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.”
The two main agencies are:
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:
“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:
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.”
Agency loans provide many benefits for borrowers.
Stabilized property acquisitions and refinances are well suited to agency loans. Likewise, institutional and third-party property management clients can benefit if they:
“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.
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.