Evans Sent: Michele Evans Helped Forever Change Fannie Mae Multifamily
Following the Great Financial Crisis, Michele Evans helped usher in a timeless (and now pandemic-tested) evolution in how Fannie Mae Multifamily operates
One of the last trips to Italy that Michele Evans took with her late father was to Parenti, a small town of about 2,000 people in the Italian region of Calabria, the toe of the country’s boot, where her paternal grandfather was born.
When they arrived, she said it seemed as though the entire town came to greet them.
She visited the home that her grandfather was born in. It was no longer occupied, but it still donned a blue shutter above the front door.
“They put this shutter on top of his door, and if the shutter was painted blue, that meant that they had a family member that had gone to the United States,” Evans said.
It is a legacy worthy of symbol to the folks in the region, a legacy that her family is familiar with. Evans’ father is a first-generation American of Italian descent, who went to Georgetown University and became a high-profile corporate lawyer.
“He was a bigger-than-life kind of guy, hardworking,” Evans said. “He instilled in all of us this really strong work ethic.”
That influence of discipline and dedication didn’t stop at Evans’ immediate family. She met some of her distant cousins as part of that trip to her grandfather’s hometown, all of which she said are “really well-accomplished women — engineers, biologists and doctors. They’re all very interesting.”
Evans, in her own right, is establishing a legacy at housing finance behemoth Fannie Mae (FNMA). She’s worked there for nearly three decades, having recently taken over as head of its massive multifamily book of business in August 2020.
The government-sponsored enterprise’s multifamily business was tallied at $367 billion as of the third quarter of 2020 — a roughly 11.2 percent jump year over year — and it provided a record $70 billion in financing in support of the multifamily market in 2019, in line with its loan purchasing caps set by its regulator, the Federal Housing Finance Agency. It also hasn’t missed a beat through the pandemic, while working remotely.
“We left our offices in March. I absolutely was convinced I was coming back in three weeks. I actually haven’t gone back to our offices,” Evans said, joking that the first time she had gone back was in early December to have her photo taken for this story.
Fannie Mae multifamily operates in a variety of ways in support of the housing market. It directly buys apartment loans originated by licensed third-party lenders; it guarantees apartment loans included in securities issuances; and it facilitates the credit enhancement of bonds issued by state and local housing finance authorities, like the New York City Housing Authority (NYCHA), that go toward financing apartment properties.
Over time, Fannie Mae’s presence in different areas of multifamily finance, whether it’s the Rental Assistance Demonstration (RAD) or the Low Income Housing Tax Credits (LIHTC) programs, has grown in further support of financing affordable housing.
As of Sept. 30 last year, only 0.5 percent of the company’s $367 billion multifamily book — based on unpaid principal balance — was in active forbearance, most of which can be attributed to COVID-19-related reasons. And just about 1.12 percent of its book was 60 days past due.
Multifamily is one asset class industry participants and observers can point to as a bright spot amid the caustic damage that COVID-19 caused. Fannie Mae, working alongside the federal government, has played an invaluable role in maintaining liquidity and stability in the sector via forbearance programs and other forms of relief provided to apartment owners and renters. Before the end of the year, Fannie announced that it extended its forbearance programs for borrowers through March 31, should they refrain from evicting their tenants; this works as an additional buffer to go alongside further federal relief provided through the latest stimulus package, which stretches through the end of January.
It was an interesting time for Evans to take the helm as executive vice president and head of multifamily last August. Her long history at Fannie is not one devoid of peaks and valleys, but it’s highlighted by technological innovation, as she has helped spearhead a streamlining of its underwriting, originations and servicing processes, as well as a push to make it more transparent for its investors and informative for borrowers and renters. It’s something that has aided the financier in weathering the COVID-19 storm and helping buoy the multifamily market.
Nevermind the Tulane University alum spent virtually her entire career in the D.C. area. Evans was born and raised in Washington, D.C., within a trilingual household. Despite her Italian ancestry and love for the Italian language, she can’t speak it. Instead, she gravitated to French, which she speaks fluently, thanks to her mother, who’s French Canadian.
Sources who’ve spoken to CO about Fannie Mae and its professionals find it hard to pin down the more influential senior faces that exist within a multifamily platform that started with a fraction of the hundreds of people it sports today, but Evans’ friendly, bright and hopeful disposition is something that shines through in the disciplined work she and her employees do.
