Freddie Mac Targeted Affordable Housing Mezzanine Financing

Mezzanine Apartment Loans Simultaneously Originated with 10-Year TAH Loans for Affordable Property Preservation Insured by Freddie Mac

Investors or developers looking for an additional source of financing to be put towards preserving a Targeted Affordable Housing (TAH) property with a 10-year Freddie Mac TAH Loan should turn to the Freddie Mac Targeted Affordable Housing Mezzanine Loan for the perfect solution. Freddie Mac TAH Mezzanine Loans are originated at the same time as 10-year Freddie Mac TAH Loans in one streamlined process, significantly reducing common stresses and paperwork for both borrowers and lenders alike. As an added bonus to consider, with a combined maximum LTV allowance of up to 90% and a combined minimum DSCR of 1.05x, these loans give borrowers significantly more financial flexibility.

2021 Sample Freddie Mac Terms For Targeted Affordable Housing Mezzanine Loans

Size: Varies based on LTV and DSCR requirements.


  • Preservation of affordable housing via the refinancing or acquiring of Section properties and year 11 or later LIHTC properties
  • OR, repositioning any affordable property for resyndication
  • Borrowers receive a 10-year Freddie Mac TAH Loan and a Mezzanine Loan through a single-source origination process

Terms: 10 years. The Senior Loan and the Mezzanine Loan need to be coterminous. Mezzanine Loans are interest-only.

Interest Rate: Fixed and floating-rate options available

Interest-Rate Caps: Not required

Maximum LTV: 10% above the Senior Loan, (up to 15% for nonprofits with affordable housing as part of their mission and successful experience operating multifamily properties), not to exceed 90% combined LTV.

Minimum DSCR: 0.20 below the DSCR for the Senior Loan, not to go below 1.05x

Recourse: Same as Senior Loan. However, Mezzanine Loans can become full-recourse if Senior Borrower grants a deed in lieu of foreclosure to the Senior Lender or is non-compliant with PARC for two years in a row.

Eligible Borrowers:

  • Mezzanine Borrower: A single-purpose, bankruptcy-remote Delaware single-member limited liability company (LLC), owned and controlled, directly or indirectly, by the project Sponsor. For year 11 or later LIHTC properties, the LLC must be owned/controlled by all members/partners of the Senior Borrower.
  • Senior Borrower: A single-purpose, bankruptcy-remote Delaware single-member limited liability company, owned and controlled directly by the Mezzanine Borrower and indirectly by the project Sponsor. For year 11 or later LIHTC properties, the property may be controlled by:
    • An LLC with one or more members
    • A limited partnership (LP) in which all membership or limited partnership interests are owned and controlled, directly or indirectly, by the project Sponsor

Eligible Properties:

  • Properties need to have a minimum of 50% of the rents affordable to households making 100% of the Area Median Income (AMI) or less.
  • Properties need to be located in relatively affordable areas, and must have a minimum of 50% of units with rents less than or equal to median rent.

Assumability: Mezzanine Loans are assumable with approval, a $5,000 transfer review fee, and a fee of 1% of the remaining Mezzanine Loan balance.

Prepayment Penalty:

24-month lockout, with varying fees after. After the lockout period, the loan can be prepaid:

  • If the borrower refinances the Mezzanine Loan with another Freddie Mac loan and preserves the affordability for at least the remaining term of the Mezzanine Loan
  • The Mezzanine Loan can also be repaid in part, as long as the Mezzanine Loan balance does not go under $1.00 (which preserves the affordability)
  • For the final 3 months of the loan, the Mezzanine Loan can be fully prepaid.

Cross Default: If a borrower defaults on the Senior Loan, it's also considered a default on the Mezzanine Loan

Mezzanine Loan Collateral: Mezzanine Borrower must provide a first priority pledge of 100% of the equity in the Senior Borrower

PARC Compliance:

  • Preservation of Affordable Rents Covenant, or PARC, is an agreement designed to limit project rents and preserve the affordability of the property
  • For the set-aside units (at least 80% of all units), rents must not increase more than 2% each year, or more than the annual increase in the Consumer Price Index (whichever is greater), plus 1%. Some allowances can be made for uncontrollable expenses and one-time capital expenditures that extend the life and improve the marketability of the project
  • PARC compliance must be certified by borrowers each year
  • Non-compliant borrowers will have a one-time, 30-day period in order to remediate the situation. After this, they will be charged 5% of the original Mezzanine Loan amount every 6 months until they become compliant. All fees are due immediately.
  • 2 years of PARC non-compliance will trigger a default of the Mezzanine Loan

PARC Pass-Through Expense Allowances:

  • Uncontrollable Expenses: Property insurance, real estate taxes, and utilities can all be partially passed through to the tenant under certain circumstances. In order to pass through, uncontrollable expenses must exceed the Consumer Price Index by at least 5% in one calendar year. Properties are not eligible for the pass-through of uncontrollable expenses during the first two years of the loan.
    • For example, if uncontrollable expenses increase by 11% and the CPI increases by 3%, the allowable increase is larger than the CPI plus 5%, so a partial pass-through of 8% is permitted.
  • Capital Expenditures: Cannot go beyond $10,000/unit in order to qualify. Can be passed through if approved of and finished within 2 years of loan origination. Any return on investment must be limited to 10% and needs to be amortized over 10 years. Pass-through increases will not be considered rent for the purpose of determining future annual rent increases.


  • Up to 90% combined LTV allowance
  • Combined DSCR as low as 1.05x
  • Streamlined origination with Senior Loan reduces paperwork and hassle


  • 1% origination fee required
  • Mezzanine Loans can become full-recourse after 2 years of non-compliance with PARC regulations