Freddie Mac Securitization Could Help the Affordable Housing Challenge

Freddie Mac has upped the ante on its securitization programs. In June the company issued hundreds of millions of dollars in bonds secured by loans to affordable housing properties.

“That means lower transaction costs and interest rates for long-term financing,” says David Leopold, vice president of targeted affordable sales and investments for Freddie Mac. “Because the securitization was so successful, we will be able to drive down costs.”

Freddie Mac’s securitization program could also have implications for Freddie’s lending to other kinds of apartment properties. “Will this open the door to doing the same thing with other quirky assets?” says Leopold. “It demonstrates that we continue to innovate.”

Some welcome relief for affordable housing projects

Every little bit helps for affordable housing developments, which have been hit with a double whallop of bad news this year. Investors are paying less to buy low-income housing tax credits (LIHTCs), which are the most important source of financing for new affordable housing projects. Tax credits suddenly became worth less to investors as a comprehensive reform of the U.S. tax code seemed more likely to be completed after the November election.

At the same time, long-term interest rates began to rise, along with the cost of many construction materials, digging a hole in the construction budgets of new projects. Projects that rely on tax-exempt bond financing and the 4 percent LIHTCs have been hit especially hard, because those tax credits provide a thinner stream of subsidy.

The deal

Freddie Mac’s securitization was its first securitization of tax-exempt loans made by state or local housing agencies and secured by affordable rental housing.

The inaugural issuance includes approximately $292 million in ML Certificates backed by tax-exempt loans on 25 affordable housing properties and approximately $18.5 million in ML Certificates backed by taxable…

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