FHFA Loan Caps for 2023: What Multifamily Borrowers Need to Know

Agency Loan Caps Contract in 2023 as Definition of Affordable Expands

The Federal Housing Finance Agency (FHFA) announced a $6 billion rollback of Fannie Mae and Freddie Mac’s volume cap for loan purchases for 2023 to $150 billion ($75 billion for each agency) as multifamily transaction activity has declined in 2022. The cap will be down from $158 billion in 2022, although it will remain higher than the $140 billion cap for 2021. FHFA also added new provisions to its mission-driven lending initiative designed to increase investment in affordable and workforce housing, two sectors with significant growth potential in a tight housing market.

New Provisions Aim to Increase Mission-Driven Lending

“Overall, though the FHFA caps indicate there will be less Fannie Mae and Freddie Mac multifamily lending volume in 2023, affordable transactions remain a priority for the GSEs,” said Arthanais Williams, Arbor’s Managing Director, Affordable Housing. “The changes in the definition of mission-driven as well as flexibility with Forward Commitments indicates the FHFA’s commitment to affordable housing.”

Broader Affordable Definition Increases Opportunity for Multifamily Borrowers

While the percentage of GSE business that must be mission-driven will remain unchanged at 50%, the FHFA removed certain AMI requirements and expanded the parameters of the types of properties that qualify as mission-driven, allowing more projects to qualify for incentives.

FHFA also removed the requirement that 25% of the GSEs’ multifamily business be classified as affordable at 60% of Area Median Income (AMI) or below. This change for 2023 effectively frees up additional capacity for FHFA to finance more naturally-occurring affordable housing (NOAH).

In its final rule, FHFA updated its 2023 multifamily housing goals and affordability benchmarks.

• Low-income goal: 60% of all goal-eligible units in multifamily properties financed by GSE-purchased mortgages at incomes of less than or equal to 80% of AMI
• Very low-income subgoal: 12% of all goal-eligible units in multifamily properties financed by GSE-purchased mortgages at incomes less than or equal to 50% of AMI
• Small multifamily low-income subgoal (5-50 units): 2.5% of all goal-eligible units in all multifamily properties financed by GSE-purchased mortgages at incomes less than or equal to 80% of AMI

Workforce Housing Lending

FHFA added a new mission-driven lending category for workforce housing designed to encourage the preservation of affordable housing near places of employment, school, and hospitals. This new initiative incentivizes the financing of properties where a borrower commits to preserving affordability through rent or income restrictions for 10 years of the loan term.

Green Retrofit Benefits Expanded

In 2023, Fannie Mae’s Green Rewards and Freddie Mac’s Green Advantage will be even more attractive with the planned expansion of FHFA’s green retrofit benefits. Green loans used to facilitate water or energy improvements with units affordable at or below 80 percent of AMI to be classified as mission-driven, up from 60% in 2022.

Flexibility Added to Forward Commitments

FHFA granted flexibility in the use of forward commitments, binding agreements to carry out a specific transaction at a specified future date, which can be used to reduce uncertainty and risk related to price volatility. Until now, FHFA included forward commitments in its annual production cap. Next year, $3 billion of forward commitments will be exempt from that cap.

FHFA also lifted its $500 million cap on forward commitments for properties that do not benefit from a Low-Income Housing Tax Credit (LIHTC). Instead, Freddie Mac’s non-LIHTC forward commitments and LIHTC forwards will both be subject to the annual exemption on forwards.

Arbor Realty Trust has experience in offering Fannie Mae DUS® Unfunded Forward Commitments when appropriate in the financing of multifamily affordable properties. Read more about benefits, eligibility, and other criteria here, or contact us to find out about our options for multifamily financing.

Affordable Housing Increasingly Attractive

A stated priority for FHFA in 2023, the affordable housing sector has become increasingly attractive due to its potential to deliver high returns with moderate risk. Historically, investing in affordable has been a good hedge during economic downturns.

Low-cost housing, known for its consistent demand, typically becomes even more sought-after in economic downturns. Given the current nationwide shortage of housing, this pattern is likely to continue in the new year.

Greater Visibility for Affordable Projects

Going forward, it will be easier to fit development projects within the new definition of affordable housing. More investors will be able to receive an array of tax-credit incentives, lower-cost financing options insured by the U.S. Department of Housing and Urban Development, and lower-interest loans.

As a part of FHFA’s efforts to bolster its mission-driven lending program, affordable projects will be more likely to receive greater visibility and higher priority in its approval pipeline, potentially accelerating closings.

Learn More About Arbor’s Innovative Loan Programs

Arbor offers flexible financing options for the acquisition, refinancing, or rehabilitation of multifamily affordable housing nationwide. Our originations team is well-known for its experience, expertise, innovative solutions, and superior execution. We have deeply rooted relationships with Fannie Mae and Freddie Mac, allowing us to serve you better. From FHA 223(f) to Fannie Mae DUS® Multifamily Affordable Housing (MAH) to Acquisition Bridge Loans, Arbor provides a wide range of financing solutions for developers and investors of affordable housing.

Contact us today to learn more.

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