Fannie Mae Credit Enhancement
FHA Apartment Construction Loans 3.240% – 3.640% Fixed 40 Years Get Confidential Loan Quote ›
Fannie Mae 5 Year Adjustable Rate Multifamily Loans 2.773% Get Confidential Loan Quote ›
Apartment Refinance Loans 3.150% Fixed 35 Years Exclusive Apartment Loans Refinance Offer ›

Fannie Mae Credit Enhancement

Tax Exempt Bonds For Affordable Housing

The FNMA DUS Loan Program is also used as a Fannie Mae Credit Enhancement, a tax exempt bond issue of a state or local housing finance authority that is providing multifamily affordable housing. Typically, an apartment property that receives Fannie Mae Credit Enhancement looks like any other multifamily project. However, the tenants in an apartment community which receives Fannie Mae Credit Enhancement are restricted based on their income groups. There are no restrictions on the amount of rent charged. The Fannie Mae DUS underwriter works with the Fannie Mae Credit Enhancement bond issuer to size the proper loan. Fannie Mae issues the guarantee which is used by the Standard & Poor’s rating agency to rate the bonds for the capital markets. Securities used for a Fannie Mae Credit Enhancement receive a credit rating which is the same as the US federal government; currently AA+.

Fannie Mae Credit Enhancement Term Sheet

Eligible Properties

Properties which are eligible to receive Fannie Mae Credit Enhancement are existing properties or newly constructed properties that will “set aside” at least 20% of their units for tenants who earn 50% or less than the median household income or 40% of their units for tenants earning 60% or less than the median household income, both of which amounts are adjusted for family size as set by HUD. Typically these properties come with 4.00% Low Income Housing Tax Credits (LIHTC).

Amortization and Loan Terms

25 or 30 years depending on property’s age with minimum balloon terms of 15 years or full term loans of 25, or 30 years

Minimum Loan Size

Minimum programmatic loan size is $1,000,000 but preferred minimum is $3,000,000

Personal Liability

None recourse for monetary default with typical carve-outs

Eligible Borrowers

Not-for-profit single asset entities

Prepayment

Lock-out and prepayment terms typically correspond to the tax-exempt bond requirements. For variable rate transactions the prepayment is the cost of any unpaid credit enhancement fees and liquidity fees.

Maximum Loan Sizing

If it is to be a Fixed Rate Loan, the maximum loan amount is the lesser of (a) the amount which is supported by applying a 1.15×1 debt coverage ratio or (b) 90.0% of appraised value. If it is to be a Variable Rate Loan, the maximum loan amount is the lesser of (a) the amount which is supported by applying a 1.00×1 debt coverage ratio or (b) 85% of appraised value. Underwriting is performed using a specified Underwriting Interest Rate, which is the 6.00% BMA Municipal Swap Index, plus all fees such as annual trustee fee, issuer fees, and credit enhancement fee.

Interest Rate

The interest rate in a Fannie Mae Credit Enhancement deal can be either fixed or variable. The variable rate is based on weekly rates and is convertible to a fixed-rate loan. An interest rate cap has to be purchased with a minimum term of 5 years at a “strike rate” of 6.00%. For variable rate loans of only five years, a cash reserve is required for the subsequent purchase of an interest rate cap. Please contact Apartment Financing America for a custom rate quote.

Assumability

All loans that receive Fannie Mae Credit Enhancement are assumable and transferable at anytime for a 1.00% fee

Origination Fee

Negotiable

Escrows

Required for property taxes, insurance, and replacement reserves as calculated by the underwriter

Repairs/Replacements

125% to 150% of the estimated cost of repairs per the physical needs report. Funds released upon completion.

Subordinate Financing

No third party subordinate financing, however Fannie Mae Supplemental Loans are allowed beginning 12 months after the initial first mortgage loan closing

Preliminary Submission Package

  • Location map and property description and photos (or website info)
  • Unit mix showing type, number, size, and current rent of all units
  • Description of commercial space if any
  • Last three months rent rolls along with year-to-date financial statements
  • Last full 36 month operating statements or pro-forma if recently completed construction
  • Business resume and financial statement of principals and entity
  • Terms of existing debt if any
Confidential Loan Quote Request
Apartment Loans That Make Deals More Successful
Get Confidential Loan Quote today and see how we can make your next deal more successful