The government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, have announced that they are quickly approaching their 2015 volume caps. In January of this year, the Federal Housing Finance Agency (FHFA), who regulates these agencies, released its 2015 scorecard which detailed 2014 activities and outlined 2015 priorities for the agencies.  The scorecard retained the volume caps imposed on Fannie and Freddie for multifamily business; leaving Fannie at its 2014 cap of $30 billion, and increasing Freddie’s by $4 billion, to the same $30 billion.

In light of their volume to date, the GSEs predict that they may run dry of allocation as soon as late-Summer 2015. Fannie Mae has closed approximately $10 billion (or 33% of its cap) and Freddie has either closed or currently has in its pipeline $25 billion (or over 80% of its cap).

Having just completed the first quarter of 2015, the GSE’s are faced with having to mitigate the fleeing allocation.  They had already begun to increase pricing over the last few weeks and are likely to continue to do so for the foreseeable future. Both agencies have widened spreads at least 25 bps. Such increases have already placed them at higher rates than CMBS and life companies.  Freddie may increase pricing another 45 bps in the next week.  Such actions are likely to halt loan volume and throw Fannie and Freddie to the very rear of the competitive multifamily debt race, together with their stakeholders and servicer partners.

While this is bad news for those seeking market rate deals, there is a silver lining:  Freddie Mac’s Targeted Affordable Housing and Small Balance (less than $5MM) loan products and Fannie Mae’s Multifamily Affordable Housing, DUS Small Loan and Manufactured Housing Community loan products are exceptions from the volume cap allocation. These loans, typically for underserved markets and property types, may continue to flourish with the agencies, and are exactly the types of financing that the GSE’s and FHFA are committed to providing.

Both Fannie Mae and Freddie Mac have also developed several new rate lock programs that allow borrowers the ability to rate at least some portion of its interest rate with reduced underwriting on the part of the lender.  Those borrowers willing to take the increased risk with these new rate lock programs are rewarded by at least partly mitigating the future increase in spreads.