Freddie Mac and Fannie Mae Incentivize Multifamily Property Owners to Go Green
Practical Law Legal Update w-012-0313 (Approx. 4 pages)
Freddie Mac and Fannie Mae Incentivize Multifamily Property Owners to Go Green
by Practical Law Real Estate
| Published on 20 Dec 2017 • USA (National/Federal) |
Fannie Mae and Freddie Mac incentivize multifamily property owners to take advantage of environmental gains and cost reductions of their green lending programs.
Government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae incentivize multifamily property owners to reduce their water and energy usage through property improvements by offering lower interest rate costs and other benefits. Each GSE has its own program:
- Green Advantage (Freddie Mac).
- Green Rewards (Fannie Mae).
Freddie Mac – Green Advantage
In 2016, Freddie Mac launched its Green Advantage program. Under the program, multifamily property owners may obtain better pricing and increase their Freddie Mac loan amounts to finance energy and water improvements.
The Green Advantage program:
- Works with the following loans:
- conventional;
- targeted affordable; and
- seniors housing loans.
- Rewards property owners who improve their properties to save energy and water with discounted loan pricing.
To be eligible for the Green Advantage, property owners must perform an assessment to identify specific energy efficiency and water conservation measures. An assessor must evaluate the property to weigh its green opportunities, estimated costs, and projected savings. Freddie Mac will reimburse the property owners up to $3,500 for the cost of the assessment used for the approved loan.
Based on the findings of the assessment, property owners are provided with discounted interest rates and additional loan proceeds. Property owners who commit to reduce energy or water consumption by at least 15% can choose to finance improvements with one of the following plans:
- Green Up with the Green Assessment. Lenders can underwrite 50% of the projected energy and water savings.
- Green Up Plus with the Green Assessment Plus. Lenders can underwrite 75% of projected energy and water savings.
Property owners are given up to two years to complete the improvements.
Green Rewards – Fannie Mae
In 2015, Fannie Mae launched its Green Rewards initiative. Similar to Green Advantage, Green Rewards provides financial incentives to multifamily property owners for financing improvements in energy and water use efficiency.
To be eligible, the property must be a conventional and affordable multifamily property, which may include:
- Cooperatives.
- Senior living facilities.
- Military housing.
- Student housing.
A property owner must project a 20% minimum consumption savings in energy and water to qualify for a Green Rewards loan.
The Green Rewards Program:
- Gives a 10 basis points (0.1%) reduction in the all-in interest rate.
- Covers the cost of the required energy and water audit.
- Gives lenders the ability to underwrite 75% of the projected energy and water savings.
Property owners are given one year to complete the improvements.
Practical Implications
Property owners may see an increase in the property's profitability because the energy and water savings can be significant. The energy and water improvements also may increase the property's market value and its appeal to tenants. Tenants will likely see an improvement in their rent and utility costs.
The GSEs will also benefit from these borrower incentives because green loans are excluded from their Federal Housing Finance Agency (FHFA) multifamily lending caps. To qualify for exclusion from the lending cap in 2018, FHFA increased the required energy and water savings to 25% for both the Fannie Mae and Freddie Mac programs.
For more information on green building initiatives, see: