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Freddie Mac offers new incentive to keep rents at affordable levels

Freddie Mac has launched a program that will incentivize multifamily property owners to keep rents at levels affordable to working families without any federal, state or municipal subsidy.

Under Freddie Mac Multifamily's mezzanine loan offering, borrowers receive favorable pricing on the mezzanine loan in exchange for voluntarily limiting rent growth on 80% of the units in the property and keeping rents at levels considered workforce housing for the life of the loan.

Mezzanine financing effectively operates as a subordinate loan, providing additional debt capital required to fill in the gap between borrower equity and the first-lien mortgage loan amount.

Rents will be checked on an annual basis and property owners out of compliance will be assessed a penalty fee until they return rents to compliant levels.

The mezzanine loan-to-value ratio, under the criteria of the program, can only be 10% above the loan-to-value of the Freddie Mac first mortgage loan, or up to 15% for experienced nonprofits with a history of successful multifamily property operations. The total combined loan-to-value ratio cannot exceed 90%.