On March 4, 2013, the Federal Housing Finance Agency (FHFA) published a 2013 strategic plan for Fannie Mae and Freddie Mac. The three-part plan formalized a number of actions that the regulatory has identified to reduce the government’s footprint in the nation’s housing finance system. The plan also had a prescriptive focus on fixing the GSEs’ single-family businesses, which included the creation of a single platform between the two organizations for securitizing single-family loans. While the GSEs’ multifamily businesses are unaffected by the significant change, several additional provisions in the plan are of concern to the industry because of their effect on the availability of credit in the multifamily market.
More specifically, the plan called on Fannie and Freddie for a minimum 10 percent reduction in the unpaid principal balance amount of their new multifamily business. Under the new directive, Fannie and Freddie’s combined multifamily lending would be reduced to $56.9 billion from $63.3 billion in 2012.
The FHFA stated that the reductions should be achieved through a combination of tighter underwriting, upward pricing adjustments and decreased product offerings.
These provisions are part of FHFA’s larger plan as the GSEs’ regulator to reduce risk and restore confidence in the housing finance system, including both the single-family and multifamily markets. However, issuing caps on the GSEs’ multifamily lending volume and reducing the diversity and availability of multifamily mortgage products could interfere with stabilizing market forces currently at work.
Fannie and Freddie served as an essential backstop during the economic downturn, maintaining liquidity in the market when private capital retreated. As the economy has continued to recover, private capital has once again returned to the market, helping reduce the GSEs’ market share. Given the GSEs’ shrinking share of the multifamily mortgage market, an artificial governor on their participation could disturb the positive market forces already in action.
NMHC/NAA issued a statement objecting to the arbitrary volume caps and possible product restrictions, stressing that, while we support a return to system dominated by private capital, it should be achieved through market-based mechanisms and not price controls. We also noted that such a return is already happening without this latest FHFA action, as the GSE multifamily market share has been reduced from 90 percent during the crisis to 45 percent in 2012.