The Mortgage Bankers Association hosted its annual Commercial Multifamily Finance Convention and Expo (CREF) in San Diego last week, bringing together industry leaders, experts and professionals. Members of the Krooth & Altman GSE and HUD Team at Miles & Stockbridge headed west to network, exchange insights and engage in dynamic sessions that tackled the fast-changing economic, regulatory and political landscape. Below are some of the key takeaways from the event that are important to know.
Updated Guidance Coming from Fannie Mae, Freddie Mac
- Fannie Mae is preparing to publish its long-awaited new guidance on preferred equity. (Industry insiders have had access to Fannie Mae’s unpublished preferred equity checklist since 2023). A final version of the preferred equity checklist will be officially released with the corresponding updates to the Fannie Mae Guide guidance.
- Fannie Mae is also preparing to publish in April an updated version of its loan agreement along with dozens of other form loan documents. We are working on obtaining a better understanding of the contemplated changes and how they may affect our clients’ business.
- Freddie Mac is preparing to issue another round of fraud guidance and requirements as soon as this week. We will review and share our thoughts on what they mean for our clients once the guidance is released.
State of the CRE Market
Commercial real estate market players predict a strong but uncertain 2025, with borrowers continuing to look to preferred equity, mezzanine financing and flexible lending terms to accommodate the rate environment. Many unknown variables, such as insurance and rising operating costs, could create headwinds for the industry.
- Count Down – 20% of all outstanding commercial real estate loans are set to mature in 2025, equating to $957 billion.
- Market Standard – Counsel for CMBS lenders report that their clients are requiring disbursement ledgers and copies of the seller settlement statement on acquisitions. This shift indicates that the new anti-fraud requirements Fannie Mae and Freddie Mac introduced in 2024 are becoming market standard.
- Fixed Rate – While Freddie Mac has seen an uptick in requests to quote floating rate transactions, this uptick is not translating into applications. In other words, do not look to 2025 as the year borrowers return to variable rate products. Instead, given the current and anticipated rate environment, Freddie Mac expects to continue seeing many 10-year fixed rate transactions and an increase in five-year fixed rate applications.
- Local Variables – Anticipate continued discussion at state and local levels concerning rent control, rent stabilization and tenant privacy, as well as continued local efforts to support workforce housing through subordinate or gap financing and grants.
- Conservatorship Over? – The Mortgage Bankers Association has all eyes on Fannie Mae and Freddie Mac’s conservatorship and believes that new efforts will be made in 2025 to free these government-sponsored enterprises.
Updates from Capitol Hill
Anticipate across-the-board increases in the Department of Housing and Urban Development’s loan processing and response times in 2025:
- Confirmed – Newly confirmed Secretary Scott Turner has spoken highly of Opportunity Zones, which designate geographical areas for reduced loan processing times and fees. Anticipate Opportunity Zones being talked about more this year while other programs are phased out or modified as the new administration shifts policy.
- DOGE Effect – The Department of Government Efficiency has arrived at HUD in search of “waste, fraud and abuse.” Certain HUD contractors are expected to be early casualties, with HUD bringing work back in-house. Meanwhile, a combination of the “deferred resignation” initiative, the firing of HUD probationary employees (those with up to two years tenure), and an overall hiring freeze will result in a reduced HUD workforce.
- Green is Out – HUD has already paused loans being processed through its Green and Resilient Retrofit Program, and industry insiders anticipate changes or moves to phase out other HUD initiatives, including, potentially, green mortgage insurance premium initiatives and flood and climate mitigation efforts.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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