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Fannie Mae Credit Enhancement of Variable-Rate Tax-Exempt Bonds (Index Bonds)
Fannie Mae bond financing offers LTV allowances of up to 85%, amortizations of up to 35 years, and extremely competitive interest rates.
Fannie Mae Bond Financing Solutions for Multifamily Borrowers
Investors and developers searching for an alternative method to fund the construction, refinancing, rehabilitation, or acquisition of affordable properties don't need to look further than Fannie Mae's Credit Enhancement of Variable-Rate Tax-Exempt Bonds program. Eligible properties for this program include Multifamily Affordable Housing (MAH) developments, "80/20" deals (properties with at least 20% affordable units), and stabilized 4% Low-Income Housing Tax Credit (LIHTC) properties. Plus, the program offers LTV allowances of up to 85%, amortizations of up to 35 years, and extremely competitive interest rates.
Sample Fannie Mae Terms for Credit Enhanced Variable-Rate Tax-Exempt Bonds in 2023
Size: Varies, typically $3 million
Terms: 10-30 years
Amortization: Up to 35 years
Interest Rates:
Fixed, variable-rate, and interest-only loan options available
Fixed rate bonds sometimes require re-marketing/rate reset after 10 years
An 18-year minimum term and initial reset period is mandatory for properties with 20% or more Low-Income Housing Tax Credit (LIHTC) units
Variable-rate bonds typically have the option to convert to fixed-rate bonds, for a minimum 10-year period, or, if less than 10 years, for the remainder of the credit enhancement
Variable-rate:
85% (without value of tax-exempt financing)
80% (including value of tax-exempt financing)
Fixed-rate:
85% (without value of tax-exempt financing)
80% (including value of tax-exempt financing)
90% (for projects with 90% or more Low-Income Housing Tax Credits (LIHTCs)
Multifamily Affordable Housing (MAH) Developments
4% LIHTC Properties
80-20s (deals in which 20% of the property is set aside for low income residents)
Bond refunding and new issues allowed
Competitive interest rates
Up to 85% LTV allowance
Up to 35 year amortization
30 day rate locks allowed
Loans are non-recourse
Supplemental financing is allowed (up to two supplemental mortgages allowed, with a third allowed under certain circumstances if the loan is assumed by a new borrower)
No put feature (the bond holder cannot demand that the issuer pay back the bond in advance)
Forward commitments for new construction available
No limits on rate changes
Borrowers must purchase interest rate cap from an approved provider
Requires third-party reports including Phase I Environmental Assessment, Property Condition assessment, and Appraisal
Issuer and trustee fees required
Interest Rate Caps: For variable-rate bonds, borrowers must purchase an interest rate cap with a term of at least 5 years. Borrowers must purchase a new cap when the cap expires.
Maximum LTV:
Minimum DSCR: 1.00x, as calculated via a variable underwriting rate
Prepayment Penalty: Flexible options available
Recourse: Loans are non-recourse with standard “bad boy” carve-outs
Eligible Properties:
Third-Party Subordinate Debt: Allowed under certain circumstances: hard debt must be issued by a non-profit, public, or quasi-public entity and combined DSCR cannot go below 1.05x, while soft third-party subordinate debt payments cannot exceed 75% of property cash flow "after payment of senior liens and property operating expenses"
Assumability: Fully assumable with lender approval and a 1% fee
Advantages:
Disadvantages: