Fannie Mae has clearly been the nation' dominant provider of permanent financing for multifamily (apartment) housing since 1987. Fannie Mae' flagship program, the Delegated Underwriting and Servicing (DUS) product line, has emerged as the multifamily loan product of choice, while gaining strength as the preferred financing option for other property types as well. The customer-centric features of the DUS loan have served to distinguish DUS lenders from their competitors. Additionally, Fannie Mae' commitment to the multifamily housing industry, combined with its innovative approach to constant product improvement, ensures that the DUS loan will continue to lead the multifamily finance industry into the 2't century.

Fannie Mae is "in the market" every day regardless of economic conditions, providing capital for multifamily mortgage loans through its DUS lender network. Currently Fannie Mae' multifamily loan portfolio stands at an astonishing $64 billion. In the year 2000 alone, Fannie Mae provided $8.7 billion for multifamily permanent financing through approved DUS lenders. It' important to keep in mind that DUS is not a construction loan product -- this funding is for existing properties.

To comprehend the DUS product is to understand the unique partnership between Fannie Mae and its DUS lender network. Fannie Mae has licensed 25 select lenders across the country to originate multifamily loans. These lenders are granted broad discretion in making lending decisions. In fact, Fannie Mae delegates the responsibility for pricing, processing, approving, closing and servicing to its DUS lenders. The DUS lender, therefore, controls the entire process within the parameters prescribed by Fannie Mae. DUS lenders are not subject to "re-trading" by another loan committee in another city, a practice that has become commonplace with some lenders.

Why would Fannie Mae, who guarantees the DUS loan to the ultimate purchaser of the underlying security, grant such broad discretion to its DUS lenders? The basic answer to this question is twofold. First, the lending industry' best and brightest professionals represent DUS lenders. Loan officers typically possess years of experience combined with rigorous training specifically related to the DUS product line. Second, companies holding DUS licenses are well capitalized organizations willing to share the risk associated with the loans originated by their officers. This risk sharing component serves to ensure that prudent lending decisions are made.

What enables superior pricing through DUS lenders? The answer to this question is simple. The DUS loan is guaranteed by Fannie Mae to the purchaser of the securities issued by the DUS lender. These securities are backed by the mortgage loan. The Fannie Mae guarantee is viewed as a significant enhancement to the quality of the loan, thus driving up the value of the security to an investor. This enhancement permits the DUS lender to deliver a loan that includes an attractive interest rate to the borrower.

What elements of the DUS loan set it apart from the typical long-term loan available in today' market place? Unlike the typical 10-year, fixed rate loan available today, there really is no "typical" DUS loan. The structure of a DUS loan is truly flexible. Adjustable or fixed rate pricing is available and loan terms from five to 30 years are offered under the DUS product line. DUS loans are assumable to qualified borrowers, but that is not all; perhaps the most attractive feature recently added to the fixed rate product line is the ability to place subordinate financing after the first loan year. This is particularly advantageous to borrowers who wish to place long-term fixed rate financing without "locking up" potential equity generated over time as rents increase and values rise. The ability to apply for subordinate financing also enhances the value of an assumption provision whereby a conservative loan may be "leveraged up," thus avoiding the heavy cost of paying a yield maintenance penalty upon the retirement of a loan by a buyer. The buyer may simply assume existing financing and take down a subordinate loan to bridge the gap between the existing loan amount and what might otherwise be achievable through new financing.

Another reason to consider the Fannie Mae DUS product is servicing, the collection of payments and monitoring of the community securing the loan. This function is also delegated to the DUS lender. Borrowers can expect to deal with representatives of the same company that originated their loan rather than a sometimes disinterested and less than helpful organization that simply purchases loan-servicing rights. Many times these servicers, unlike the DUS lender, are not engaged in the business of originating new loans and lack a commitment to customer service. DUS lenders, who appreciate the value of a repeat customer, tend to be exceptional at loan servicing functions.

Is a Fannie Mae DUS loan a "government" loan or a loan for low-income housing? No. This is a frequent misconception. Although Fannie Mae' charter is with the federal government, Fannie Mae is a publicly traded for-profit corporation. Fannie Mae DUS loans are most commonly utilized to finance premium quality communities. One of Fannie Mae' charter provisions stipulates that Fannie Mae is to promote affordable housing in the United States of America. However, the Fannie Mae product line is designed to make economic sense, or Fannie Mae, like any other company, would be unable to deliver an acceptable profit to its stockholders. These provisions are an excellent fit with the multifamily housing industry, allowing DUS lenders to finance quality affordable housing for people all over the U.S.

Which products can be financed through DUS lending? Fannie Mae' DUS product, the multifamily industry' most popular permanent loan for financing apartments, is now available for financing manufactured home communities. The DUS loan is also available for financing senior housing communities, including congregate and assisted living facilities. Owners of these property types will receive better pricing, more flexible terms and premium customer service through the DUS product line -- features previously available only to apartment community owners.

Does Fannie Mae really understand manufactured housing? While the DUS product line has just now become available for financing manufactured home communities, Fannie Mae is no newcomer to the industry. In the summer of 2000, Collateral Mortgage Capital, one of Fannie Mae' select DUS lenders, closed a $177 million master credit facility secured by several manufactured home communities owned by Chateau Communities, the nation' largest manufactured home community REIT. This transaction was originated and closed by Collateral Mortgage Capital, one of only a handful of DUS lenders who provide financing for manufactured home communities. Fannie Mae understands the manufactured home community industry and is eager to participate in a bigger way since Fannie Mae' mission to promote quality affordable housing is consistent with the affordability of living in a manufactured home community.

To summarize, it is no surprise that Fannie Mae' DUS product line has emerged as the loan of choice among owners of apartments across the U.S. Reliability, flexibility, attractive pricing and quality customer service set DUS lenders apart from the myriad of competitors seeking to finance apartments, manufactured home communities and senior housing.

Chris Dyson is senior vice president and co-production manager for Collateral Mortgage Capital, LLC, headquartered in Birmingham, Alabama.

©2001 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.