The FHFA Wants the GSEs to Finance More Apartments This Year

Freddie Mac headquarters

WASHINGTON, DC—Every year Fannie Mae and Freddie Mac’s regulator, the Federal Housing Finance Agency, sets a cap on how much the GSEs can lend for multifamily development.  For 2016 this cap stayed roughly the same from the previous year’s limit of $31 billion — at least officially. Unofficially, the GSEs were given more wiggle room to lend as the number of exclusions to the cap — such as affordable and rural housing — had been increased. Now, five months after the release of the 2016 Scorecard, the FHFA has raised the multifamily lending cap to $35 billion, per the guidelines set out in the Scorecard, according to the FHFA. The exclusions in affordable and certain underserved market segments will continue to be exempt from the purchase caps. A Normal Review Process The FHFA explained the increase as part of a normal review process. The Scorecard calls for it to review the estimates for the size of the multifamily finance market each quarter and increase the caps if necessary, it said as it announced the increase. In its review, it found that the 2016 multifamily finance market was larger than had been estimated “due to continued high levels of property acquisitions and deliveries of newly constructed apartment units, as well as record levels of loan maturities that require refinancing.” “FHFA engaged in a thorough analysis of the multifamily market and determined that, to adjust to the realities of the market and ensure that Fannie Mae and Freddie Mac have the flexibility to continue supporting this important sector, an increase in the lending caps is warranted,” FHFA Director Melvin L. Watt said in a prepared statement. ”Supporting liquidity in the multifamily housing finance market remains a priority for FHFA and we will also continue to ensure that Fannie Mae and Freddie Mac maintain their strong support for financing of affordable and workforce housing.” The FHFA was not able to return a call to GlobeSt.com in time for publication. A Policy Position Put another way, the FHFA’s decision to raise the caps shows that the federal government is still interested in sponsoring the construction of new apartments, Dr. Mark Dotzour, a real estate economist based in College Station, Texas, told GlobeSt.com. “It is reloading the barrels.”  It is hard to imagine that following this increase, the Obama Administration would pivot and move forward with dismantling the GSEs despite the growing calls in Washington to do so. The FHFA’s increase in the apartment caps comes as the debate about the GSEs’ ongoing viability is ramping up again. Earlier this week, Freddie Mac reported a $354 million quarterly loss , attributing it to $2 billion of fair value losses related to net declining interest rates and wider spreads on certain mortgage loans and mortgage-related securities. Then Fannie Mae posted earnings for Q1, reporting a smaller profit for the quarter compared to the same period last year.  Its net income was $1.14 billion, down from $1.89 billion a year ago and $2.47 billion in the fourth quarter. The decrease in net income was due, as with Freddie Mac, primarily to fair value losses driven by decreases in longer-term interest rates negatively impacting the value of the company’s risk management derivatives. The GSE will send a $919 million dividend payment to the US Treasury in June. Demand for More Finance For borrowers and the associations that represent them, the quarterly earnings are one data point. Another to consider, they might say, is the $260 billion projected size of the 2016 market, up from the earlier estimate of $220 billion. And indeed, even if the multifamily finance market weren’t growing, it has become almost routine for the GSEs to hit their caps by the third quarter, essentially shutting down apartment financing for the rest of the year. “The FHFA’s review and adjustment mechanism in its 2016 Scorecard and its close monitoring of changing market conditions will support continued liquidity in workforce rental housing, help avoid market disruptions, and allow for competition among capital sources that finance this vital market,” David H. Stevens, president and CEO of the Mortgage Bankers Association said in a prepared statement.