Bond Credit Enhancement with 4% LIHTC by Freddie Mac

Freddie Mac Bond Credit Enhancement Loans for the Acquisition, Refinancing, or Credit Substitution of Low-Income Housing Tax Credit (LIHTC) Properties

Investors or developers interested in financing the building, acquiring, refinancing, or renovating of a property utilizing Low-Income Housing Tax Credits (LIHTCs) should consider the Freddie Mac Bond Credit Enhancement for 4% LIHTC Properties. The program provides three different financing solutions for borrowers: forward commitments for to-be-built or substantially rehabilitated LIHTC properties, immediate funding for current LIHTC properties that can achieve 90% occupancy for at least 90 days, and preservation rehabilitation funding for LIHTC properties with tenants in place that are currently undergoing moderate rehabilitation. Freddie Mac Bond Credit Enhancement with 4% LIHTC loans have both fixed and variable-rate options, support eligible mixed-use properties, and can support DSCRs as low as 1.15x.

2021 Sample Freddie Mac Terms For Bond Credit Enhancement with 4% LIHTC

Size: Varies based on LTV and DSCR requirements.

Uses:

  • Forward Commitment: Provides bond credit enhancement for LIHTC properties post-construction or substantial rehab
  • Immediate Funding: For the acquisition, refinancing, or credit substitution of LIHTC properties
  • Preservation Rehabilitation: Intended for properties with tenants in place undergoing moderate rehabilitation

Terms:

  • Forward Commitment and Immediate Funding:

    • Minimum term: Remaining LIHTC compliance period or 15 years, whichever is less
    • Maximum term: 35 years
  • Preservation Rehabilitation:

    • Minimum term: Remaining LIHTC compliance period or 15 years, whichever is less
    • Maximum term: 35 years

*Rehabilitation/stabilization period (24 months maximum) is included in the loan term for preservation rehabilitation

Amortization: Up to 35 years

Interest Rate: Fixed and floating-rate options available

Interest-Rate Caps: Required

Maximum LTV/Minimum DSCR:

  • Variable-rate with cap hedge: 80% of adjusted value or 85% of market value/1.20x
  • Fixed-rate: 85% of adjusted value or 90% of market value/1.15x

Eligible Properties:

  • Forward Commitment: To-be-built or substantially rehabilitated garden, mid-rise, or high-rise properties with 4% LIHTC
  • Immediate Funding: Garden, mid-rise, or high-rise properties with 4% LIHTC (must maintain 90% occupancy for 90 days, and at least 7 years must be remaining in LIHTC compliance period)
  • Preservation Rehabilitation: Garden, mid-rise, or high-rise properties with 4% LIHTC undergoing moderate rehabilitation with tenants in place

Construction Loans: Maximum forward commitment term of 36 months plus a free 6-month extension during the construction period

Prepayment Penalty: Fee maintenance

Specific Funding Information:

  • Forward Commitment:

    • Bond credit enhancement is available during the construction phase (funded forward commitment)
    • A letter of credit collateral is required during the construction phase
    • Forward commitment to provide bond credit enhancement is available upon successful conversion of the property from the construction phase to the permanent phase (unfunded forward commitment)
  • Immediate Funding: Bond credit enhancement for fixed- or variable-rate tax-exempt bonds
  • Preservation Rehabilitation:

    • Bond credit enhancement for acquisition/rehabilitation is based on projected post-rehabilitation net operating income (NOI)
    • Cash or letter of credit collateral is needed to fund the gap between supportable debt on the current NOI and the bond mortgage loan amount (collateral held until stabilization)
    • Interest-only financing is available during the rehabilitation/stabilization period

Advantages:

  • Subordinate financing permitted
  • Eligible mixed-use properties supported
  • Deals with new 4% or 9% LIHTC can be underwritten to DSCRs as low as 1.15x

Disadvantages:

  • Application fee, commitment fee, credit facility fee, and other fees are required