The Trust provides permanent mortgage loan financing for the new construction or rehabilitation of multifamily housing through the purchase of Fannie Mae Mortgage-Backed Securities or Freddie Mac Participation Certificates.
Fannie Mae requires its approved Delegated Underwriting and Servicing (DUS) Lenders to apply strict underwriting standards and will not accept lease up risk. Generally, GSE underwriting requires 90 percent occupancy for 90 days prior to issuance of the Securities. On occasion, the Trust will provide construction financing on projects that have secured Trust permanent loan financing. Such construction financing is only permitted if it is credit enhanced (e.g. letter of credit) by a construction lender that is rated A or better and approved by the Trust.
This structure allows the developer to secure fixed rate permanent financing prior to the start of construction by securing a forward interest rate-lock with the Trust. When the Trust also provides the construction financing as described above, the developer will also minimize its negative arbitrage by receiving monthly draws as approved by the lender through construction and a lower interest rate on the permanent loan. The Trust will also provide some flexibility in the amount of the permanent loan based upon negotiations among the Fannie Mae DUS Lender, the Trust and the developer.