Freddie Mac Affordable Forward Commitment
9% Tax Credit Execution

Freddie Mac offers forward financing for the new construction or substantial rehabilitation of multifamily properties funded entirely or in part with low-income housing tax credits. Borrowers who choose a Freddie Mac Forward Commitment realize many benefits.  They can:

• Eliminate interest rate risk, since the interest rate for the permanent financing is locked at the time the forward commitment is issued.
• Know permanent financing will be available, as long as performance targets are met.
• Choose either a funded or unfunded forward execution.
• Have terms tailored to meet the needs of the individual transaction.

Freddie Mac's Forward Commitment execution serves the differing needs of borrowers in markets across the United States by making both funded and unfunded forward financing alternatives available.

Funded Forward: Interest rates for both the construction and permanent mortgage are locked when Freddie Mac issues the forward commitment. During construction, the spread is locked, while the index floats.  Freddie Mac will advance funds to the construction lender. As a condition of advancing funds, Freddie Mac collateral during the construction and lease-up phase will be a letter of credit or other collateral acceptable to Freddie Mac.

Unfunded Forward: The rate for the permanent mortgage is locked when Freddie Mac issues the forward commitment. When the project has stabilized and meets the conversion criteria set forth in the commitment, Freddie Mac purchases the mortgage.

Freddie Mac offers both fixed- and variable-rate options during the construction period. The interest rate is based on the one-month Freddie Mac Reference Bill®.  An interest-rate cap is not required.

Eligible Transactions

Construction and permanent financing for loans from $1 million to $25 million

Eligible Properties    

To-be-built or substantially rehabilitated garden, mid-rise and high-rise apartments that have received a 9% tax credit allocation under Section 42 of the Internal Revenue Code

Eligible Borrowers

Limited partnerships, corporations, or limited liability companies

Eligible Seller/Servicers

Freddie Mac-approved Multifamily seller/servicers

Loan Term

• Forward commitment terms of 12, 18, 24, 30, or 36 months are available, interest-only during the construction period.
• If necessary, provided there is no default, a one-time 6-month extension of conversion is available at no cost.  A subsequent 6-month extension may be approved by Freddie Mac conditioned upon the payment of an extension fee.
• Permanent term: 18 to 30 years beyond the construction period.
• A shorter term is available to reflect the remaining life of the tax credit period.

Maximum Amortization

30 years

Construction Funding

• Option to have funds disbursed to the construction lender in a single-draw or in four draws during the construction period.
• The construction lender will enter into a Master Forward Financing Agreement with Freddie Mac. Individual transactions will be documented by amendment to the master agreement

Maximum LTV

85%; 90% with HUD risk sharing

Minimum DCR

1.15x; 1.10x with HUD risk sharing

Subordinate Debt

• Soft subordinate debt:
• Debt service cannot exceed 75% of cash flow after payment of operating expenses, reserves, escrows, and senior debt
• Hard subordinate debt:
• Combined debt service ratio may not be less than 1.10x
• Combined LTV may not exceed 90%

Stabilization and Conversion

Conversion to permanent loan upon:

• Completion of construction in accordance with plans and specifications
• Lease-up at 90% occupancy for 90 days
• Achievement of debt service coverage equal to or greater than originally underwritten
• If the achieved net operating income (NOI) is less than that underwritten, Freddie Mac may at its discretion, resize to a smaller principal amount, provided that the (i) capital structure (sources and uses) is viable at the reduced loan amount, (ii) sufficient funds exist to meet all remaining capital and operating needs of the property, and (iii) stabilized NOI supports the resized smaller principal amount.
• An appraisal or updated appraisal is not required at conversion

Third-Party Reports and Documentation

Required:

• Appraisal
• Environmental reports (Phase I and other reports as necessary)
• Market Feasibility study
• Architectural/ Engineer’s Pre-Construction Report
• Proposed Construction Documentation: plans, specifications, project budget, project schedule
• Architectural/ Engineering Consulting Services Agreement (including scope of services)
• Additional Substantial Rehabilitation Report:  Existing Conditions (engineering) report to include an evaluation of existing conditions, recommended repairs and improvements over the loan life, and projected costs of improvements.

Construction Monitoring for Funded Forwards

The seller/servicer who originates the transaction will provide Freddie Mac with periodic third-party monitoring reports, based on the architectural/engineering consultant’s scope of services.

• Construction lender and seller/servicer may use the same architectural/engineering consultant unless the consultant is an employee of the construction lender
• Where special issues arise, a special architectural/engineering consultant may be retained by Freddie Mac

Replacement Reserves

Fully funded replacement reserves required. Freddie Mac will reassess reserves every 10 years.

Tax and Insurance Escrows

Required

Application Fee

The greater of $3,000 or 0.1% of the maximum loan amount

Other Fees

• Funded forwards:
  • Refundable forward commitment fee: 2% of the maximum mortgage amount 
  • Refundable delivery assurance fee: 5% of the maximum mortgage amount in the form of a subordinate note secured by the property
• Unfunded forwards:
  • Refundable forward commitment fee: 3% of the maximum mortgage amount
  • Refundable delivery assurance fee: 5% of the maximum mortgage amount in the form of a subordinate note secured by the property