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How you could benefit from 130% increase in agencies’ 5-50-unit housing goal

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In recent news, the Federal Housing Finance Agency (FHFA) proposed new housing goals for Fannie Mae and Freddie Mac for the upcoming years, 2022 through 2024. This proposal includes a 13,000 unit, or 130%, increase to their annual small multifamily (5-50 units) low-income sub-goal which currently stands at 10,000 units. To meet this new sub-goal, Fannie Mae and Freddie Mac must each purchase multifamily loans, in other words, lend, on properties with 5-50 units that meet the FHFA’s low-income definition. If the FHFA’s proposal is ultimately adopted, investors in smaller multifamily properties should benefit from the competitive loan terms available through Fannie Mae and Freddie Mac’s small loan programs as they seek to meet or exceed their new targets.

What's the purpose of establishing housing goals?

The FHFA’s housing goals and sub-goals were established to ensure Fannie Mae and Freddie Mac support and promote equitable access to affordable housing. Smaller multifamily properties are by nature more affordable to tenants given their tendency to have fewer amenities than larger apartment communities.

The FHFA established the small multifamily (5-50 units) low-income sub-goal to encourage Fannie Mae and Freddie Mac to participate in this highly affordable market as well as to develop the expertise necessary to serve this market, should private sources of capital become unable or unwilling to lend.


What happens if the proposed goals are not met?

If Fannie Mae and Freddie Mac fall short of the proposed housing goals, they could be subject to a cease-and-desist order and civil money penalties. Needless to say, this sub-goal has served as a key driver of production for both Fannie Mae’s Small Loans Program and Freddie Mac’s Optigo® Small Balance Loans Program and the proposed increase should not only result in a continued commitment to this segment of the market, but also competitive loan terms to ensure they’re winning the right amount of business.


How aggressively are Fannie Mae and Freddie Mac likely to pursue small multifamily business?

Let’s look at actual results over the past few years to see how many more units would be needed to meet the proposed threshold. You can see in the chart below, that both agencies have well-exceeded the 10,000 unit small multifamily (5-50 units) low-income sub-goal that has been in place since 2018.

Freddie Mac has also met or exceeded the proposed 23,000-unit sub-goal over the past 3 years. Fannie Mae on the other hand, while almost doubling their number of qualifying units over the past 3 years, have not yet achieved 23,000 units. Based on these results, at the very least, Fannie Mae should be incentivized to do more affordable small loan business and the new minimum also raises the floor that both agencies will need to continue to meet and exceed going forward.

FHFA sub-goal and results for small (5-50 units) low-income multifamily properties











Fannie Mae





Freddie Mac





Source(s): Fannie Mae and Freddie Mac Housing Goals Performance | Federal Housing Finance Agency (fhfa.gov), 2020_Freddie_Mac_AHAR.pdf (fhfa.gov) (Page 6), display (fanniemae.com) (Page 10)


What else to look for:

In addition to the housing goals discussed above there are a few other key drivers that will likely impact the competitiveness of Fannie Mae and Freddie Mac’s small loan programs in the year ahead, mainly, the FHFA’s multifamily loan purchase caps and the performance of Fannie Mae and Freddie Mac’s small loan portfolios.


The FHFA’s multifamily loan purchase caps

Each year, separate from the housing goals discussed above, the FHFA also establishes multifamily loan purchase caps for both Fannie Mae and Freddie Mac. This cap restricts the amount each agency can lend on an annual basis and ensures a strong focus on affordable housing and traditionally underserved markets.

In early October, the FHFA announced a $16 billion increase in the multifamily loan purchase caps for 2022. Thanks to this increase, both Fannie Mae and Freddie Mac will have a greater overall supply of capital to deploy and will do so by offering competitive loan terms for multifamily properties, both large and small. The FHFA also requires that at least 50% of this production meet their definition of affordable housing and 25% must be affordable at or below 60% of area median income (AMI), up from 20% in 2021. Given the affordable nature of smaller multifamily properties, an increase in the percentage of production that must qualify as affordable could also be beneficial for the small loan programs.


Fannie Mae and Freddie Mac’s small loan portfolio performance

Finally, the performance of Fannie Mae and Freddie Mac’s small loan portfolios, or small loans they have purchased and are still outstanding, will likely impact how aggressively they pursue this business and at what terms going forward. One key indicator of the health of this portfolio is the number of loans in forbearance.

Forbearance is a relief option offered by Fannie Mae and Freddie Mac to multifamily borrowers which allows them to suspend their debt payments for a period of time as they deal with the financial hardships of the COVID-19 pandemic. Per the monthly Multifamily Securitization Forbearance Report issued by Freddie Mac in July 2021, the majority of Freddie Mac’s forborne multifamily loans were small balance loans. Two primary drivers of this occurrence are:

  • Each unit in a smaller multifamily property represents a significant proportion of overall cash flow, and therefore has a greater impact on the borrower’s ability to make mortgage payments if tenants are unable to pay rent.
  • Smaller multifamily properties typically offer fewer amenities, making them more affordable to tenants who are more likely to be economically impacted by the pandemic.

Both Fannie Mae and Freddie Mac will continue to keep a close eye on their forborne loans – any positive or negative movement in their performance will also likely impact their available terms.


Update: December 22, 2021

Today, the FHFA finalized their housing goals for 2022, which included a few adjustments to their proposed small multifamily (5-50 units) low-income sub-goal:


Fannie Mae and Freddie Mac will have different goals due to their unique business models.

The small multifamily (5-50 units) low-income sub-goal for each agency will be:

  • Fannie Mae: 17,000 units
  • Freddie Mac: 23,000 units
These goals will apply to 2022 only, as opposed to 2022-2024, based on feedback received on the proposed rule and the varying impacts of COVID-19 on different segments of the market.


Even though Fannie Mae’s sub-goal has been revised downward by 6,000 units from the FHFA’s initial proposal, it is still 7,000 units, or 70% higher than 2021. The FHFA believes both agencies should be sufficiently incentivized to continue to participate in this historically underserved segment of the market which should translate into competitive loan terms for smaller multifamily properties in 2022.


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Editor's Note: This post was originally published on September 22, 2021, but has since been updated with new data for accuracy on October 25, 2021 and December 22, 2021.  

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