The Federal Housing Finance Agency (FHFA) announced 2018 multifamily lending caps for Fannie Mae and Freddie Mac (the Government Sponsored Entities aka GSEs), along with two policy changes regarding eligibility for excluded categories. The 2018 lending cap will be $35 billion for each GSE, down just over four percent from $36.5 billion in 2017.

We sat down with Partner ESI’s Joe Derhake for an exclusive Q&A on what this means for agency lenders and opportunities for FHFA program participants.

Q: What does this mean for agency lenders?

 JD: Reducing the lending cap by four percent is usually a bit disappointing for an agency lender, but considering that green lending and affordable housing are excluded categories, the agency’s lenders could still top or equal their very robust year in 2017.

 Q: Will these restrict all FHFA programs?

 JD: No. Green lending programs, that is, loans to finance energy or water efficiency improvements, will continue to be excluded from the cap, but will be subject to more stringent efficiency standards. Improvements financed through Fannie Mae’s Green Rewards and Freddie Mac’s Green Up/Green Up Plus must now provide a 25% energy or water savings, compared to last year’s requirement of 20%.

 My colleague, Tony Liou, President of Partner Energy, Inc., has seen borrowers benefit from the green lending program on more than one level. In his words: “As a result of the Green Lending Program, we have witnessed borrowers make capital investments that not only reduced energy and water use, but also improved overall property resiliency – investments they would not have made if the Green Program Incentives were not available.”

 We look forward to continuing our support of the Green Lending Programs in 2018 by providing energy studies and benchmarking support to agency lenders and borrowers, and by helping our clients meet the higher program energy and water reduction requirements.”

 Q: We understand there are additional FHFA changes. What are they and how will they affect other programs such as the affordable housing program?

 JD: In addition to the green lending program, the affordable housing program will also see a change in 2018. FHFA will add an extremely high cost market category, where units with rents affordable to renters whose income is at or below 120% of the area median income will be eligible for exclusion from the cap on a pro-rata basis. In extremely hot rental markets like San Francisco, this will help tradesmen and median earners afford to rent apartments. This will have the most significant impact on renters in 2018 and beyond if the program continues.