Freddie Mac Announces New Forward Commitment Allowance for Multifamily

By Erik Sherman

Freddie Mac announced that it will increase financing for newly constructed or heavily rehabbed multifamily housing.

“The company will leverage new flexibilities granted by FHFA that allow for more use of forward commitments, which are agreements to purchase loans at a later date with certain financing terms locked in today,” the release said. “The agreements provide greater certainty to construction lenders and housing developers by limiting risks they face when executing complex multifamily deals in volatile markets. Freddie Mac proposed greater use of forward commitments in its Equitable Housing Finance Plan.”

Uncertainly is always a problem in any business, including commercial real estate. The condition creates risks and makes it more difficult for a company to plan and arrange suitable financing.

When inflation is high, construction costs keep briskly rising, and the Federal Reserve keeps pushing interest rates further upwards, the problem can become practically insoluble. Too many factors are up in the air. If the project is for affordable housing, then the issue is even more difficult. A hard limit to how high rents can be leaves no available slack in planning to meet future costs.

The Federal Housing Finance Agency (FHFA) had said that future commitments had to fit within Freddie Mac’s annual product cap, $78 billion for 2022. But now, FHFA said that $3 billion in 2022—just under 4%—was exempted from the cap. FHFA is lifting the previous $500 million cap on forward commitments for properties that don’t come under the Low-Income Housing Tax Credit program.

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