At the request of the U.S. Treasury Department, NMHC/NAA and the American Seniors Housing Association (ASHA) provided recommendations on the reform of the housing finance system and the transition to a new system as it relates to the multifamily sector.
NMHC/NAA/ASHA urged policymakers to undertake a deliberate, thoughtful and inclusive transition and highlighted the fact that unlike single-family lending, the GSEs’ well-underwritten multifamily lending did not contribute to the housing crisis.
Our comments are the result of a special NMHC/NAA/ASHA Government-Sponsored Enterprise (GSE) Futures Task Force made up of some of the leading multifamily owners, developers, investors and multifamily mortgage lenders.
NMHC/NAA/ASHA’s nine key principles:
- Act with Deliberation and Not Haste.
With $5.5 trillion in on- and off-balance sheet assets and liabilities of the GSEs, identifying and transitioning to a new housing finance system will likely will take three to five years at a minimum. Throughout this transition policymakers need to be very careful not to disrupt the capital flows necessary to pull housing out of its worst recession ever and to finance the tens of millions of housing units we will need to create over the next five years to meet expected demand.
- Rebalance Housing Policy to Reflect New Realities.
Historically our housing policy has emphasized homeownership, treating rental housing as "housing of the last resort." This unbalanced approach ignores meaningful shifts in demographics and household formation that mean the U.S. will increasingly rely on rental housing as a desirable alternative to single-family housing. This means we must explicitly acknowledge the unique needs of the multifamily sector as a new housing finance system is designed.
- Private Capital Should Fully Participate in a Reconfigured System.
The old model of privatizing profit and socializing risk was a significant factor in the failure of our existing system and must be substantially reformed in any future system. There is also broad consensus that private capital should be predominant in a reconfigured system, with the federal government’s role—and associated taxpayers’ risk—greatly reduced and far better protected.
- Name a Blue Ribbon Commission on Private Capital.
The Obama Administration, in concert with Congress, should create a blue ribbon commission to explore the opportunities for private capital to re-emerge as the dominant funder for housing as well as opportunities to incentivize private capital to fund reconfigured GSEs as some proposals have suggested. It should be comprised of experts in housing finance, including strong representation from Wall Street firms whose deep knowledge of capital flows will be vitally needed in any such exploration.
- Need for Federal Credit Facility at All Times.
There is no justification for a “stop-gap”-only role for federal credit. Instead there should be a federal facility to provide credit to the residential mortgage market with the full faith and credit of the U.S. government at all times. Users would be expected to pay appropriate credit enhancement fees that would be held in a segregated escrow to protect the taxpayer.
- The GSEs Should be Reduced in Size but Not Eliminated.
Given the success both GSEs have had in managing their multifamily books of business for the past 15 years—and in light of the significantly more complex financing demands in multifamily and seniors housing—there should be a limited portfolio execution opportunity for the GSEs. We support a reduced role for the GSEs’ over time but also feel that their continued existence and active participation in housing finance is important.
- The Government Should Not Nationalize Fannie Mae and Freddie Mac.
Aside from the staggering consequences of putting $5.5 trillion on the federal balance sheet, the federal government’s existing infrastructure, embodied in HUD and FHA, is experiencing severe stress in trying to cope with unprecedented demand for their services, and the GSEs account for 10 times FHA’s volumes under “normal” circumstances. Creating a significantly larger bureaucracy to finance residential mortgages would be a mistake.
- Eliminate the Social Mandates for Fannie and Freddie.
There is a growing consensus that part of the problem can be traced to the GSEs’ mandated affordable housing goals. While well-intentioned, the affordable mandates distorted the GSEs’ business practices. Removing the mandated housing goals for the GSEs will send a clear signal to the marketplace that private capital will be welcomed back to recapitalize the system.
- Strong Regulatory Oversight and “Skin in the Game.”
A new regulatory regime should establish risk capital standards, risk-retention requirements for originators, nationwide licensing standards for mortgage brokers and more stringent and consistent underwriting guidelines for all participants in the system. A tough but fair regulatory environment and greater disclosure by issuers of mortgage-backed securities regarding the due diligence they performed will be required to reestablish investor interest in CMBS paper, which in turn will help wean the market off the full faith and credit of the U.S. government.