Issue link: https://read.dmtmag.com/i/720597
By Damon Reed, Senior Vice President of Originations, Capital One Multifamily Finance Last year, when Fannie Mae and Freddie Mac excluded manufactured housing communities (MHCs) from their annual caps, MHC investors were put on notice. In ef- fect, the agencies were declaring their intention to con- tinue emphasizing lending to one of the mainstays of affordable housing in the United States. The exclusion was also an opportunity to remind investors that agency fi- nancing is extremely competitive, featuring up to 80 per- cent LTV, terms as long as 30 years, and forward rate locks as long as 180 days. This June, Fannie Mae doubled down on that commit- ment by revising its MHC lending guidelines in a number of key areas. Lending Memo 16-03, which became effec- tive July 15, expands the ranks of MHCs that qualify for Fannie Mae loans. These revised guidelines serve to bring Fannie Mae in line with counterpart Freddie Mac. As the MHC market increasingly incorporates more of a rental home component, they also have the practical effect of helping to maintain higher occupancy rates, particularly in markets like the Midwest. Among the guidelines' most important provisions: • Higher Limits on Park-Owned Homes. Fannie Mae will now consider loans to communities with up to 35 per- cent of park-owned homes if the borrower plans to reduce this percentage over time. The new guidelines reflect a sea change in Fannie Mae's thinking about park-owned homes. Last year, it raised the limit to 25 percent, up from just 5 percent. • Looser Restrictions on Singlewide Sites. Previ- ously, Fannie Mae insisted that half of a park's sites had to accommodate doublewide homes. The agency will now waive this requirement as long as there is market demand for singlewide sites and the community is competitive. • More Flexibility for Communities in Flood Zone A. Fannie Mae has traditionally refused to finance com- munities in Flood Zone A. It will now make exceptions to this rule in certain circumstances for communities that are subject to rising water (which quickly dissipates) and for communities near moving water (such as streams or rivers). • More Lenders' Discretion on Level 3 Quality Rat- ing. In order to qualify for a Fannie Mae loan, MHCs must currently attain at least a Level 3 Quality Rating. Fannie Mae has relaxed these standards somewhat going forward. Lenders now have the power, delegated from Fannie Mae, to waive the Level 3 requirement for communities meet- ing most of the standards if the unsatisfactory characteristics do not materially detract from a community's overall appear- ance and performance. In such cases, those failed and unsat- isfactory characteristics must also be able to be remediated. Taken together, these amended guidelines mean that more communities may qualify for Fannie Mae loans, that those that had qualified in the past might no longer require waivers, and that in both instances owners and investors can count on even faster execution. The interest-rate environment only amplifies this good news. In July, the rates on 10-year treasuries ranged from 1.37 percent to 1.60 percent. For MHC owners and in- vestors, these rates are welcome return to the days of 2012. But historically, U.S. rates this low have only one direction to go—up—which makes Fannie Mae's early rate lock option particularly valuable for owners seeking to refinance. At today's rates, owners can lock in rates that are under 4 percent for 10 years, a compelling prospect. The new, more complex rules, however, underscore the importance of working with lenders with deep expertise and an established track record in MHCs. New lenders entering the market may not understand the nuances of this business suffi- ciently to correctly apply the new Fannie Mae guidelines or to understand when Freddie Mac or balance sheet financing might make more sense. When certain, swift, and seamless execution are all para- mount—as they invariably are—it always makes sense to part- ner with an experienced lender. At Capital One Multifamily Finance, agency MHC financ- ing is in our DNA. In fact, Grace Huebscher, our President, introduced Fannie Mae's MHC lending program during her tenure as a Fannie Mae vice president. At the same time, we have experience providing MHC customers a variety of fi- nancing options, including Fannie Mae, Freddie Mac, CMBS, life company, local bank, and balance sheet. At a time when the MHC market is heating up—on the coasts but also in places like Salt Lake City, Denver, and Dallas—access to this kind of dedicated, do-what-it-takes expertise can be a differentiator, helping clients close deals that might otherwise be out of reach and save them substantial sums on interest rates over the long term. For more information about how we can help you with your MHC financing, contact Damon Reed, Senior Vice President of Originations, Capital One Multifamily Finance, 205.769.1419, damon.reed@capitalone.com, or Monica Schroeder, Vice President of Originations, Capital One Mul- tifamily Finance, 205.769.1427, monica.schroeder@capi- talone.com. CAPITAL ONE FINANCIAL With Updated Guidelines, More MHCs Qualify for Fannie Mae Financing