Freddie Mac Workforce Housing Mezzanine Loans

Mezzanine Loans, Simultaneously Originated with Conventional Loans for Affordable Property Preservation insured by Freddie Mac

When it comes to borrowers who want to preserve an affordable housing property, Freddie Mac’s Workforce Housing Mezzanine loan is an obvious choice for financing. Originated simultaneously with a Freddie Mac Conventional 10-year loan in a streamlined process, the Workforce Housing Mezzanine loan cuts back on paperwork, origination times, and many of the other hassles borrowers face associated with supplementary financing. These loans offer pretty decent terms as well, with a combined maximum LTV allowance of up to 90% and a combined minimum DSCR of 1.05x. The program requires that at least 80% of units be set aside as “affordable” in order to limit rent growth. Still, they do allow some instances of rent increases depending on the circumstances, such as in the event of an uncontrollable expense increase.

Sample Freddie Mac Terms For Workforce Housing Mezzanine Loans

Size: Amount available based on LTV and DSCR requirements.

Use: Preservation of affordable housing. The loan is packaged as a Freddie Mac Conventional Loan with 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

MaximumLTV: 10% above the Senior Loan, not to exceed 90% combined LTV.

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

Recourse: Typically the 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 Preservation of Affordable Rents Covenant (PARC) for two years in a row.

Eligible Borrowers:

  • Mezzanine Borrower: A single-purpose, bankruptcy remote Delaware single-member limited liability company, owned and controlled, directly or indirectly, by the project Sponsor.
  • 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.

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 at par

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% or 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, all of which may be partially passed through to the tenant. 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