Q&A with Agency Lender Walker & Dunlop 

Ted Patch, Chief Production Officer answered the questions about Fannie Mae and Freddie Mac. Steve Ervin, Group Head of FHA Finance answered the questions about HUD.

Tell our readers about Walker & Dunlop. 

Walker & Dunlop is a real estate finance company and one of the largest multifamily lenders in the United States. The Multifamily and FHA Finance groups of Walker & Dunlop are focused on lending to property owners, investors and developers of multifamily properties across the country. The Capital Markets and Principal Investments groups of Walker & Dunlop provide a broad range of advisory, financing and investment services to clients across the Mid-Atlantic region. 

Walker & Dunlop is ranked as the 9th largest commercial real estate lender in the United States by the Mortgage Bankers Association (MBA) in its 2009 Annual Origination Rankings.

What federal agency loan programs do you offer for commercial real estate? 

Walker & Dunlop is a Fannie Mae DUS™, Freddie Mac Program Plus® and Map- and Lean-approved FHA lender.

What are eligible properties for each agency loan program?

Eligible property types for Fannie Mae and Freddie Mac are most major multifamily asset classes including market-rate apartments, affordable apartments, manufactured housing developments, senior housing and student housing.

Eligible property types for FHA are Senior Housing – Independent Living (IL), Assisted Living (AL), Skilled Nursing Facility (SNF), Continuing Care Retirement Communities (CCRCs); and Healthcare – Hospitals (for profit, not for profit and investor owned). 

How does HUD’s FHA loan program work? 

HUD approved lenders compile an insurance application for mortgage insurance on behalf of a borrower to submit to HUD. HUD reviews the application and, if acceptable, issues a commitment to insure. The HUD approved lender then makes the loan to the borrower and that loan carries the HUD 99% insurance guarantee. Typically, most HUD loans are funded through the insurance of Ginnie Mae securities. Among other things the Ginnie Mae security provides for the guarantee of timely payments and increases the overall insurance to 100% of the loan amount.

What are the MAP and LEAN programs within the HUD loan umbrella? 

MAP and LEAN program designations are earned by HUD lenders based upon experience and qualifications.

The MAP program began in 2000 and transferred certain responsibilities from HUD to the lender in exchange for faster and more consistent processing. In 2008, HUD instituted the LEAN program for healthcare applications. LEAN focused on the experiences learned within the MAP program and further streamlined the loan process by eliminating duplicative tasks. Currently, the LEAN program is only available for healthcare loans – skilled nursing, assisted living and board and care facilities.


Please provide an example of an FHA loan funded in 2010.

In August 2010, Walker & Dunlop provided $162.2 million in HUD insured financing for a portfolio of skilled nursing facilities in Florida consisting of 16 properties and 2088 beds. Each loan was structured with an all-in rate of 4.95%, a 35-year term and a 35-year amortization utilizing HUD LEAN 232/223(f) loans. The loans were underwritten to an average of 81 percent loan-to-cost. This transaction is the largest HUD portfolio loan closed since 2005 and demonstrates the surging popularity of HUD financing, particularly for healthcare refinance.

This opportunity was a complicated portfolio transaction. Not only did we need to balance the needs of the owners, but also the operator, our lender and HUD. All parties worked together to create a successful long term solution for the borrower.

How does the Fannie Mae DUS loan program work?

Fannie Mae formed their Delegated Underwriting and Servicing (“DUS”) program back in 1988. By charter, they are not allowed to lend directly to borrowers, so they developed a network of intermediaries that are licensed to provide financing on their behalf. Green Park Financial, which later became Walker & Dunlop, was one of the first licenses issued when the program started. The DUS program is a delegated model. The DUS lenders are delegated in most instances to originate, underwrite, close and service loans that are then guaranteed by Fannie Mae. This system of delegation is effective since the DUS lenders generally share in the risk associated with any given transaction. 

Please provide an example of a DUS loan funded in 2010.

An example of a DUS loan that we funded this year was The Presidio, which is located in Fremont, California. This was a $45.6 million loan that was originated directly with the borrower. It was underwritten to Tier 3 standards, which include a maximum 65% loan-to-value and minimum 1.35 debt service coverage. 