Commercial Observer: You landed at Fannie Mae in the early 1990s, in your late 20s. Was it a company you had been eyeing?
Michele Evans: I was eyeing it. I was thinking about it. What was interesting was my first job out of school, I worked for a co-insurance lender; it was a program with [the Department of Housing and Urban Development]. That program kind of shut down; it wasn’t working. Fannie Mae, at the time, had realized in their charter that besides purchasing portfolios of multifamily properties, there was an opportunity to create a platform to buy individual multifamily properties. There was a lot of single-family business, but they really hadn’t done a lot on the multifamily side.
So, they just started the Delegated Underwriting and Servicing (DUS) platform, and they were just starting to staff the organization. I’m not sure they ever thought it would turn into what it’s turned into today, but, to me, it was an opportunity to get in on the ground. I think there were maybe 10 people in the DUS platform. When you go into something new and small, you have a chance to do a lot of things. They didn’t have a tremendous amount of resources they were throwing at this.
How would you describe the evolution of Fannie Mae multifamily in the 30 years you’ve been there?
When I started, the predominant force of the business was single-family; it was the machine. So, multifamily was something that didn’t rise to the level of what the single-family business was doing. It was below the radar, but we chugged along, slowly but surely, and multifamily just continued to do what it needed to do to grow. We started with conventional multifamily loans, but, slowly but surely, we ended up doing larger deals, smaller deals, manufactured housing, student housing and seniors housing.
When I started, believe it or not, there were very few computers available. I remember they were like, “Wow, you’re lucky, you get a computer.” When we took the loans in, there were just 10 data elements on every loan we purchased, like the property name, the loan-to-value, the debt service coverage, the address, whether it was a fixed- or adjustable-rate mortgage, the number of units. Today, we capture thousands of data elements for each loan.
It was the pre-calculator times; you’d sit down and have to run through the numbers, cash flows, appraisals, and the engineering and environmental reports. It was very paper-oriented. We ended up building a book of business. We lived through things like restatement and conservatorship, and who knows what happens in the future.
In the last 10 years, operating as the COO, I was able to take everything I learned from the front-end and think about, “How can you make this better and improve the platform?” One of the reasons I’ve stuck around for so long is because of the unbelievably talented group of people, who are so committed.
Can you expound on the technological evolution that took place at Fannie over the last eight to 10 years?
We were just coming into conservatorship [after the Great Financial Crisis], and there had been a lot of conversations around whether the company would continue to be able to guarantee securities. It was a big topic of discussion. We determined that the amount of information we were disclosing to our investors was not where it needed to be. The market was disclosing 500 data elements and we were disclosing 50. When we started to peel the onion back, we realized it wasn’t a simple thing to do. We realized we needed to transform the entire platform.
Simplistically, our systems were set up in a way where we were taking a multifamily loan and shoving it through a single-family pipe. The foundational infrastructure of the company was predicated on single-family, so we were always having to make modifications to existing systems to fit the multifamily business. That was the genesis of where it started. Over the last eight years, we’ve replatformed the way we do business. We fixed our disclosure platform, and the way we bring our business in, through a salesforce platform called DUS Gateway. We just recently built out a pricing automation tool in DUS Gateway that allows us to quote business very quickly. We also introduced a platform called DUS 360, a tool put in place to handle workouts and forbearances.
We’ve pretty much got everything done other than asset management and special asset management platforms, and we were just at the point of doing that this year, and lo and behold, we pop into a pandemic. It’s forced us to accelerate that work. There’s one goal in mind for us: How do you make it easier to do business with Fannie Mae?
What’s it been like seeing this at work, while being tested and pressured by the pandemic?
It’s an exciting thing for us to see. Instead of having to figure out how we were going to cohabitate and get the work done, we didn’t miss a beat. They plugged their computers in and started working, and what that did for us is it gave us an opportunity to think, “OK, what are the big problems coming our way?” Are we prepared to manage the challenge on the book, along with continuing to provide liquidity in the marketplace? The technology made it so easy to conduct the business that we actually had the time to think about how to solve problems we were going to see, like how we’d handle delinquencies or an onslaught of forbearances.
The infrastructure we created allowed us to build systems on top of it, which allowed us to take in more forbearances more quickly and communicate with our lenders. In 2019, this process was done just by exchanging emails, just to put it into perspective. The other thing it allowed us to do on the front-end, with our underwriting, was to quickly make changes to address new business. With these really low interest rates, you can imagine the amount of business that was being done. We saw a massive amount of refinancing starting in March. We instituted reserves on P&I [principal and interest], and taxes and insurance, and replacement reserves. We put those in place quickly, and we’ve watered them down a little bit, now only requiring reserves for P&I, depending on the leverage of the loan.
