Freddie Mac is offering up a new program aimed at investors that aims to keep rents more affordable to working families.
The mortgage giant said the new Mezzanine Loan pilot program is designed to incentivize investors to keep rents low for working families without any federal, state or municipal subsidy via favorable loan pricing. Under the program, multifamily property owners will be entitled to favorable pricing and additional debt capital, so long as they keep the majority of their rents affordable for low and moderate income families.
“Once again, Freddie Mac Multifamily is using its industry leadership to find creative ways to create and preserve rental units that are affordable to working families in communities across the United States,” said David Brickman, executive vice president and head of Freddie Mac Multifamily.
“The Workforce Housing and Targeted Affordable Mezzanine Loan offerings provide low-cost financing that incentivizes property owners to keep units affordable for working families, while limiting rent growth over the term of the loan,” Brickman added. “At a time when rents continue to price families out of markets, this initiative gives us the opportunity to test a new solution to a persistent challenge.”
Freddie said the Mezzanine Loan program will operate as a subordinate loan and deliver additional debt capital that’s needed to bridge the gap between borrower’s equity and the first lien mortgage amount. Borrowers will then receive favorable pricing in exchange for limiting rent growth on 80 percent of their units, and keeping them at levels affordable to working families for the life of the loan.
Rents would be checked on an annual basis to ensure compliance, and those that fail to do so would be charged a penalty fee and ordered to return rents to compliant levels.
The Mezzanine loan-to-value ratio can only be 10% above the LTV of the Freddie Mac first mortgage loan, or up to 15% for experienced nonprofits with a history of successful multifamily property operations. The total combined LTV cannot exceed 90%.
“This offering brings our innovative approach to market challenges together with our best-in-class execution to deliver affordable housing to every corner of the multifamily market,” Brickman said. “Most important, it has the potential to help address challenges of access and affordability for working families across the country.”