FREDDIE MAC OFFERS MORTGAGE PRODUCT TO FINANCE NEWLY CONSTRUCTED AND SUBSTANTIALLY REHABILITATED APARTMENT COMMUNITIES

McLean, VA – Freddie Mac today announced a new multifamily mortgage option for select loans and borrowers that could significantly reduce the lease-up occupancy requirements, extend the rate-lock option and increase liquidity for new construction or rehabbed properties.

The new execution is called Premier Lease-Up, and follows from talks Freddie Mac has had with leaders in the multifamily mortgage industry on how Freddie Mac could help owners and lenders respond to an increasingly competitive market.

Under Premier Lease-Up, Freddie Mac in conjunction with a Program Plus Seller/Servicer, will lock a rate much earlier in the construction and lease-up cycle for a newly constructed or substantially rehabilitated apartment community. "Locking the rate earlier eliminates the interest rate risk for a borrower much earlier in the process," said Mitchell Kiffe, Multifamily vice president of flow sourcing. "In the current environment this is a critical feature since most market observers expect rates to increase over the coming months."

Specifically, under Premier Lease-Up:

Qualified borrowers can lock the interest rate well in advance of property stabilization, at as low as 50 percent construction completion and 40 percent occupancy. In the past, all borrowers typically needed an occupancy level of 80 percent to 85 percent in order to lock the rate with Freddie Mac.
Certain borrowers may close the loan before property stabilization, at a minimum occupancy of 65 percent and net operating income level equivalent to a 1.05x debt to credit ratio (DCR), set by Freddie Mac at rate-lock. Previously, all borrowers would have needed a 1.25x DCR to close the loan.
Additionally, qualified owners may have more flexibility with their capital because of reduced loan enhancement requirements during the period between loan closing and property operating stabilization at the underwritten levels.

"Encouraged by our Production Advisory Council to introduce this type of option for our borrowers, the Premier Lease-Up option demonstrates Freddie Mac's continued leadership role in bringing innovation to the multifamily market," said Kiffe. "This product should have significant demand from developers of new or rehabbed apartment communities, and given the slope of the yield curve right now, we feel this will be a very attractive option as the cost of the extended early rate-lock is relatively inexpensive."

The Premier Lease-Up option expands Freddie Mac's product offerings while improving the liquidity in the marketplace for permanent loans on new and substantial rehabilitated properties. It is expected that the flexibility and operational enhancements within Premier Lease-up will appeal primarily to developers and owners who build new or reposition existing properties. Freddie Mac is committed to working with the industry to develop and enhance new processes that foster rehab construction, because this sector of the tends to provide and maintain quality affordable housing.

Freddie Mac is a stockholder-owned company established by Congress in 1970 to support homeownership and rental housing. Freddie Mac fulfills its mission by purchasing residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than two million renters in America

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