Fannie Mae Standard FHA Risk Sharing Execution
Fannie Mae's standard FHA risk-sharing execution can help reduce loan pricing while maintaining the efficiency of the traditional Fannie Mae borrowing process.
FHA Risk Sharing for Affordable Fannie Mae Financed Properties
When it comes to financing Multifamily Affordable Housing (MAH) properties with Fannie Mae loans, investors have a lot of options. However, if they want to save the most money, they might want to consider using Fannie Mae's Standard FHA Risk Sharing Execution, which can help reduce loan pricing while maintaining the efficiency of the traditional Fannie Mae borrowing process.
Fannie Mae's Standard FHA Risk Sharing Execution provides a variety of flexible options — and with loan terms of between 15 and 40 years and LTV allowances of up to 90% "as stabilized," this program is flexible (and generous) enough to help a wide variety of multifamily borrowers gain a financial edge.
Sample Fannie Mae Terms For FHA Risk Sharing Execution in 2024
Size: No set minimum or maximum, but loans over $50 million require HUD approval
Terms: 15 to 40 years
Amortization: Up to 40 years, 30 years for balloon loans
Interest Rates: Fixed-rate only
Maximum LTV: Up to 80% for existing properties, up to 90% for to-be-built properties "as stabilized"
Minimum DSCR: 1.15x for existing properties- 1.20x for to-be-built properties "as stabilized"
Recourse: Loans are non-recourse with standard “bad boy” carve-outs
Prepayment Penalty: Flexible prepayment options available
Eligible Properties:
Multifamily Affordable Housing (MAH) properties with rent/income restrictions
Rent/income restrictions must remain for the entire term of the loan
Lower pricing than traditional Fannie Mae loans
Loans are non-recourse
30-180 day rate locks available
Loans are assumable (with lender approval)
Requires third-party reports including a property condition assessment and a Phase I Environmental Assessment
Requires replacement reserves
HUD subsidy layering reviews may be required in some situations (including certain LIHTC transactions, properties with HAP Section 8 contracts, and properties using soft debt via state and local HOME funds)
Advantages
Disadvantages
Case Study: Financing the Construction of Affordable Housing in Denver
In this hypothetical situation, we're considering Rocky Mountain Property Group (RMPG), a Denver-based real estate investment company that specializes in creating and managing Multifamily Affordable Housing (MAH) units. Recognizing the growing demand for affordable housing in the region, RMPG identified an opportunity to construct a new 200-unit apartment complex specifically designed to meet the needs of lower-income residents.
The project's estimated cost is $45 million. To finance this, RMPG chose to leverage Fannie Mae's Standard FHA Risk Sharing Execution. After analyzing their financials, RMPG discovered that they could achieve significant savings compared to conventional financing options. This was primarily due to the lower interest rates and extended loan terms (up to 40 years) that the FHA Risk Sharing Execution offers.
In this case, the maximum Loan-to-Value (LTV) ratio allowed under the FHA Risk Sharing Execution was up to 90% for to-be-built properties "as stabilized." This feature enabled RMPG to significantly reduce their equity requirement, thereby freeing up cash to invest in other opportunities. Also, the fact that the loans were non-recourse reduced RMPG's risk, as the liability was limited to the collateral securing the loan, rather than the entire company's assets.
Given that the property would be subject to rent/income restrictions for the full term of the loan, RMPG had to ensure that their financial projections for the property were viable. They carried out a market study, and considering the high demand for affordable housing in Denver, they felt confident that the property would remain fully leased for the duration of the loan.
RMPG was also required to perform a property condition assessment and a Phase I Environmental Assessment as part of the loan process. Despite the cost and time associated with these reports, RMPG found them to be beneficial, as they identified potential risks and issues that might impact the project.
After successful completion and stabilization, the apartment complex became a vital resource in the Denver community, providing much-needed affordable housing and supporting RMPG's mission to improve lives through providing quality, affordable homes.
This case study serves as an example of how Fannie Mae's FHA Risk Sharing Execution can offer real estate investors a cost-effective and flexible option for financing Multifamily Affordable Housing (MAH) projects. Each situation is unique, and it's important for potential borrowers to review the details and requirements of the program thoroughly with a knowledgeable financial advisor or lender.
This is a fictional case study provided for illustrative purposes.