As political polarity paralyzes large-scale housing finance reform efforts in Congress and leaves the future of mortgage giants Freddie Mac and Fannie Mae uncertain, new regulatory proposals are meanwhile advancing changes to meaningfully reduce the government-sponsored enterprises’ (GSEs’) multifamily lending capacity.
On Aug. 9, 2013 the GSEs’ regulator, the Federal Housing Finance Agency (FHFA), announced that it is seeking public input on strategies for further reducing Fannie and Freddie’s presence in the multifamily housing finance market in 2014. These strategies include restrictions on available loan terms, a reduction in loan products and limits on property financing and GSEs’ business activities, among others.
The FHFA announcement is a follow up to the agency’s March 2013 requirement to reduce the GSEs’ multifamily mortgage financing activities by a minimum of 10 percent. This action is set to reduce Fannie and Freddie’s combined multifamily lending from $63.3 billion in 2012 to $56.9 billion in 2013. NMHC/NAA and other industry groups questioned the arbitrary caps and the lack of assessment in determining the degree to which changes to their multifamily programs were needed.
This latest announcement, however, states more specifically that the FHFA is considering:
- Eliminating shorter-term financing options, such as five-year loan products;
- Reducing the GSEs’ wide range of specialty financing offerings in favor of standardized loan products;
- Imposing multifamily loan limits to reduce higher-balance loans on the GSEs’ books and ensure they are ultimately serving lower- and middle-income households; and
- Limiting the GSEs financing activities to loans that only provide new liquidity (versus the purchase of seasoned loans or loan pools); loans that can be securitized; or loans for underserved market segments.
Although this announcement reflects the FHFA’s continued focus to reduce federal support of financing for the multifamily industry, NMHC/NAA are concerned that the effects of implementing any of these strategies, individually or in concert, could be disruptive to the apartment industry both in the near and longer term.
Such mandated reductions in the GSEs’ footprint creates unnecessary uncertainty and could negatively affect a stable source of financing for a wide range of apartment properties in markets nationwide, threatening the industry’s recovery at a time when rental housing demand continues to grow. Moreover, while the FHFA regulates the GSEs’ multifamily mortgage activities, any further action will have implications on the broader, private capital markets and should be coordinated with other financial regulators. These proposed changes also will reduce the GSEs’ abilities to respond to changing market conditions, leaving the apartment industry vulnerable in times when private capital sources are less active in the market.
In addition, independent regulatory action puts legislative proposals focused on reasonable housing finance reform further at risk. NMHC/NAA have continued to work with key Senate leaders to advance the Warner-Corker bill, which reflects many of the industry’s key principles of housing finance reform and includes a separate provision that preserves the GSEs’ multifamily lending programs currently in place, and also with members of the House of Representatives on improving the Republican-backed PATH Act.
The FHFA requested that stakeholders submit their responses to the announcement within 60 days. NMHC/NAA plan to engage the FHFA in the discussion and will be reaching out to members for additional support.