Fannie Mae Credit Enhancement of Variable Rate Tax-Exempt Bond Program

Bond Financing Solutions for the Construction, Acquisition, Rehabilitation, or Refinancing of Affordable Apartment Developments by Fannie Mae

Investors interested in financing Multifamily Affordable Housing (MAH) developments, Low-Income Housing Tax Credits (LIHTC) properties, and 80-20s (deals in which 20% of the property is set aside for low-income residents) might not always want the go traditional financing route. Borrowers eager for an alternative method of funding the construction, refinancing, rehabilitation, or acquisition of affordable properties, don't need to look any further than Fannie Mae's Credit Enhancement of Variable-Rate Tax-Exempt Bonds program. With up to 85% LTV allowance and amortizations of up to 35 years, the program has the flexibility to help meet the needs of a variety of different kinds of multifamily investors.

2021 Sample Fannie Mae Terms For Credit Enhanced Variable-Rate Tax-Exempt Bonds

Size: Varies, typically $3 million

Terms: 10-30 years

Amortization: Up to 35 years

Interest Rates:

  • Fixed, variable-rate, and interest-only loan options available
  • Fixed-rate bonds sometimes require re-marketing/rate reset after 10 years
  • An 18-year minimum term and initial reset period is mandatory for properties with 20% or more Low-Income Housing Tax Credit (LIHTC) units
  • Variable-rate bonds typically have the option to convert to fixed-rate bonds, for a minimum 10-year period, or, if less than 10 years, for the remainder of the credit enhancement

Interest Rate Caps: For variable-rate bonds, borrowers must purchase an interest rate cap with a term of at least 5 years. Borrowers must purchase a new cap when the cap expires.

Maximum LTV:

  • Variable-rate:
    • 85% (without the value of tax-exempt financing)
    • 80% (including the value of tax-exempt financing)
  • Fixed-rate:
    • 85% (without the value of tax-exempt financing)
    • 80% (including the value of tax-exempt financing)
    • 90% (for projects with 90% or more Low-Income Housing Tax Credits (LIHTCs)

Minimum DSCR: 1.00x, as calculated via a variable underwriting rate

Prepayment Penalty: Flexible options available

Recourse: Loans are non-recourse with standard “bad boy” carve-outs

Eligible Properties:

  • Multifamily Affordable Housing (MAH) Developments
  • 4% LIHTC Properties
  • 80-20s (deals in which 20% of the property is set aside for low-income residents)
  • Bond refunding and new issues allowed

Third-Party Subordinate Debt: Allowed under certain circumstances: hard debt must be issued by a non-profit, public, or quasi-public entity and combined DSCR cannot go below 1.05x, while soft third-party subordinate debt payments cannot exceed 75% of property cash flow "after payment of senior liens and property operating expenses"

Assumability: Fully assumable with lender approval and a 1% fee


  • Competitive interest rates
  • Up to 85% LTV allowance
  • Up to 35-year amortization
  • 30-day rate locks allowed
  • Loans are non-recourse
  • Supplemental financing is allowed (up to two supplemental mortgages allowed, with a third allowed under certain circumstances if the loan is assumed by a new borrower)
  • No put feature (the bondholder cannot demand that the issuer pay back the bond in advance)
  • Forward commitments for new construction available


  • No limits on rate changes
  • Borrowers must purchase interest rate cap from an approved provider
  • Requires third-party reports including Phase I Environmental Assessment, Property Condition Assessment, and Appraisal
  • Issuer and trustee fees required