The Federal National Mortgage Association (FNMA), commonly referred to as “Fannie Mae”, is a major US government-sponsored entity (“GSE”) or “agency” supporting housing through capital markets activity. As part of Fannie Mae’s mission to provide liquidity, stability and affordability to the U.S. housing market, it guarantees, pools, and securitizes Multifamily commercial mortgages that meet certain underwriting criteria.
Fannie Mae originates multifamily loans through a network of lenders by purchasing loans made by approved lenders. Lenders who are approved to participate in the program can offer a range of multifamily loan products to borrowers, such as fixed-rate, adjustable-rate and interest-only loans. The loans must meet Fannie Mae's underwriting standards, including property type, loan size, and borrower creditworthiness, among other criteria.
Once a loan is originated by an approved lender, it is then sold to Fannie Mae, which adds the loan to its portfolio. This allows the lender to free up capital to originate additional loans, and helps to ensure a continuous flow of funds to the multifamily market.
In exchange for purchasing the loan, Fannie Mae provides lenders with a guarantee that they will be repaid in full if the borrower defaults. This helps to reduce the risk to lenders, making it more attractive for them to originate multifamily loans, which in turn helps to ensure a stable and affordable supply of financing for multifamily properties.
In this way, Fannie Mae operates as a key facilitator in the multifamily lending market, helping to ensure a steady flow of capital to borrowers while mitigating risk for lenders.
Fannie Mae-based Multifamily loans are popular with multifamily borrowers because they usually have competitive rates, a predictable underwriting process, and are non-recourse, unlike many bank and credit union loans that require personal recourse provisions from the loan guarantors.
Due to its mission to support housing across the country, Fannie Mae offers rate discounts and underwriting exceptions for properties with affordable units, as determined by the location of the property and the cost of living of that area.
Fannie Mae does provide discounted rates and underwriting exceptions for properties that have demonstrated energy efficiency upgrades and sustainability.
Only multifamily properties within the United States qualify for Fannie Mae multifamily financing. Fannie Mae only purchases senior-secured loans for stabilized multifamily properties, and does not provide construction financing.
There are several underwriting criteria to qualify for a multifamily loan backed by Fannie Mae. First, the property must be primarily used as a multifamily dwelling of at least 5 units. This can include apartment buildings, mobile home communities, senior housing facilities, and other multifamily dwellings.
These multifamily properties typically must have 90%+ occupancy for a trailing 3-month period, and meet both Loan to Value (“LTV”) and Debt Service Coverage Ratio (“DSCR”) tests that will vary based on the size of the loan and the location of the property.
Properties must also have an acceptable Environmental Report and Property Condition Assessment. Deferred maintenance that impacts residents needs to be cured to stay in compliance with Fannie Mae loan covenants.
While non-recourse in nature, Fannie Mae does require personal guarantors to sign on the loan that have a collective Net Worth higher than the loan amount. The standard “bad boy” carve-outs to the non-recourse loan can allow the lender to seek recourse against the borrower in select circumstances like fraud or gross negligence.
Fannie Mae is a very large and influential entity in the multifamily finance industry. Their annual budget for Multifamily lending is determined by the US Federal Housing Finance Agency (“FHFA”). As of 2023, Fannie Mae’s annual budget set by the FHFA for purchasing and securitizing multifamily loans is $75 Billion.
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