WASHINGTON, D.C.-Housing finance reform must include a federal guarantee for multifamily mortgages. This was the key message from Peter Donovan, immediate past chairman of the National Multi Housing Council (NMHC), speaking at the American Enterprise Institute (AEI).
“The elimination of a government guarantee of any sort to avoid a possible crisis, that is not supported by the facts, to be replaced by a private capital market that has not shown itself to be ready, willing, able, disciplined or reliable would truly be a crisis of our own making and for what purpose,” said Donovan.
In stark contrast to their single family programs, the government sponsored entities (GSEs), including Fannie Mae and Freddie Mac, use stringent and standard-setting underwriting for their multifamily programs - leading to a default rate of just .25 percent. Private-market sources of multifamily capital like CMBS have a default rate of 15 percent. In addition, the GSEs ensure that capital is available for apartments in all markets at all times, not just top-tier properties in major markets.
“The GSE market discipline, underwriting standards, origination system and alignment of interests are precisely the attributes we need for the future of the multifamily,” said Donovan. “Governments all over the world support housing in a variety of ways. Decent shelter is different from retail, office, hotels and industrial. We have seen how an over-emphasis on single family homeownership with the best of intentions can have disastrous results.”
Addressing the future of a federal role in the multifamily finance industry, Donovan said, “If privately recapitalized to promote competition, the GSE successor entities would be competing on service and product, with a raised guarantee fee - if needed to promote an economically sound government guarantee of the bonds - with the government guarantee only utilized after all private equity in the successor firms had been exhausted.”
“The GSE multifamily experience was not the single family experience,” he added. “In times of severe economic crisis it worked even better than any of us imagined. It was quite simply the model that needs to be emulated because it works. I don’t want successor GSE multifamily to crowd out the private debt market but rather to lead it.”
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Based in Washington, D.C., NMHC is a national association representing the interests of the larger and most prominent apartment firms in the U.S. NMHC’s members are the principal officers of firms engaged in all aspects of the apartment industry, including owners, developers, managers and financiers. One-third of Americans rent their housing, and over 14 percent live in a rental apartment. For more information, contact NMHC at 202/974-2300, e-mail the Council at email@example.com, or visit NMHC’s web site at www.nmhc.org.
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