Freddie Mac is broadening its capital markets vehicles with its first offering of multifamily participation certificate securities backed by tax exempt loans.

State or local housing agencies made the affordable rental housing loans backing the securities, WE0001 and WE2001. A single loan backs each security. The first loan is for $3.9 million and the second is for $2.9 million.

"Our tax-exempt loan products provide cost-effective financing for multifamily developers, which helps keep rental housing affordable for lower-income families," said David Leopold, a vice president at Freddie Mac.

Freddie Mac vice president David Leopold

"As with other innovations we've rolled out this year, this new offering will enhance our ability to lower the cost of capital, which will allow us to deliver even more efficient financing for affordable housing through our TEL program," he said.

The vehicle provides an outlet for Freddie to reduce its retained portfolio and serve as an alternative for "a small amount" of loans that are not part of its K-deal program, Freddie Mac Vice President Victor Pa said in the press release.

In K-deals, Freddie purchases and guarantees senior bonds issued through a third-party trust. The trust also issues subordinate and mezzanine bonds with a guarantee that private investors purchase.

Multifamily PCs, in contrast, simply pass through cash-flows from collateral loans to investors.

In addition to issuing capital markets vehicles for tax exempt loans, Freddie Mac and fellow government-sponsored enterprise Fannie Mae both recently got the go-ahead from their conservator and regulator, the Federal Housing Finance Agency, to re-enter the Low Income Housing Tax Credit market.

Previous to its re-entry into the LIHTC market, Freddie offered credit risk transfer securities backed partially by tax-exempt loans as an alternative. Tax reform could jeopardize the LIHTC.

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