How does the Freddie Mac Program Plus work?

While Freddie Mac and Fannie Mae are often grouped together as government sponsored enterprises, there are some distinct differences between the two. Freddie Mac also has a network of intermediaries (Program Plus providers) that originate new loan opportunities for them. Distinct from Fannie Mae is the fact that Freddie Mac’s model is not a delegated one. The Program Plus providers do not share in any of the risk associated with any given transaction. This necessitates more of a central processing notion with Freddie Mac versus Fannie Mae’s delegated model.

Please provide an example of a Freddie loan funded in 2010.

An example of a Freddie Mac loan we originated this year was the Elan at River Oaks located in San Jose, California. This $138.9 million loan was funded in April of this year. This direct loan opportunity had a 75% loan-to-value and 1.25 debt service coverage. 

What are the pros and cons of each agency loan program?

Fannie Mae and Freddie Mac – Throughout the recent turmoil in the market, both Fannie Mae and Freddie Mac have consistently been providing liquidity to the multifamily market. While many other sources (conduits for example) have exited the market, the agencies have continued to offer attractive loan terms. Interest rates have remained low for an extended period of time. Also, the ability to provide competitive financing in a timely manner has remained a constant. Average loan processing times are 45 to 60 days.

HUD – In the current environment HUD is providing greater proceeds, longer terms, lower interest costs and more complete non-recourse lending compared to other programs. The main negative to HUD is the time it takes to complete the loan application process which is significantly longer than other loan programs.

What are allowable broker fees for each agency loan program?

Broker fees for Fannie and Freddie are very much driven by the market. 

HUD lenders are capped in total fees that can be charged at 3.5% of the loan amount (5.5% for bond programs). Broker fees must be paid out of the lender’s fees, however, there are no specific broker fee caps imposed by HUD.

What else should brokers know before beginning an agency loan?

The Fannie Mae and Freddie Mac loan programs are well known in the market as being some of the most competitive available today. It is important for brokers to fully screen all transactions including a review of borrower credit, especially given the current lending environment. 

For a HUD loan, the borrower needs to know the success and track record of the lender they are working with. While nothing is guaranteed within the HUD realm, the experience of the lender you are working with is critical to getting the financing you expect.

What are the latest or pending developments for each agency loan program?

Fannie and Freddie remain under a government conservatorship today. At this point, there is some uncertainty as to what changes may be imposed on the GSE’s going forward. Ultimately, they provide an important function to the overall marketplace that will likely be maintained in one form or another. 

HUD has as recently as September 6, 2010 imposed more restrictive loan terms on all multifamily loan programs. While these terms are more restrictive than previous HUD terms, they are generally still more aggressive than those from
other lending sources.

What separates Walker & Dunlop from other agency lenders?

Our ability to process transactions quickly and efficiently separates us from other lenders. We have a depth of experience and talent within our organization that enables us to creatively solve almost any issue we come across. These factors coupled with our strong professional and personal relationships with key decision makers within both Fannie Mae and Freddie Mac separate us from other agency lenders. 

What changes in agency financing are you seeing post crisis as compared to before?

Fannie Mae and Freddie Mac have consistently provided liquidity and relative stability to the market during these trying times. When the market was overheated in the timeframe surrounding 2007, underwriting standards remained in place, but were somewhat stretched for competitive reasons. Current underwriting standards are really pretty similar to what has been the traditional standard prior to the market overheating. Many of these standards have stood the test of time as being sound fundamental underwriting. 

HUD is significantly more in demand than it was previously. As a result of the lack of financing available from other sources or the lack of proceeds from those sources, HUD is beginning to see higher quality applicants applying for HUD loans than they have seen in the past. The increase in demand has led to better loans; however, it has also resulted in longer time frames as HUD has limited ability to increase staff to match the increased loan volume.

Thanks for the interview. How should borrowers and brokers reach Walker & Dunlop?

Walker & Dunlop can be reached by calling 800/787-9300 or visit our website at www.walkerdunlop.com

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