Agency Debt
Fannie & Freddie

Fannie Mae DUS

Delegated Underwriting and Servicing (DUS) — Fannie delegates underwriting to approved DUS lenders who originate and service the loan while Fannie guarantees. Top DUS lenders: Wells Fargo, Walker & Dunlop, Greystone, Berkadia, CBRE, JLL, Arbor, KeyBank.

• Loan size: $1M to $100M+ (Small Balance is separate)
• LTV: 65–80% (lower for Class C or tertiary markets)
• DSCR: 1.20–1.25x minimum
• Term: 5, 7, 10, 12, 15, 18, 30-year fixed
• Amortization: 25–30 years
• Non-recourse with bad-boy carve-outs
• Prepay: yield maintenance, declining step-down, or open at maturity

Freddie Mac Optigo

Optigo — Freddie’s multifamily platform with three product lines:

• Conventional. Standard 5+ unit multifamily. $6M+ loan size.
• SBL (Small Balance Loans). $1M–$7.5M. Streamlined underwriting, regional Optigo lenders.
• Targeted Affordable Housing. LIHTC properties, Section 8, rent-restricted. Preferential terms and execution.

Green programs — rate discount

• Fannie Green Rewards. ENERGY STAR or similar certification + 20% water savings through retrofits = 15–25 bp rate discount + financing of improvements in loan.
• Freddie Green Advantage. Similar energy and water efficiency standards, comparable rate reduction.
• Healthy Housing. Both agencies offer premium pricing for certified affordable + healthy-housing projects.

On a $20M loan, 25 bp rate discount = $50k/year in interest savings. Over 10-year term = $500k value. Typically justifies $100–200k of required green retrofit capex.

Eligible properties

• 5+ unit residential (including manufactured housing communities with 80%+ TOH)
• Student housing (dedicated programs, specific criteria)
• Seniors housing (age-restricted 55+ and 62+)
• Affordable (LIHTC, Section 8, Rural Housing Service 515)
• NOT: hotels, commercial property, short-term rentals, most mixed-use above 30% commercial

Sponsor requirements

• Net worth. Minimum equal to loan amount (or $1M whichever higher) on conventional. Lower on SBL.
• Liquidity. 10% of loan amount in liquid reserves post-close.
• Experience. 3+ similar assets owned, or partnership with experienced operator.
• Bad-boy carve-outs. Personal liability triggers on fraud, waste, misrepresentation, unauthorized transfer, bankruptcy filing, environmental contamination, tax lien.

Replacement reserves + escrows

• Replacement reserves: $250–400/unit/year funded monthly
• Tax escrow: 1/12 of annual tax, monthly funded
• Insurance escrow: 1/12 of annual premium
• Repair escrows: identified deferred maintenance, funded at close with completion timeline
• Interest-only period reserves: at lender discretion if DSCR tight during IO

Closing cost and timeline

• Origination: 0.5–1% of loan
• Appraisal (institutional): $8k–15k
• Engineering / Property Condition Report: $5k–10k
• Phase I ESA: $3k–5k
• Legal (borrower + lender): $25k–75k
• Application fee: $5k–20k
• Total: $50k–150k typical on $5M+ loan
• Timeline: 45–60 days from application

Prepayment — yield maintenance and defeasance

Two standard prepay structures:

• Yield maintenance (YM). Prepay penalty = present value of remaining interest payments discounted at matching-maturity Treasury yield. In declining rate environment, can exceed 20% of principal.
• Defeasance. Substitute a portfolio of Treasury securities matching the remaining loan cashflows. Required for CMBS; Freddie and some Fannie allow. Complex, cost $30k–100k in advisors.
• Open prepay. Final 3–6 months of loan term typically open for prepay without penalty. SBL often has declining step-down.

Supplemental loans

Second mortgage on same property from same agency, typically available 12+ months post-close if property appreciated and DSCR supports incremental debt. Non-disturbance with senior. Useful for pulling out value-add equity without full refinance and YM penalty.

Common pitfalls

• YM in falling-rate environment. A 6% fixed loan in a 4% rate world has massive YM penalty. Refinancing savings can’t overcome penalty. Stuck in loan until maturity.
• T12 haircuts. Lender underwrites to T3/T12 actual revenue, haircut by vacancy, bad debt, concessions. Sponsor pro-forma NOI ignored. Cash-out proceeds smaller than projected.
• Market rent review. Lender’s appraiser uses market rent comps that lag actual market. Your in-place rents above market get haircut.
• Tenant concentration. Fannie/Freddie cap exposure to single employer, Section 8 concentration, student concentration.
• Sponsor warehouse risk. DUS lender holds loan on balance sheet 30–60 days before agency purchase. If agency refuses post- closing (underwriting variance), sponsor may owe immediate payoff.
• Replacement reserve true-up. At refinance or supplemental, lender reviews reserve funding. Underfunded = cash-call to catch up.
• CDL (Capital Deployment Level). FHFA sets annual GSE multifamily cap. When hit, agency tightens underwriting or caps deals — timing risk.