Freddie Mac Starts Trailer Loans That Buffett Criticized

Want to buy a trailer park? Freddie Mac (FMCC) wants to give you a loan.

The unit of the government-owned mortgage giant that funds apartment buildings is set to begin financing manufactured-housing communities, the company said in a statement today.

The firm is broadening its reach in the multifamily segment of the housing market as it seeks to fulfill its mandate to provide affordable options for low-income families. The McLean, Virginia-based lender will work with established companies in the industry across the U.S., said David Brickman, the head of multifamily operations at Freddie Mac.

“It’s rounding out our ability to touch the affordable housing space,” Brickman said today in a telephone interview. “Manufactured housing is a big piece of rural affordable housing.”

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., lamented the punitive rates charged to purchase factory-built homes in his 2009 annual letter to shareholders. Berkshire owns Clayton Homes Inc., a builder of the properties.

Without funding from Fannie Mae and Freddie Mac, owners of the housing complexes are forced to pass on higher debt costs to the families they serve.

Multifamily Properties

Freddie Mac plans to package the debt into bonds with its more conventional apartment loans. The company issued $3.9 billion of commercial-mortgage bonds linked to multifamily properties during the first quarter. Sales of the debt reached $28 billion in 2013.

Before the financial crisis, Freddie Mac held its multifamily loans on its balance sheet. The company began bundling the debt into securities and selling it off to investors in 2009. Bond investors have grown more comfortable with the deals, enabling Freddie Mac to include new types of collateral, according to Brickman.

“We have been cautious in terms of watching our securitization business grow,” he said. “With the program being successful, we are confident that we can distribute the risk.”

The total volume of originations linked to manufactured housing will be relatively small, at less than $1 billion per year, Brickman said.

Fannie Mae, Freddie Mac’s larger competitor, already funds such loans. The Washington-based lender held $5.4 billion of the debt as of Dec. 31, according to an earnings supplement.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net John Parry, Caroline Salas Gage

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