On July 12th, 2024, the Federal Housing Finance Agency (FHFA) announced new tenant protections being implemented for multifamily properties financed through the Fannie Mae or Freddie Mac programs. These protections, designed to aid tenants facing financial challenges, will address how landlords of multifamily property can address rent increases, lease expirations, and rent grace periods for their tenants.
If you are a property investor in multifamily properties, you’ll want to pay significant attention to these new rules. Many multifamily property investors take advantage of the more affordable loaning practices of Fannie Mae and Freddie Mac loans. So whether you’re a new investor or seasoned in real estate, this can affect how you conduct business.
Let’s explore these new tenant protections and what they mean for multifamily property investors.
What Do the New Tenant Protections Cover?
The new FHFA tenant protection rules require landlords of multifamily properties to provide their tenants with certain notices and allowances. These include the following:
Landlords must provide tenants with a 30-day notice of any rent increases they impose.
Landlords must provide written notice 30 days in advance of a lease ending.
Tenants must be given a 5-day grace period for all rent payments.
This is the first time that tenant protections will be a standard for this type of financing. It’s important to keep in mind that these are NOT federal regulations for all multifamily property owners. These tenant protections are specifically for owners who finance their properties through Fannie Mae or Freddie Mac loans.
When Do the New Tenant Protections Take Effect?
The FHFA will put these new policies into effect on February 28, 2025. These new tenant protections will not affect multifamily property that was financed under a Fannie Mae or Freddie Mac loan before this date. However, all loans signed on or after February 25th will have to adhere to these rules.
Failure to comply with tenant protection policies of the FHFA can spell trouble for your investment. You can face penalties under your loan agreement that will impact you financially. These protections will be overseen by the Enterprises (Fannie Mae and Freddie Mac). So any non-compliance will be investigated by your loan providers.
If you’re new to the world of multifamily rentals or just need to brush up on your industry knowledge, you should develop an understanding of these organizations and why they are putting these protections in place. Let’s talk about the background of the FHFA and the Enterprises to further understand their impact on investors.
What are Fannie Mae and Freddie Mac?
Fannie Mae and Freddie Mac are both government-sponsored organizations designed to improve the housing market’s affordability and liquidity in the United States. They accomplish this by purchasing loans from other lending companies to free those companies up to provide more housing loans to the market. They can then either hold these loans themselves or sell them in bulk to keep the housing market active.
Neither organizations provide loans themselves. Rather, they simply purchase them from other companies, which is how you as a property owner can end up signing a Fannie Mae or Freddie Mac loan. These loans have significant benefits for property investors due to them typically having lower interest, longer terms, and fixed-rate financing. Which is why they’re still worth it for investors even with the new regulations.
What is the FHFA?
The Federal Housing Financing Agency was founded by the U.S. government in 2008 specifically to oversee the operations of Fannie Mae and Freddie Mac by acting as their conservator. They even provide Enterprise Housing Goals to the two organizations to make sure there is a healthy diversity in the types of loans they are purchasing.
All of this is to further ensure the health of the U.S. housing market and keep affordable housing options readily available. Since one of the main focuses of the Enterprises is multifamily housing loans, they also need to improve the conditions for renters in the country. This is why the FHFA is instituting tenant protections into the loans of the Enterprises.
How Will the New FHFA Protections Affect Landlords and Tenants?
These new tenant projections will primarily change the timelines in which multifamily landlords notify their tenants of changes. Many landlords already give notices on lease expiration and rent increases, but you might not give them in the same timeframe that the FHFA requires.
To reiterate, under these new guidelines, 30 days ahead of time will be the minimum required to give written notice when a lease ends or rent is raised. This will require you to pay more attention to timelines in these events. On the bright side, this should improve your communication with your tenants and make them feel more prepared.
Rent grace periods can be a little more contentious for some landlords to implement. Many states do not have specific requirements for landlords to give their tenants grace periods for late rent payments. And of course, any property owner wants to receive their rent payments on time.
However, if you’re financing the property through one of these loans past the effective date, you will have to give your tenants 5 days past the due date to pay rent. Ultimately, this is to provide your tenants with leniency on rent in the event of financial crises. In the end, this could improve your tenant retention by showing grace to tenants in a hard situation.
What Can I Do to Prepare?
Being prepared for these new tenant protection rules from the FHFA will boil down to your ability to plan your rental business. If you’re planning on beginning to invest in real estate soon, expand your portfolio, or have a rental business with a lot of moving parts, you should start thinking about how to implement these changes ahead of February 2025.
It can also be of substantial assistance to partner with a property management company to help navigate these changes. Hiring a property manager can improve your operations across the board, especially with a larger multifamily property.
We here at Axela Management specialize in grander-scale investments like multifamily. We manage every property we represent with an innovative approach. If you want a property manager who can help you handle these new challenges, we’re here to help/
Contact us to get a free consultation and rental analysis of your property.
