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Freddie Mac Direct Purchase of Tax-Exempt Loans

Freddie Mac Direct Purchase of Tax-Exempt Loans

This program provides a cost-effective alternative to tax exempt bond credit enhancements with 4% low-income housing tax credits. This program also requires less documents and less participants than bond loans. This can reduce the cost of issuance up to 40%.

Value-Add Loan Options and Requirements
Loan Terms
  • 2.5 years; interest-only
  • Floating-rate; no cap needed
  • No prepayment during the first year
  • After the first year, borrower may pay off the loan at any time but must remit an exit fee of 2%; the exit fee will be waived if the loan is refinanced with a Freddie Mac fixed- or floating-rate securitized loan
  • Acquisitions only; not assumable
  • Loan documentation at origination will include the Value-Add Rider which will detail the terms/requirements of the rehabilitation
  • Escrows will include real estate taxes, insurance, and replacement reserves; escrows for rehabilitation are not required
Property Types
  • Must have more than 500 units. Tier 5 MSA or better markets.
  • Well-constructed properties requiring moderate repair
  • Market laggards that require capital infusion and new/improved management
  • REO properties in receivership that are capable of improved performance
  • Not eligible: seniors housing, student housing, manufactured housing, affordable housing
Loan Proceeds/Sizing
  • Max LTV of 80%
  • Debt service coverage ratio (DCR) based on 7-year fixed rate at current pricing and Treasury rate
  • Standard Freddie Mac underwriting based on as-is income and expense
  • Refinance Test not required at initial sizing
  • No pro-forma underwriting of future performance
Rehabilitation
  • Rehabilitation must commence within 90 days of loan origination
  • Budget should be no less than $5,000 per unit and no more than $15,000 per unit; increase in the budget will be reviewed on a case by case basis
  • At least 50% of the plan/budget should be spend directly on unit upgrades
  • Increases or decreases to the plan/budget less than or equal to 20 percent do not require notice to or approval by Freddie Mac; increases or decreases greater than 20 percent require notice to Freddie Mac; increases or decreases that go above $15,000 per unit or below $5,000 per unit require notice to and approval by Freddie Mac
  • Rehabilitation term should not exceed 27 months
  • Tenants will typically stay in place during the rehab; minimal disruption to property occupancy is expected
  • Minimum break-even occupancy calculated at origination based on the applicable 7- year fixed-rate
  • Servicer to provide standard performance/financial reporting and conduct annual inspections of rehab progress
  • Borrower to provide quarterly attestation/certification of rehabilitation progress
  • Guarantor to guaranty the lien-free completion of any work commenced in the manner required by the loan documents
At Loan Maturity/Refinance Final engineer review of work completion and quality is required Freddie Mac will re-underwrite the loan (akin to any loan maturity) according to then-current credit policy parameters

Program Plus Freddie Mac Loans

Program Plus Options
Fixed Rate Loans Floating Rate Loans
Lease-Up Loans Manufactured Housing Community Loans
Revolving Credit Facility Student Housing Loans
Supplemental Loans Value-Add Loans

Affordable Housing Freddie Mac Loans

Affordable Housing Options
9% LIHTC Cash Loans Bond Credit Enhancement with 4% LIHTC
Bond Credit Enhancement with Other Affordability Components Cash Loan with Other Affordability Components
Direct Purchase of Tax-Exempt Mortgages Preservation Rehabilitation Financing
Supplemental Loans Tax-Exempt Bond Securitization (TEBS)
Variable Liquidity Pricing

Other Freddie Mac Loans

Other Freddie Loan Types
Student Housing Loans Small Balance Loans
Freddie Mac Single-Family Rental (SFR) Pilot Program

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