Fannie Mae recently launched a new Sponsor-Dedicated Workforce (SDW) Housing product aimed at mitigating the shortage of affordable housing available for middle-income renters. Fannie Mae’s goal of introducing the SDW product is to incentivize social impact through the creation and preservation of workforce housing. It will offer pricing and underwriting benefits to participating borrowers on conventional Fannie Mae loans originated through Fannie Mae’s network of Delegated Underwriting and Servicing (DUS) lenders, through borrowers’ elective imposition of certain rent restrictions based on area median income (AMI) at eligible multifamily properties.
To qualify for the SDW pricing incentive, borrowers must preserve or create a minimum of 20% of residential units in an existing conventional multifamily property at levels affordable to residents with an income up to 80% AMI, or up to 100-120% AMI in certain designated metro areas with higher costs of living. The rent restrictions must remain in place during the loan term. While rent affordability levels must be identified at the time of loan origination, borrowers will have 12 months from the closing date to bring their properties into compliance with the rent restrictions.
The SDW product shares some similarities with Fannie Mae’s existing Sponsor-Initiated Affordability (SIA) product, but allows for a potentially higher AMI cap on the rent restrictions (SIA requires 80% AMI) and involves a less restrictive and more streamlined documentation and compliance monitoring process. Under the SDW program, Fannie Mae will require the rent restrictions to be documented by two simple modifications to the loan agreement and the security instrument at closing. (The SIA product requires modifications to the loan agreement, plus a sponsor-initiated affordability agreement and a payment guaranty.) The SDW compliance process does not require third-party monitoring and will require only that: (a) borrowers submit an annual certification of compliance via a supplemental annual loan agreement certification and rent rolls to their DUS servicers, and (b) DUS servicers annually confirm borrowers’ compliance and report any noncompliance issues to Fannie Mae. (By comparison, SIA compliance monitoring requires third-party verification of annual rent and tenant incomes.)
SDW can be combined with Fannie Mae’s green financing products, and is available for supplemental loans and fixed- and variable-rate loans with terms between five and thirty years, a maximum loan-to-value ratio of 80% and a minimum debt service coverage ratio of 1.25x. Structured adjustable-rate mortgage loans with a lockout period of less than two years, and loans (regardless of interest rate structure) secured by properties already subject to government-imposed rent control prior to origination where vacancy de-control is not permitted, are not eligible for SDW. However, loans secured by properties with existing government-imposed rent control — where vacancy de-control is permitted and/or any applicable rent restrictions would expire during the loan term — are eligible.
Information about SDW product features, eligibility requirements and origination specifics is available in the Fannie Mae Multifamily Selling and Servicing Guide, Part III, Chapter 22: Sponsor-Dedicated Workforce (SDW) Housing Properties; Part V, Chapter 4: Section 419 – Sponsor-Dedicated Workforce Housing Properties; Fannie Mae’s Multifamily Term Sheet, and in Fannie Mae’s Job Aid: Sponsor-Dedicated Workforce Housing form.