By Terry Painter/Mortgage Banker, Author of “The Encyclopedia of Commercial Real Estate Advice” Wiley Publishers
February 1, 2023
Freddie Mac Multifamily Rates change daily. They actually 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 Freddie Mac. For example, today as I write this article the 10-year treasury yield is at 3.49%. This is called the index. Now, Freddie adds a spread of 2.05% to the index for an all-in rate of 5.54%. Spreads are supposed to be raised based on market conditions and perceived risks. When Freddie determines market risks are higher, they raise the spreads to slow down demand. When they perceive market risks are lower, they lower the spreads to increase demand.
Freddie just lowered its long-term rates by .40% today. This is likely a result of the Fed’s meeting today and only raising short term rates by .25% instead of the .75% increase they have done the previous 4 times. This is an indicator that the economy and inflation are improving, and risks are lower. But also this could be because Fannie Mae, Freddie’s biggest competitor and also a GSE, has had lower multifamily rates for some time, and Freddie has likely decided this is a good time to be more competitive.
You will notice on the rate chart above that Freddie Mac has the lowest rates in larger population markets when loans are low leverage of 55% LTV or lower. Conversely, very small markets with high leverage loans have the highest rates. Debt Service Coverage Ratio (DSCR) is also a factor in determining rates.
Is Freddie Mac Multifamily Run By the Government and do they Make Loans?
Freddie Mac Multifamily is a GSE, which stands for Government Sponsored Enterprises. So, is Freddie owned and run by the United States Government? Most people think so, but this is Not Accurate! Freddie Mac 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 conservatorship and will likely continue to do so for another 15 years or so.
Another misunderstanding is that Freddie makes loans. They don’t! They have approved lenders that do this for them. What Freddie does is securitize the loans. Well, what they really do is guarantee them which gives the mortgage backed security bonds they represent a high credit rating and thus increases the demand for them on Wall Street.