- Freddie Mac and Fannie Mae have introduced new minimum lease standards for multifamily properties seeking financing.
- The new standards include protections such as a 5-day grace period for rent payments and a 30-day notice for rent hikes and lease expirations.
- Noncompliance could lead to penalties, including a 20 bps fee on the original loan amount and potential default.
- The policy will apply to new loans initiated after February 28, 2025, with some exclusions.
Freddie Mac (FMCC) and Fannie Mae (FNMA), the major U.S. housing finance enterprises, are rolling out new lease requirements for multifamily properties applying for financing, as reported in CoStar.
These standards, effective for loan applications beginning March 1, 2025, are designed to enhance tenant protections and ensure baseline standards across financed properties.
Key Policy Details
The new requirements mandate that all qualifying apartment leases include a 5-day grace period for rent payments, a 30-day notice for rent hikes, and a 30-day notice before lease expirations. These measures aim to provide tenants with greater security and predictability in rental arrangements.
Kevin Palmer, Freddie Mac’s head of multifamily, emphasized that while many borrowers already adhere to or exceed these protections, the new policy will ensure that all properties seeking government-sponsored enterprise (GSE) financing meet the new minimum standards.
Some Exemptions
Certain properties and loan types are exempt from these requirements, including manufactured housing developments, cooperative housing loans, leases shorter than two months, and loans originated by third parties. Additionally, senior housing providers unable to meet the lease expiration notice due to care considerations may receive adjustments.
Borrowers must incorporate these lease policies within 6 months of closing a loan, with full compliance across all residential leases required within 24 months. Compliance will be monitored through routine inspections and reporting.
Noncompliance Penalties
Should a property be found non-compliant with the new requirements, it will have 30 days to rectify the issue or face a penalty equivalent to 20 basis points of the original loan amount.
Continued noncompliance may also lead to a default and affect future transactions with Freddie Mac and Fannie Mae.
Bigger Picture
Both Freddie Mac and Fannie Mae play critical roles in supporting affordable housing. Significant portions of their financing are directed towards low-to-moderate income households. The new lease requirements align with their ongoing commitment to fostering fair and stable rental markets.
These new standards stem from an older proposal by the Federal Housing Finance Agency (FHFA) back in July 2023. The current initiative is part of a broader, long-term effort to improve transparency and communication between landlords and tenants.
