Commercial Real Estate Direct Staff Report

Fannie Mae last year provided $19.8 billion of financing for apartment properties, down from $35.5 billion a year earlier.

But instead of relying on its balance sheet, the housing-finance agency turned largely to the securitization market, funding $16 billion, or 81 percent of its originations through its mortgage-backed securities program. That compares with 2008, when only 17 percent of its originations were funded through the agency's MBS program.

The expectation is that the agency will continue to rely on its MBS program, according to Ken Bacon, executive vice president of Fannie's housing and community development division.

The agency until about 2004 had relied heavily on its MBS program, where lenders under its Delegated Underwriting and Servicing program would write loans and the agency would effectively securitize them, guaranteeing payment of principal and sell them to institutional investors.

Fannie's MBS program is unlike typical securitizations, which take the form of real estate mortgage investment conduits, or Remics, that are sliced into several layers and sold to a number of investors. In Fannie's securitizations, borrowers make their monthly payments to the agency, and the agency pays investors.

The agency started relying more heavily on its portfolio capacity to fund loans after CMBS conduit lenders became increasingly aggressive. Among the things the agency did to compete, it offered borrowers increasing flexibility. As a result, many of the loans Fannie originated didn't fit its MBS model, so it kept them on its balance sheet.

But with conduit lenders basically out of the market last year, Fannie was able to revert back to its MBS model.

"MBS is still a huge priority," Bacon explained.

While Fannie's overall lending volume fell sharply, that was a function of a shrunken market. Indeed, most observers expect that Fannie and the other housing-finance agencies, Freddie Mac and the U.S. Department of Housing and Urban Development, provided an overwhelmingly large portion of the liquidity for the multifamily sector.

The agency's originations included $4.4 billion that were classified as large loans; $2.2 billion of small loans, which generally have balances of up to $3 million to $5 million, depending on where the loans were originated, and $3.4 billion worth were done through structured transactions. Most of those were provided to REITs or private owners with substantial apartment portfolios. A total of $9.4 billion of the agency's originations were under its DUS flow program and another $1.1 billion was provided for affordable housing, which is defined as properties rented to tenants who earn 60 percent or less of an area's median income.

Fannie also wrote $1.1 billion of loans against manufactured housing communities and $1 billion against seniors housing.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.