Starter Guide to GSE Multifamily Financing

What is a GSE?

GSE stands for “Government Sponsored Entity”, and in this beginner’s guide we’re going to cover the two most important players, who you’ve sure to have heard of: Fannie Mae, and Freddie Mac. While you can get a more comprehensive background on each agency’s own website (Fannie Mae, Freddie Mac), here’s what you absolutely need to know as a multi-family developer/investor, in 10 minutes or less.

Both Fannie and Freddie were set up by, and have continuing sponsorship from, the United States Federal Government. The government supports multi-family real estate through the agencies in order to accomplish the public goal of a robust housing ecosystem that works for families across the United States. By supporting the multi-family ecosystem financially, the economic effect is more affordable housing for the American population.

So what do they actually do?

Fannie and Freddie each support the origination of loans for multi-family real estate development, particularly for stabilized assets that are being acquired or refinanced. As each entity has a vast, government-supplied balance sheet, these loans are extremely cost-effective, and are often the best choice for debt financing on an existing multi-family asset.

However, the agencies themselves do not select projects directly to receive these loans, in order to keep public fund distribution at arms-length from private investors. Instead, each have established programs that partner with private lending institutions across the country, which each follow guidelines the agencies supply and approval procedure. Fannie Mae calls these private loan originators “Designated Underwriter/Servicers”, or DUS for short. If an organization says they are a Fannie DUS lender, that means they have official authorization to make loans that ultimately use Fannie Mae funds, and then to administrate or “service” these loans, which includes interfacing with the borrower and collecting payments on interest and loan principal. Freddie Mac has a similar programs through approved entities.

How do I get Fannie/Freddie money for my project?

Not all multi-family projects are eligible for a GSE loan, and even if after reading over the publicly available program guidelines you think you are eligible, you’ll still need to receive underwriting approval from an approved lender. While each GSE-approved lender will be following agency guidelines, there are slight differences in the way those programs are implemented across lending institutions, and certain companies may have additional support or follow-on funds to offer as well. It’s prudent to go through initial underwriting with a select few trusted multi-family lenders, and also to seek quotes from non-GSE sources so that you can view and compare all available options. Some considerations on your multifamily loan will be specific to your city or state, or based on other related factors.