Freddie Mac to buy, securitize tax-exempt multifamily housing loans

By Angela McDaniels

Tacoma, Wash., April 25 - Freddie Mac launched a new initiative to purchase multifamily tax-exempt loans and aggregate and securitize the loans into a new series called M-Deals, according to a company news release.

Under the initiative, a Freddie Mac Targeted Affordable Housing seller/servicer (lender) makes a direct loan to a government entity such as a city, county or state housing finance entity in exchange for a tax-exempt note.

Freddie Mac then purchases the tax-exempt loan, as evidenced by the note, from the lender, aggregates it with other tax-exempt loans and securitizes the loans though its M-Deal structure.

The city, county or state housing authority that issued the tax-exempt note then lends the loan proceeds to a borrower to finance a multifamily housing community that has affordable rents for lower income individuals.

M-Deal features

The M-Deals will have a senior/subordinated structure with a guaranteed A-piece being publicly sold and the first loss B-piece being sold to private investors.

Collateral backing the senior/subordinated securities are fixed-rate loans with up to 35-year amortization and up to an 18-year balloon.

The expected offering size is about $300 million of aggregated direct purchase tax-exempt loans and related taxable securities.

Benefits

Freddie Mac said this new execution is more efficient and costs less than publicly offered credit-enhanced bonds. It estimates the reduction in closing costs at about 40% when compared to a publicly offered credit-enhanced bond.

The direct purchase of tax-exempt loans execution will have the same underwriting and credit standards as the Freddie Mac credit-enhanced 4% LIHTC bond financing, the release noted.

"Freddie Mac is further reducing its credit risk by securitizing more of its targeted affordable business volume and helping to increase access to credit for affordable rental housing borrowers," David Brickman, Freddie Mac multifamily executive vice president, said in the news release.

"Through our M-Deals, we will shift taxpayer risk to private investors who will have a first loss position. We are creating an agency alternative for investing in tax-exempt bonds whose collateral is from multiple borrowers."

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