Given the importance of multifamily properties to affordable housing, policymakers are concerned with the efficient functioning of the secondary multifamily mortgage market. Study of Multifamily Underwriting and the GSEs' Role in the Multifamily Market draws on interviews with key players in the field, data on GSE mortgage purchases, and recent literature to give readers a current picture of the secondary multifamily mortgage market. Focusing on several key issues, this new HUD report looks at the secondary multifamily market position of Fannie Mae and Freddie Mac, the two largest government-sponsored enterprises (GSEs), credit availability for affordable multifamily properties, and the applicability of fair lending laws to the GSEs' multifamily activities. In one sense, the GSEs lead the secondary market by virtue of their size, volume, experience, range of products, and their underwriting guidelines that are helping to standardize underwriting nationwide. However, most national experts and lenders interviewed do not view either GSE as leading the market in improving lending for affordable multifamily housing. Instead, they see banks and thrifts as having more flexible underwriting criteria compared to the GSEs' more conservative and inflexible standards, especially with regard to affordable properties. However, focusing on recent efforts by both GSEs to develop more flexible underwriting standards and practices, the report concludes that Fannie Mae and Freddie Mac are helping to expand lending for affordable multifamily housing. They have also developed new initiatives, including forward commitment programs that support the construction or rehabilitation of multifamily properties, typically by using the Low-Income Housing Tax Credit program. The report highlights two major credit issues for multifamily properties: the high cost of financing smaller multifamily properties and the difficulty of obtaining mortgage financing for significant rehabilitation of multifamily properties. Although financing for small multifamily properties is generally available, it is relatively expensive compared to the financing available for larger properties. Thrifts and other depositories, rather than the GSEs, dominate this segment of the mortgage market. In considering the second issue, the report concludes that owners of multifamily properties who need significant rehabilitation face difficulty finding mortgage financing. In 1999 these loans accounted for only 1.6 percent of Fannie Mae's multifamily purchases and none of Freddie Mac's. The report concludes that the GSEs lag in three areas: purchases of loans in high-minority areas; purchases of loans on small multifamily properties, which are disproportionately for minority-owned properties; and purchases of loans for multifamily properties in underserved areas. Although the lack of GSE purchases in these areas does not demonstrate that the GSEs are violating fair lending legislation, it does raise questions as to whether some GSE underwriting and appraisal guidelines have a disproportionate impact on minorities. Order Study of Multifamily Underwriting and the GSEs' Role in the Multifamily Market from HUD USER for $5. Please use the order form. The report can also be downloaded from the HUD USER website at www.huduser.gov.
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