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While agency loans have existed for decades—Fannie Mae® was first chartered by the U.S. government in 1938, and Freddie Mac was introduced in 1970—even experienced commercial real estate investors may not have used them. 

“With bank and agency loans, one isn’t necessarily better than the other—it depends on the property, the client and their goals,” said Kurt Stuart, Managing Director of Commercial Term Lending Northeast at JPMorgan Chase. “Agency lending has different requirements and nuances than conventional bank loans. Any dedicated agency team is well versed in both.”

What are the main agencies?

The two main agencies are: 

  • Fannie Mae, short for the Federal National Mortgage Association
  • Freddie Mac, short for the Federal Home Loan Mortgage Corporation 

Both Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs). They’re private companies that operate under congressional charters to help stabilize mortgage markets and protect housing during stressful financial periods. 

Fannie Mae and Freddie Mac each have two businesses: 

  1. Single-family housing: residential properties with one to four units, which isn’t offered through JPMorgan Chase Commercial Banking
  2. Multifamily housing: residential buildings with five or more units; within this category, financing is available for affordable and market-rate properties


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“In both markets, the GSEs are a countercyclical source of capital, increasing market share when the private market pulls back, as we’re seeing presently,” said Josh Seiff, Managing Director of GSE Agency Lending, JPMorgan Chase. 

These agencies benefit the market in several other ways, including:

  • Providing standardization of loan terms through their underwriting standards
  • Bringing liquidity and transparency to the market by issuing mortgage-backed securities that carry their guarantee of timely payment of principal and interest
  • Encouraging lower rates, greater transparency and more consistent availability of capital for housing

How does the agency financing process work?

GSEs don’t originate or service their own mortgages. Instead, approved private lenders—such as JPMorgan Chase—make loans to borrowers. Fannie and Freddie buy those loans from lenders, which they may hold in their portfolios or combine with other loans as mortgage-backed securities that can be sold on the secondary market. Lenders use the funds from these mortgage sales to originate more loans. 

“Prior to the global financial crisis, the GSEs kept much of their risk on their balance sheets,” Seiff said. “Today, they securitize and distribute nearly all of their production to institutional investors, such as mutual funds, banks, insurance companies and pensions.”

What are the benefits of agency lending?

Agency loans provide many benefits for borrowers. 

  • Consistent source of capital: GSE lending provides borrowers access to capital regardless of their location or exposure. Agencies also typically remain active during economic downturns and recessions.
  • Rates and proceeds: By securitizing and selling their guaranteed mortgage-backed securities to the investor market, the agencies can consistently offer borrowers competitive rates—and often higher proceeds.
  • Loan terms: Fannie Mae and Freddie Mac most commonly provide 5- to 10-year fixed-rate balloon loans, with interest-only options often available. Both GSEs also offer floating rate loans with terms between 5 and 30 years.
  • Favorable loan-to-value (LTV) and debt coverage ratio: The LTV may be up to 75% with 1.25% amortization. Most agency loans are less than 70% LTV, but higher leverage may be available for certain property types and situations. 
  • Nonrecourse financing: With most agency loans, borrowers don’t have personal liability for the loan. If there is evidence of fraud or other unethical behavior, however, there can be recourse.
  • Assumability: If the borrower sells the property before the loan term ends, the property’s buyer may be able to assume the loan.

What types of clients and properties can take out agency loans?

Stabilized property acquisitions and refinances are well suited to agency loans. Likewise, institutional and third-party property management clients can benefit if they:

  • Are rate- and proceeds-sensitive
  • Have long-term hold expectations 
  • Are comfortable with prepayment penalties and ongoing reporting in exchange for the best terms

“Understanding the needs of the client upfront is the key to a successful transaction with a customer and a good client experience,” Stuart said. That understanding is especially critical when discussing financing options.  

“If you’re looking to do a long-term execution and you want really efficient pricing, then an agency execution is a great way to go,” Stuart said.

“But if you need to access anything in the asset over the next 10 years—if you need to redo the roof, for example, and you want to access equity to do that—a balance sheet loan is going to be much more amenable to those types of strategies,” he said.

The best financing option also depends on the asset and where it is in its lifecycle. For example, agency financing can be an excellent choice for a stabilized multifamily property. But bank financing may be better for new acquisitions or buildings with capital-intensive work, such as extensive renovation or deferred maintenance.

What are the key differences between agency and bank loans?

  • Borrower vs. property focus: Bank and agency loan servicers perform due diligence on the borrower and property. But bank loans generally focus on the borrower, while agency loans place that focus on the property. As a result, bank loans may also take a much deeper dive into the loan’s guarantor and require specific documentation from the borrower, including a personal financial statement and schedule of real estate. Agency loans often require detailed third-party evaluations on the property, engineering and environmental reports. 
  • Flexibility of terms: Agency and bank financing offer flexibility in different ways. For example, agency loans allow borrowers to keep their cash deposits and property operating accounts at their bank of choice. Bank loans often require borrowers to place those funds with the bank providing the loan. Bank loans may offer flexibility elsewhere. For example, agency loans may have steep prepayment penalties compared to bank loans.

We’re here to help

Drawing on local market knowledge, our Agency Lending experts can help you find the right Fannie Mae® and Freddie Mac financing options for your affordable or market-rate multifamily property.

JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/cb-disclaimer for disclosures and disclaimers related to this content.

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