One thing that became very pronounced was helping renters. We put a lot of attention there and rolled out a platform — we called it a renter’s resource guide — that allowed a renter to find out if the property they are living in is a multifamily Fannie Mae property. If, in fact, it was, you were given resources that helped you figure out your options. No. 1 was if there’s forbearance on your property, you weren’t going to get evicted from that property.
Tell us about Fannie’s work in HUD’s RAD program, the level of interest in it from private capital, and how it fits in going forward as something that further bolsters the financing of affordable housing.
It’s the ability to go in and capitalize and renovate public housing. RAD will replace the public housing subsidy with a long-term, project-based Section 8 contract, which allows local housing authorities to recapitalize and renovate. Just recently, [in December] we closed a transaction, a $289 million RAD deal. We did it with Wells Fargo (WFC), New York City Housing Development Corp. and NYCHA. It’s 16 properties in Manhattan and 1,781 units, a 30-year financing transaction, something we had been working on for two-and-a-half years.
What’s going to happen is NYCHA’s going to spend $158,000 per unit to renovate kitchens, bathrooms, windows, doors and flooring. Just think about [how] this older stock of housing, for the first time in a long time, is going to get this kind of renovation and what that means to tenants in the marketplace. Since 2017, we have financed 51 properties under the RAD program. They’re not easy deals, and it takes a lot of effort for all the parties involved.
In the LIHTC program, given the pandemic and increased demand in affordable housing, tell us about Fannie’s role in providing that additional liquidity where needed.
It cuts right to the core of what we’re trying to do. Fortunately, we were able to get back into that business. We are allocated an annual investment limit of $500 million, and then any amount that goes above the $300 million target has to be transactions that are done in underserved markets, like Native American and farm working communities. We have to go into markets that have difficulty attracting investors. We got back into this business in 2017, and it’s a great way to increase the creation and preservation of affordable properties.
With the pandemic and the need for affordable housing, anything that’s going to address affordability challenges head on, we’re set up well to provide that support in the market.
2019 was a big year for LIHTC, a record year in terms of the amount of equity raised from tax credit investors. How have you seen pricing on those tax credits move in 2020, and do you see demand picking up in the area for 2021?
I think it’s going to continue to remain strong. We’ve got that limit of $500 million, but we think we could do even more. There are transactions to be done out there. There continues to be a lot of interest and it’ll be interesting to see how much the new administration doubles down on this kind of product. It’s a way to bring new affordable housing to the marketplace, where RAD was about upgrading what we currently have.
What were some of the key considerations and concerns from your side on the swift rollout of the Secured Overnight Financing Rate (SOFR), since Fannie has been a leader in ushering it in?
We started working on the transition from LIBOR to SOFR in 2019, but, in 2020, there was a lot of activity going on. The thing we wanted to have happen is have a smooth, orderly transition. We wanted to make sure we were prepared operationally, and that there was plenty of notice to the market, whether it was to our lenders or borrowers, that we were making this change. The good news is we’re doing transactions right now, and started doing them actively in the fourth quarter of 2020, and the full LIBOR cessation has been extended out to 2023, in the spirit of doing things in an orderly way.
Fannie’s extended forbearance period, together with federal relief programs, has created a chain reaction that will bar your borrows from evicting at least through the early spring. How have you seen this shake out in your book and what do you expect beyond March 31?
Since the pandemic started, the fact we had some level of relief where you protected the renters through the forbearance period has allowed the market to slowly absorb the challenges associated with it. What we’ve seen is our numbers have been quite good, and given the fact that renters have been able to stay in place during this period of time, it has allowed properties to get hold of the situation.
That being said, once this is lifted at the end of March and renters are not able to come up with a plan to pay the rent back, we’re clearly going to see some of these numbers change. With the vaccine being rolled out, and people who are not employed hopefully getting jobs, it’ll actually give tenants the flexibility to repay their rent. They’re not allowed to get late fees and penalties for nonpayment. Hopefully, by the time we get to the end of March, we’re going to start seeing things improve enough economically and with the pandemic, that it will transition us into a situation where delinquencies won’t increase dramatically.