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How Are Fannie Mae Multifamily Rates Determined?

 

February 1, 2023

Fannie Mae Multifamily Rates change daily. In reality, they change by the minute during Wall Street hours as treasury yields go up or down. These are long term fixed rates that combine the real time treasury yield with the spread determined by Fannie Mae. For example, today as I write this article the 10-year treasury yield is at 3.49%. This is called the index. On a 10- year fixed rate mortgage tier 2, Fannie is adding a spread of 1.95% to the index for an all-in rate of 5.44%. Spreads are raised based on market conditions which raise or lower risk. If Fannie determines the economy is weak, they raise the spreads to slow down demand. When they perceive the economy is getting stronger and market risks are lower, they lower the spreads to increase demand. 

 

You will notice on the rate chart above that Fannie Mae has 3 Tier Pricing. Tier four has the lowest rates and only goes up to 55% LTV and a 1.55 DSCR. Tier Three has a .20% higher rate and goes up to .65% LTV and a 1.35 DSCR. Tier Two has the highest rates which are increased by .20% above tier three rates. Tier two goes up to 75% LTV and requires a minimum DSCR of 1.25.  

 

Is Fannie Mae Multifamily Run By the Government and do they Make Loans?

Fannie Mae Multifamily is a GSE, which stands for Government Sponsored Enterprises. It is a misunderstanding that Fannie Mae is owned and run by the United States Government. Fannie Mae is a publicly traded company that was saved from Bankruptcy by the US Government during the great recession. The Government doesn’t own them but oversees their finances in a conservatorship and will likely continue to do so for another 15 years or more.

Another misunderstanding is that Fannie Mae makes loans. They don’t!  They have approved lenders that do this for them. Fannie simply securitizes the loans. What they really do is guarantee the loans which gives the mortgage backed security bonds they represent a high credit rating and thus increases their demand on Wall Street.  

 

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