The American Action Forum, a Washington, D.C.-based think tank, recently published a report that argued that large-scale reform of Fannie Mae and Freddie Mac cannot move forward without considering the differences between the mortgage giants’ single-family and multifamily businesses. Such a report is a critical stimulant in the debate over government-sponsored entity (GSE) reform and supports many of the arguments in NMHC/NAA’s GSE reform proposal.
The report outlined the linked but divergent nature of the single-family versus multifamily markets amid today’s homeownership rate declines, a low-interest rate environment and limited new construction activity. It also pointed out the radically different financing structures and mapped out the evolution of the mortgage-backed securities market for multifamily loans. With regard to government-backed Fannie Mae and Freddie Mac, the report presented the mortgage giants’ “non-trivial share overall” in the secondary market for multifamily loan securitization while highlighting the loan underwriting process and extremely low delinquency rate on the multifamily loans on Fannie and Freddie’s books.
Given that “the fallout of the painful collapse in the single-family mortgage-backed security market will drive a need to consider other housing options,” the report concluded that the multifamily market’s proven performance cannot be overlooked amid the host of demographic, economic and political factors that will influence housing in the future. The report concluded:
“The essential nature of the GSEs in the housing finance market, hotly debated as it is, allows for at least two margins on which reform can happen. That is, the role of the GSEs in the multifamily space stands apart from its role in the single-family space. At the very least, their respective cost-benefit calculations will total to different sums, regardless of whether they net positive totals or not.”
Similarly, NMHC, along with its NAA partner, have been working on a GSE reform proposal that would involve a separate solution for Fannie and Freddie’s multifamily businesses. The plan includes a framework for spinning out Freddie and Fannie’s multifamily businesses as stand-alone entities and calls for the retention of a federal credit guarantee, a necessary provision to attract global investors, as well as government compensation for the guarantee and a strong regulator to oversee the new entities, among other provisions.
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