On February 21, 2012, federal regulators proposed the next steps for reforming the Government Sponsored Entities (GSEs), Fannie Mae and Freddie Mac. Frustrated by the failure of lawmakers to pass housing finance reform legislation, the Federal Housing Finance Agency (FHFA), the GSEs’ regulator since entering conservatorship in 2008, issued a "strategic plan" that, for the first time, outlined separate multifamily and single-family solutions for housing finance reform.

The plan builds on earlier efforts to stabilize the GSEs and broadly aims to build a new infrastructure for the secondary mortgage market and shrink the GSEs’ overall role in the housing finance system. For the multifamily sector, the FHFA specifically called for Fannie and Freddie to conduct an analysis of the viability of their multifamily operations without government guarantees, suggesting the possibility of separating the GSEs multifamily and single-family operations.

This approach reflects the GSEs’ multifamily programs’ low loan default rates and continued positive cash flow through the downturn, measures which stand in stark contrast to the GSEs’ single-family portfolios performance. It also validates NMHC/NAA’s advocacy calls for a separate GSE multifamily solution. .

Several proponents of GSE reform, including Sen. Bob Corker (R-Tenn.) and Rep. Scott Garrett (R-N.J), both of whom have introduced related legislation, released statements in support of the FHFA’s plan.

Similarly, NMHC/NAA issued a statement commending FHFA for taking action to move the process forward and urging lawmakers to expedite a multifamily solution. An expedited multifamily solution would prevent the healthy, functioning apartment sector from becoming a collateral victim of the much more complicated single-family sector.

However, despite this positive step, many hurdles still exist before the industry could see a workable multifamily solution for housing finance reform. NMHC/NAA also expressed concern that, even in healthy economic times, the private sector has been unable to meet the full range of the apartment sector’s capital needs.

Moving forward, FHFA has the statutory authority to take specific actions to address the future of the GSEs’ multifamily lending and portfolio management–even creating separate entities focused on multifamily. However, the agency indicated that Congress will certainly have a leadership role to play.

For more information on GSE reform, visit www.nmhc.org/goto/GSEReform.