The Federal Housing Finance Administration’s (FHFA) recent decision to maintain healthy multifamily purchase volumes for Fannie Mae and Freddie Mac calmed market uncertainties over capital availability for the remainder of 2019 and 2020, which had increased loan spreads by 30 to 50 basis points over the summer.
The decision also addressed similar uncertainties in the seniors housing industry and, to some degree, growing concerns over affordability. Both were hot topics at the National Investment Center for Seniors Housing and Care’s fall conference in mid-September, and M&T Bank’s healthcare banking and lending team took a central role in the discussions. (See the interview discussing these issues here.)
Michael Berman, M&T Realty Capital Corporation
FHFA, which is conservator for the Government Sponsored Enterprises (GSEs), established a $200 billion cap on multifamily loan volume for the five quarters ending Dec. 31, 2020 — $100 billion each for Fannie Mae and Freddie Mac. That works out to approximately $80 billion a year per GSE, which is an amount of multifamily loan purchases that neither had exceeded in past years, says Michael Berman, president and CEO of M&T Realty Capital Corporation. Meanwhile, FHFA told the agencies that “mission-driven, affordable housing” should make up at least 37.5 percent of their loan purchases over the five quarters.
“One of the interesting questions is how these caps will affect the way Fannie and Freddie regulate their multifamily loan portfolios, and I would suggest they’re in the process of working that out as we speak,” says Berman, who previously worked on GSE reform efforts during his time as the chair of the Mortgage Bankers Association in 2010-2011 and as a Senior Advisor to HUD Cabinet Secretary Shaun Donovan from 2012 to early 2014. “One thing we know is that affordable housing is very important to them, so any seniors housing project that has affordable units in it is going to be something they value.”
Within the seniors housing sector, Fannie Mae and Freddie Mac primarily serve the independent living, assisted living and memory care markets, and they provided $6.4 billion in financing to the seniors housing market in 2018, down from $9.1 billion the prior year. The GSEs are likely to maintain a level of seniors housing financing at around 5 percent of their annual multifamily volume, says Matthew Pipitone, a seniors housing producer with M&T Realty Capital.
Another important capital source for the seniors housing industry is the U.S. Department of Housing and Urban Development (HUD). Although HUD is known as the primary capital source for skilled nursing facilities, the government agency also provides financing for assisted living and memory care communities as well. HUD recently announced that it had financed $3.7 billion in assisted living and skilled nursing properties during its fiscal year 2019 (which ended September 30, 2019), up from $3.6 billion a year before.
M&T Realty Capital was a top five Fannie Mae Seniors Housing lender in 2018, and it was recently announced that the company was a Top Ten HUD 232 lender again in 2019. The wholly-owned subsidiary of M&T Bank is on pace this year to reach its highest level of seniors housing originations with Fannie Mae, Freddie Mac and HUD.
“All three of these agencies are very important to the seniors housing industry,” Pipitone says, “and they will continue to be going forward.”
Since FHFA introduced its new affordable housing target in September, seniors housing developers have shown increasing interest in knowing the affordability score on each of their projects, he adds. So far this year, M&T Realty Capital has provided some $600 million to seniors housing borrowers across 14 states for projects that had affordability scores of more than 52 percent.
“Affordability is important to the agencies,” Pipitone says. “As a result, developers with more than 50 percent affordability will receive better pricing on their loans.”
How much better that pricing will be versus a conventional seniors housing community without affordable units remains to be seen, he adds, but will also depend on the sponsor, location, amount of leverage and other underwriting criteria the GSEs consider.
Under its guidelines, the FHFA is classifying “mission-driven” units as those that are affordable to tenants at various income thresholds. For seniors housing communities that aren’t subject to regulatory agreements or use restrictions related to affordability, that threshold is 80 percent of area median income (AMI). What’s more, the FHFA said that it would classify a pro-rata portion of a seniors housing loan as mission-driven based on the percentage of affordable units in a project — that is, the amount of the loan proportionate to the percentage of affordable units in a community will be applied to the affordable loan target of 37.5 percent for the GSEs.
Seniors housing developers interested in estimating the affordability score at an existing or potential property should avail themselves of the online affordability calculators that Fannie Mae, Freddie Mac and HUD provide, Pipitone advises. Ultimately, he suggests, FHFA’s new policy could foster the inclusion of a meaningful number of affordable units in seniors housing communities in the coming quarters.
“Developers are taking an interest in affordability for sure,” Pipitone says. “Questions about it have really picked up in the last 60 days.”
— By Joe Gose, contributing writer. This article was written in conjunction with M&T Realty Capital Corporation, a content partner of Seniors Housing Business.
M&T Realty Capital Corporation is a wholly-owned commercial mortgage banking subsidiary of M&T Bank, Member FDIC. 
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