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Freddie Mac's Class A Multifamily M Certificates are fully guaranteed tax-exempt and taxable securities supported by pools of unenhanced tax-exempt and taxable multifamily housing collateral. Multifamily M Certificates offer Freddie Mac's guarantee of timely payment of principal and interest.
ML-Deals® are uniquely positioned within the multifamily securitization market as a new, more efficient and cost-effective alternative to financing stabilized affordable multifamily properties with 4% Low-Income Housing Tax Credits (LIHTC). Freddie Mac is leveraging existing K-Series and M-Series securitization programs to efficiently securitize tax-exempt loans (TELs) and related supplemental taxable loans (Taxable Loans) via the ML-Series.
ML Certificates provide the opportunity to invest in predominantly tax-exempt securities supported by pools of TELs and Taxable Loans secured by completed, occupied, and stabilized affordable housing properties, including new construction and post-construction properties after moderate or major rehabilitation.
Since the financial crisis in 2008, many banks have developed TEL versions of their tax-exempt bond private placement structures to obtain “lending credit” as compared to “investing credit” for Community Reinvestment Act (CRA) purposes and loan accounting treatment under GAAP accounting guidelines.
Freddie Mac has implemented a TEL financing execution for multifamily housing pursuant to which it purchases from its approved Lenders for Targeted Affordable Housing tax-exempt notes (Governmental Notes also known as TELs) issued by Governmental Entities for the purpose of financing affordable multifamily rental housing. The Governmental Entities loan the proceeds of the Funding Loans to multifamily developers/owners (Project Loans) to finance the acquisition and/or moderate rehabilitation of affordable multifamily housing properties.
In certain instances where the Governmental Entities cannot issue the entire amount of debt required with tax-exempt debt due to private activity volume cap constraints, Taxable Loans are made by the Lenders and sold to Freddie Mac. Such Taxable Loans are supplemental loans that were made at origination of and are usually subordinate to the TELs made on any given project.
Freddie Mac’s TEL product offers loan terms of up to 30 years, a 35-year loan amortization, 1.15x minimum debt service coverage ratio (DSCR) and a 90% maximum loan-to-value ratio (LTV). Currently, the TEL product is available for immediate fundings, primarily for acquisition/moderate rehabilitation transactions, as well as unfunded forward commitments for new construction and substantial rehabilitation transactions.
Generally, Freddie Mac securitizes TELs and Taxable Loans via the ML Certificate structure through the following steps: