prepare Credit Enhancement Agreement, Reimbursement Agreement, Intercreditor Agreement or secondary mortgage documentation
Freddie Mac will host two upcoming training sessions in order to educate stakeholders about this new offering:
- Thursday, May 8 at 1:00 p.m. ET
- Wednesday, May 13 at 1:00 p.m. ET