Freddie Mac Bond Credit Enhancement for 4% LIHTC Properties

Freddie Mac Bond Credit Enhancement Financing for the Acquisition, Refinancing, or Credit Substitution of Low-Income Housing Tax Credit (LIHTC) Properties 

If you're an investor or developer interested in building, acquiring, refinancing or renovating a property utilizing Low-Income Housing Tax Credits (LIHTCs), then Freddie Mac's Bond Credit Enhancement for 4% LIHTC Properties could be a fantastic source of financing. This program offers three different financing solutions for borrowers: forward commitments for to-be-built or substantially rehabilitated LIHTC properties, immediate funding for current LIHTC properties that can achieve 90% occupancy for at least 90 days, and preservation rehabilitation funding for LIHTC properties with tenants in place that are currently undergoing moderate rehabilitation. Plus, this form of bond credit enhancement financing allows DSCRs as low as 1.15x and supports eligible mixed-use properties. 



Sample Freddie Mac Terms For Bond Credit Enhancement with 4% LIHTC

Size:  Varies based on LTV and DSCR requirements. 

Uses:

  • Forward Commitment: Provides bond credit enhancement for LIHTC properties post-construction or substantial rehab
  • Immediate Funding:  For the acquisition, refinancing, or credit substitution of LIHTC properties 
  • Preservation Rehabilitation: Intended for properties with tenants in place undergoing moderate rehabilitation 

Terms:  

  • Forward Commitment and Immediate Funding: 
    • Minimum term: Remaining LIHTC compliance period or 15 years, whichever is less
    • Maximum term: 35 years
  • Preservation Rehabilitation: 
    • Minimum term: Remaining LIHTC compliance period or 15 years, whichever is less
    • Maximum term: 35 years

*Rehabilitation/stabilization period (24 months maximum) is included in the loan term for preservation rehabiliation   

Amortization:  Up to 35 years 

Interest Rate:  Fixed and floating-rate options available 

Interest-Rate Caps:  Required 

Maximum LTV/Minimum DSCR: 

  • Variable-rate with cap hedge: 80% of adjusted value or 85% of market value/1.20x 
  • Fixed-rate: 85% of adjusted value or 90% of market value/1.15x 

 Eligible Properties: 

  • Forward Commitment: To-be-built or substantially rehabilitated garden, mid-rise, or high-rise properties with 4% LIHTC
  • Immediate Funding: Garden, mid-rise, or high-rise properties with 4% LIHTC (must maintain 90% occupancy for 90 days, and at least 7 years must be remaining in LIHTC compliance period) 
  • Preservation Rehabilitation: Garden, mid-rise, or high-rise properties with 4% LIHTC undergoing moderate rehabilitation with tenants in place

Construction Loans: Maximum forward commitment term of 36 months plus a free 6-month extension during construction period

Prepayment Penalty:  Fee maintenance

Specific Funding Information: 

  • Forward Commitment: 
    • Bond credit enhancement is available during construction phase (funded forward commitment)
    • A letter of credit collateral is required during construction phase
    • Forward commitment to provide bond credit enhancement is available upon successful conversion of the property from the construction phase to permanent phase (unfunded forward commitment) 
  • Immediate Funding: Bond credit enhancement for fixed- or variable-rate tax-exempt bonds
  • Preservation Rehabilitation: 
    • Bond credit enhancement for acquisition/rehabilitation is based on projected post-rehabilitation net operating income (NOI)
    • Cash or letter of credit collateral is needed to fund the gap between supportable debt on the current NOI and the bond mortgage loan amount (collateral held until stabilization) 
    • Interest-only financing is available during the rehabilitation/stabilization period

Advantages:

  • Subordinate financing permitted 
  • Eligible mixed-use properties supported 
  • Deals with new 4% or 9% LIHTC can be underwritten to DSCRs as low as 1.15x

Disadvantages:

  • Application fee, commitment fee, credit facility fee, and other fees are required