"Multifamily housing is a critical component of addressing our nation's shortage of affordable housing. These new multifamily caps eliminate loopholes, provide ample support for the market without crowding out private capital, and significantly increase affordable housing support over previous levels."
Volume Cap Breakdown
While the $200 billion cap is cumulative, the GSEs likely didn't want to exceed an implied quarterly rate of $20 billion — both to fulfill their liquidity mission consistently and to avoid using up all allocated capital early. As a result, both GSEs entered the second half of 2020 with a relatively large amount of volume cap remaining:
| GSE | Total Cap | Q4 2019 | H1 2020 | H2 2020 Remaining |
|---|---|---|---|---|
| Freddie Mac | $100.00B | $18.10B | $33.70B | $48.20B |
| Fannie Mae | $100.00B | $17.60B | $30.20B | $52.20B |
The Window of Opportunity
With interest rates at an all-time low, we can assume that both GSEs have a large pipeline of loans. Still, it is likely they want to leave a little "dry powder" in order to safely stay under the volume caps — while also not wanting to provide a reason for the FHFA to reduce their volume caps for 2021.
Marc's Market Call
"I believe this will create a window of opportunity for borrowers in late Sept/early Oct when the GSEs will be in a 'use it or lose it' situation. We could therefore see a push to sign up loans in those weeks — and I expect lower loan spreads in those weeks so as to come close to, but not exceed, volume caps."
Affordable Housing Mission Targets
To ensure a strong focus on affordable housing and traditionally underserved markets, FHFA has directed that at least 37.5% of the GSEs' multifamily business be mission-driven, affordable housing.
Heading into the second half of 2020, both Freddie and Fannie likely got ahead of this goal so they would not need to scramble to find this business — or worse, lower credit standards to spur demand. If this assumption is correct, the pricing discount for affordable loans (relative to conventional loans) will be less dramatic — think 10–15 bps discount versus 20–25 bps in the first half of the year.
You would think the GSEs would be happy to fund more than 37.5% in affordable loans, but that's not likely. Even though the GSEs are hard-wired to find and close this type of business, exceeding the goal simply raises the bar for the following year. If, say, 42% of their current pipeline is mission-driven, they may spend the next few months concentrating on more conventional loans — which are also more profitable for them.
Economic Data — As of July 31, 2020
In case you missed it — key market indicators as of the article date:
2Q GDP
−33%
Largest quarterly drop on record
10-Year UST
54 bps
Bloomberg 4Q forecast: 87 bps (started year at 1.88%)
S&P 500
3,246
Essentially unchanged since start of year
Freddie A-2 Bonds
+few bps
Jumped last week; Fannie 10/9.5's were flat
Multifamily Vacancies
+200–250 bps
Freddie forecast over next several quarters
Multifamily Rents
−1% to −2%
Freddie forecast