Workforce Housing Exempt From Fannie, Freddie Lending Limits In 2024
The federal agency overseeing Fannie Mae and Freddie Mac is responding to rapid rent growth in recent years by encouraging the development of workforce housing.
The Federal Housing Finance Agency will exempt workforce housing loans in 2024 from the lending limits it imposes on the government-sponsored entities. Fannie and Freddie will be capped at $70B each of multifamily lending next year for all other properties, a combined $10B below 2023 levels.
“Exempting this narrowly tailored category of loans encourages the Enterprises and the marketplace to build up this new product as a response to the national housing affordability crisis,” an FHFA spokesperson said in a statement emailed to Bisnow.
The agency, which has acted as conservator for Fannie Mae and Freddie Mac since 2008, defines workforce housing as developments that adhere to state or local housing affordability initiatives for at least 10 years or the term of the loan.
In regions that aren’t considered cost-burdened, the threshold for affordability is 80% of the area median income or below. Housing in cost-burdened markets can qualify with rents at 100% of AMI, while very cost-burdened rental markets have a limit of 120% of AMI.
“FHFA is trying to incentivize the creation of restricted affordable housing along with the use of GSE financing,” Donald King, executive vice president at Walker & Dunlop, wrote in an email to Bisnow.
The exemption is a shift from the FHFA's prior policy. It first created the workforce housing category last year but subjected loans for the segment to the annual lending caps put on the GSEs. This year, those loans are exempted, but the FHFA doesn’t expect to see a significant shift in the amount of workforce housing being financed by the lenders.
“While FHFA would like to see greater take-up of Workforce loans, FHFA does not anticipate the exemption will have an outsized effect on overall Enterprise multifamily purchase volumes in 2024,” the FHFA spokesperson wrote.
For nonexempt financing, the FHFA requires that at least 50% of loans qualify as mission-driven. Mission-driven affordable loans cover properties that are subsidized by the Low-Income Housing Tax Credit program, developments that restrict rents based on a state or local affordable housing program, Section 8 housing that is restricted to no more than 80% of AMI, and rent-restricted developments built by a public housing authority.
FHFA will also consider classifying developments that don’t fit those criteria as affordable housing on a case-by-case basis, according to the agency’s 2024 multifamily housing definitions.
In 2022, 18.6% of the multifamily units financed by Fannie Mae were for projects with rents priced at between 80% of AMI and 120% of AMI, according to its Annual Housing Activities Report. Of the 693,000 multifamily units Freddie Mac financed in 2022, 21.9% were for apartments restricted to those income levels, according to a press release. The regional differences in AMI requirements mean that not all of those units necessarily fell under the workforce housing definition.
Fannie Mae launched a financing program last month to support workforce housing preservation and development, making loans available to borrowers that restrict rents for at least 20% of the units at a property to between 80% and 120% of AMI.
For nonexempt loans, the FHFA said it will monitor the multifamily market and increase the $70B caps for Fannie Mae and Freddie Mac if necessary, but it said it wouldn’t reduce the limits if the market is smaller than projected.
Both lenders are on track to lend well below the 2023 limit of $75B for each entity. At the end of the third quarter, Freddie Mac completed $32B in new multifamily business activity, and Fannie Mae had purchased $41.7B in loans.
In 2022, when the cap was $78B for each of the lenders, Fannie Mae did $69B in volume, while Freddie Mac purchased $73B in multifamily loans.
The workforce exemption in 2024 does open the door to the lenders going beyond the $75B lending cap for each of the lenders.
“The possibility does exist that they could lend more than the caps if both the market is there and there is widespread adoption of voluntary rent restrictions along with GSE debt,” King said.
