Government-Sponsored Enterprises (Fannie Mae and Freddie Mac)
Housing Finance Reform: The Multifamily Perspective
The bursting of the housing bubble exposed serious flaws in our nation’s housing finance system. As policymakers craft solutions to fix the single-family housing problems, they should be mindful not to do so at the expense of the much smaller and less understood, but vital, multifamily sector.
The GSEs' multifamily programs were not part of the meltdown and are not broken. They have default rates of less than one percent—a tenth of those in the single-family sector—and they actually produce net revenue (profits) for the U.S. government. They pose no risk to the taxpayer. Through careful underwriting, the GSEs’ multifamily models have met the test. They have attracted enormous amounts of private capital; helped finance millions of units of market-rate work-force housing without federal appropriations; sustained liquidity in all economic climates; and ensured safety and sound-ness in their multifamily business. As a result of the liquidity provided by the GSEs, the United States has the best and most stable rental housing sector in the world.
Despite this, they—and the nation's supply of workforce rental housing—stand at risk of becoming a collateral victim of the single-family housing finance reform. Apartments are a critical component of the nation’s housing market, but history has made it clear that the private market simply cannot meet a majority of the industry’s capital needs. A federally backed secondary market is absolutely critical to the sector’s health and our ability to continue to meet the nation’s growing demand for rental housing. It is even more important when the capital markets are disrupted. Without the GSEs, from 2008 through 2010, there would have been widespread foreclosures of otherwise performing apartment properties because owners would have had no capital source to refinance maturing mortgages. This could have resulted in dislocating thousands of renters.
We urge lawmakers to retain a federal guarantee—at all times, not just in emergencies—for multifamily mortgages in the new housing finance system. This does not necessarily mean retaining the GSEs, but rather preserving their well-functioning multifamily programs in whatever replaces them.
Private Capital is Necessary, But Not Sufficient
We are encouraged by the thawing in the private capital markets and support a return to a marketplace dominated by pri-vate capital. But lawmakers need to understand that even in healthy economic times the private market simply cannot meet all of the rental housing industry’s capital needs. Banks are limited by capital requirements and have never been a source of long-term financing. Life insurance companies have typically been less than 10 percent of the market, lend primarily to newer, high-end properties and enter and exit the multifamily market based on their investment needs and economic conditions. The private-label CMBS market is unlikely to return to the volume and market share it reached a few years ago, and the FHA has exceeded its capacity.
Growing Importance of Rental Housing, Demand Surpassing New Supply
Changing demographics are causing a surge in rental demand that will continue long after the economic recovery. Renters could make up half of all new households this decade—upwards of seven million new renter households. We need to build an estimated 300,000 units a year to meet expected demand. Yet, new development virtually halted for two years during the capital market collapse. The number of apartments started in 2011—167,400—was just barely enough to replace the units lost to demolition and obsolescence. Without government credit support to ensure a reliable source of capital going forward, the apartment industry will not be able to meet the nation’s housing needs, and Americans will pay more for workforce housing.
Workforce Housing Without Federal Subsidies
Policymakers should understand that nearly ALL of the multifamily funding provided by the existing GSEs helped create workforce housing (not just the capital they provided to properties designated “affordable”). Fully 90 percent of the apartment units financed by Fannie Mae and Freddie Mac over the past 15 years—more than 10 million units—were affordable to families at or below the median income for their community. This includes an overwhelming number of market-rate apartments with no direct federal appropriations, produced with virtually no risk to the taxpayer.
NMHC/NAA Key Principles for Housing Finance Reform
Information on legislative and regulatory proposals related to housing finance reform. Includes links to rulings, bills and NMHC/NAA comments.
A list of Congressional hearings held to date on housing finance reform. Includes links to NMHC/NAA statements, hearing webcasts and written testimony of witnesses.
Resources for Practitioners
Additional information on the GSEs for practitioners is available here.