Fannie Mae Unveils New Products
Fannie Mae announced three new products, including one, called DUS-Plus, that incorporates mezzanine debt into a DUS loan. Fannie Mae is under contract with third-party mezzanine lender, RCG Longview, to acquire the mezzanine portion of loans made under the DUS-Plus program.
February 08, 2005, Suzann D. Silverman, Editor-in-Chief, Commerical Property News
Fannie Mae yesterday announced three new products, among them a method of incorporating mezzanine debt into a DUS, or delegated underwriting and servicing, loan. It is currently under contract with a third-party mezzanine lender, RCG Longview, to acquire the mezzanine portion of loans made by its lenders under the program, called DUS-Plus, with plans to finalize the contract within the next 60 days, at which time it should start accepting applications, according to Drew Ades, director of product development.
"The flow of capital out in the market has worked to decrease credit standards in much of the industry. This instills a little bit of discipline and tries to do so in a much more product and credit conscious method," Ades explained. Fannie Mae is in the process of developing procedures and paperwork and training its lenders on how to use the product, which will provide an additional 5 percent leverage, bringing the combined potential to 85 percent leverage.
While borrowers are increasingly seeking mezzanine capital to help finance their deals, mezzanine lenders tend to focus on the larger transactions. The DUS-Plus product extends the possibility to smaller apartment deals--between $3 million and $25 million. At the same time, it is structured with very flexible prepayment parameters and an ownership structure that allows the mezzanine partner, in a nonpayment situation, to assume the position of borrowing entity.
The loan is a five-year fixed-rate at 12.5 percent, with an automatic two-year extension followed by three one-year extensions, which can ultimately extend it to equal the length of the first loan. Prepayment clauses allow for a lockout in the first year, followed by a 2 percent penalty in the second year, 1.5 percent in the third, 1 percent in the fourth and half a percent in the fifth, with no penalties during the extensions.
Fannie Mae's other new products include enhancements to five- and seven-year loans, making them more competitive with other lenders' product, and a new enhancement to the DUS ARM, or adjustable rate mortgage, product. Whereas that product typically allowed for caps of 300 to 600 basis points, there is now a 200 and a 250 basis point cap.
"We're really excited about our announcements and the response we've gotten from lenders," Ades said. "We want to make sure going into 2005 we've got a very, very competitive program."
