Fannie & Freddie's 2024 Multifamily Caps: Navigating a Shifting Landscape

By Majid Radaei, RadCRE · · Market Updates

The FHFA set a combined $75B cap for Fannie Mae & Freddie Mac in 2024, down from $78B, impacting affordable housing and loan sizing amid SOFR volatility.

In a closely watched announcement, the Federal Housing Finance Agency (FHFA) revealed the 2024 multifamily lending caps for Fannie Mae and Freddie Mac, setting a combined total of $75 billion. This figure, a slight decrease from the $78 billion allocation in both 2022 and 2023, reflects a targeted approach to support affordable housing while acknowledging evolving market dynamics. For 2024, the FHFA mandated that at least 50% of the Enterprises' multifamily business be mission-driven affordable housing, a commitment that directly impacts the availability and structuring of agency debt for various asset classes.

Impact of Decreased Lending Caps and Mission-Driven Focus

The $3 billion reduction in the combined cap, although modest in the grand scheme of the multifamily market, signals a tightening of the agency spigot. This move could lead to increased competition for agency financing, especially for market-rate properties that do not fall under the strictures of affordable housing mandates. Historically, Fannie and Freddie have been vital liquidity providers, particularly during periods of market stress. Commercial real estate firms like JLL and CBRE closely monitor these caps, as they directly influence their debt placement divisions' strategies.

The 50% affordable housing mandate means that approximately $37.5 billion of the agencies' business will be dedicated to financing properties where at least 60% of units are affordable to tenants earning 120% of the Area Median Income (AMI), or properties with other specific affordability covenants. This emphasis reinforces the agencies' role in addressing the nationwide housing affordability crisis, often supporting crucial developments for low- and moderate-income communities. However, it implicitly suggests that a smaller portion of the remaining cap will be available for conventional, unsubsidized multifamily projects.

Navigating the Current Rate Environment and Loan Products

The current interest rate environment, characterized by SOFR hovering around 4.31% and Prime at 8.50%, adds another layer of complexity for multifamily investors. Agency debt, typically priced at spreads over SOFR for variable-rate products or over U.S. Treasuries for fixed-rate options, remains highly competitive due to its non-recourse nature and longer loan terms compared to many bridge or bank loans.

For context, CMBS spreads are currently in the T + 150-300 bps range, while bridge loans, often seen as an alternative for transitional assets, are priced significantly higher at SOFR + 300-600 bps, sometimes with substantial origination fees. Fannie and Freddie's offerings, including their DUS (Delegated Underwriting and Servicing) program for Fannie Mae and their Optigo products for Freddie Mac, continue to provide attractive terms, especially for stabilized assets. The challenge will be securing these allocations given the heightened focus on affordable housing and the overall reduced cap.

Developers and investors pursuing market-rate or value-add strategies for non-affordable properties may find themselves exploring alternative financing structures, such as bank debt, life company loans, or even considering mezzanine debt (currently at 12-18% interest) or preferred equity to fill capital stacks. The agencies’ reduction might inadvertently push more deals towards these higher-cost capital sources if conventional loan sizing becomes constrained.

RadCRE Perspective

Majid Radaei, Founder of RAD Commercial Realty, notes, "The FHFA's 2024 caps for Fannie and Freddie, particularly the sustained 50% mission-driven affordable housing mandate, are a clear signal of their priorities. For developers and investors in market-rate or garden-style multifamily, this means the playing field gets trickier. We're seeing spreads from agency lenders remain competitive, but the capacity is tighter. This isn't necessarily a bad thing for deals with strong fundamentals, but it absolutely demands a more sophisticated capital stack strategy.

At RadCRE, we're advising clients to be realistic about loan-to-value (LTV) expectations with agency debt for non-affordable assets. Unless your deal truly aligns with the affordable housing criteria, you might face lower proceeds. This gap then needs to be filled. Instead of automatically defaulting to expensive bridge debt (which can easily be SOFR + 400-500 bps plus fees today), we’re meticulously evaluating the blend of senior debt, preferred equity, or even structured JV equity. For a transitional asset that might not fit the agency box now but will stabilize into agency eligibility later, a well-structured bridge loan with a clear exit to agency financing *can* still make sense, but the business plan has to be bulletproof. For our clients in the hospitality sector, it's a reminder of the differing liquidity dynamics, often necessitating alternative finance solutions like SBA 7(a) (Prime + 2.25-2.75%) or conventional banks. The key is knowing what capital pool fits your specific asset and business plan, and understanding the true all-in cost of capital."

Future Outlook

As the year progresses, the allocation and deployment of these agency caps will be keenly watched. The current interest rate trajectory, while showing signs of stabilization, remains a principal concern. The continued emphasis on affordable housing ensures a steady pipeline for certain types of developments, but it necessitates careful planning for those operating outside that mandate. RadCRE remains committed to guiding clients through these evolving capital markets, leveraging our expertise in structuring optimal financing solutions across all asset classes, including hospitality, retail, and multifamily.

Tags: commercial real estate financing, Fannie Mae, Freddie Mac, multifamily lending, affordable housing, agency debt, SOFR, real estate capital markets

Sources: FHFA, Commercial Observer, CoStar, Mortgage Bankers Association (MBA)