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Community Developments Investments (March 2017)

Freddie Mac's Role in Preserving Multifamily Affordable Rental Housing

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David Leopold, Vice President, Targeted Affordable Sales & Investment, Freddie Mac

San Francisco affordable housing such as this one has been financed by Freddie Mac and preserved through the San Francisco Rental Assistance Demonstration a program.
San Francisco affordable housing such as this one has been financed by Freddie Mac and preserved through the San Francisco Rental Assistance Demonstration program. (Freddie Mac)

I was recently in San Francisco, one of the toughest markets for renters, to mark the improvement—and preservation—of more than 1,400 rental homes for very low-income families and seniors. The event celebrated the rehabilitation of 14 properties across the city through the Rental Assistance Demonstration (RAD) program, which helps preserve affordable housing. The program's aim is to convert public housing to privately held affordable housing, infuse significant new capital for much needed repairs, and establish a more stable funding base going forward.

Supply Drops as Needs Grow

The United States faces a serious and growing rental housing crisis, as discussed in Ellen Lurie Hoffman's article in this edition of Community Developments Investments. While the supply of affordable housing is disappearing, demand continues to grow. For the lowest-income renters, there are only 65 affordable units for every 100 households.1 And the current limited stock is at risk. A key source of public subsidy for this housing is the federal low-income housing tax credit (LIHTC), but the income and rental restrictions imposed by those subsidies will expire on nearly 60 percent of the 2.2 million units in 10 years.2

The available housing often is in dire need of improvement. Throughout the United States, public housing needs more than $26 billion in essential repairs, according to the National Housing Law Project. In San Francisco, the need is estimated at more than $270 million. Freddie Mac's San Francisco RAD partnership is helping make possible some of these much-needed repairs, while keeping these homes affordable now and for generations to come.

Building Partnerships in Cities and Rural Areas

With its lenders and borrowers, the Freddie Mac team helps provide income-restricted rental properties across the nation, from dense metropolitan areas like San Francisco to rural counties like Angelina County, Texas. Freddie Mac develops products to maximize the value of subsidies for borrowers and maintain as many affordable units as possible for the long term.

In San Francisco, the city took the lead in launching the RAD project. Local leaders recognized affordable housing to be a community asset that, once lost, is expensive and difficult to replace. Freddie Mac provided an aggressively priced tax-exempt loan (TEL), customized for each individual property and designed for long-term affordability. Freddie Mac also provided $83 million of permanent mortgage financing, and Bank of America Merrill Lynch provided about $770 million in construction financing and LIHTC equity, making the San Francisco RAD program one of the bank's largest community development efforts. All of the properties receiving these subsidies are restricted to tenants earning no more than 60 percent of area median income.

National Model

The first phase of San Francisco RAD stands out as a national model in several key ways:

  • Scale: 14 properties, 1,400 units, and seven development partners.
  • Complexity: The largest RAD conversion in the nation, with multiple layers of financing from the public and private sectors.
  • Commitment to residents: Zero displacement, and strong engagement with local service providers to promote long-term success.
  • Efficiency: The union of a variety of different groups, supported by the city leadership, each lending its specific expertise, to follow a single, streamlined process. This process drove down costs, achieved economies of scale, and helped Freddie Mac close its financings faster.

Financing Track Record

Freddie Mac financed more than $5 billion in affordable rental housing in 2015, up more than 115 percent from the previous year. In 2015, it committed more than $1 billion in TEL business and more than $1 billion in taxable mortgages specifically for preservation. Targeted affordable housing falls outside the $35 billion Federal Housing Finance Agency's cap on Freddie Mac's multifamily loan purchases, so it is an area in which the company can really grow.

Freddie Mac securitizes about 90 percent of the multifamily loans it purchases, transferring the vast majority of expected credit risk from taxpayers to private investors. It also pools and securitizes subsidized affordable housing loans, which helps drive down the cost of mortgage debt and provides liquidity to this critical market. The company will continue to develop financial strategies to drive more investment capital into affordable housing and preservation, benefiting investors, borrowers, and renters. In the year ahead, Freddie Mac expects even more growth in targeted affordable housing, with a continued focus on preservation, so that more low-income families find quality rental housing they can afford.

For more information, visit Freddie Mac's multifamily targeted affordable housing web page or contact David Leopold or Shaun Smith, Multifamily Senior Director, Targeted Affordable Production, Freddie Mac.

1 Joint Center for Housing Studies of Harvard University, “America's Rental Housing: Expanding Options for Diverse and Growing Demand,” 2015.

2 Ibid.

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Collection: Community Developments Investments

  • Deputy Comptroller
  • Barry Wides
  • Editorial Staff
  • Rafe Ellison
  • Emily Gold
  • Design Staff
  • Victor Battista
On the Cover

Clockwise from top left: R Street Apartments, residents of the St. Dennis Apartments, St. Dennis Apartments, and Galen Terrace Apartments, all in Washington, D.C. (Photos courtesy of the National Housing Trust)

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