On Wednesday, Treasury Secretary Timothy Geithner broke thesilence about the administration's plans for the GSEs: a detailedlegislative proposal will be coming in 2011. "We do not think it isnecessary to consolidate the full obligations of Fannie and Freddieonto the nation's budget," he told the House of RepresentativesBudget Committee. "But we do think it is important that we make itclear to investors around the world that we will make sure that wewill take the actions necessary to keep the two companies stable."The Treasury would develop a few "broad principles" forrestructuring Fannie and Freddie this year, he added.

|

Into this vacuum has moved any number of proposals for the GSEs,from Congresspeople to industry groups such as the Mortgage BankersAssociation. The most recent comes from the National Association ofRealtors, which would like to convert the GSEs to non-profitentities owned by the US government. In essence, this plan wouldmake explicit the government's backing of Fannie and Freddie, whileleaving their missions relatively intact.

|

The current model of "private profit and public loss" isinherently flawed, NAR spokesman Lucien Salvant tells GlobeSt.com.Therefore NAR is proposing that the GSEs should be converted intoself-sustaining, government-chartered non-profit entities, hesays.

|

"The new secondary mortgage market entities would use revenuegenerated from their business to fund their operations," heexplains. "Any excess revenue generated in strong markets would beaccumulated in order to pursue a countercyclical policy in weakermarkets, and to support the secondary market, provide forinnovation, remain mission focused, and maintain theircapacity."

|

Not surprising, there are questions. "Formally removing theprofit motive is fine and reflects current reality, but in order tobe self-sustaining, even non-profits have to at least break-even intheir operations," says LaFonte Nesbitt, a partner in Holland &Knight's Real Estate practice.

|

"The fees paid to, and other revenues of, Fannie Mae and FreddieMac as non-profits would need to equal or exceed their costs ofoperations and any losses they would suffer on mortgages. And it isnot clear how that would happen," he tells GlobeSt.com.

|

"Otherwise taxpayer dollars would still be necessary." Nesbittsays he understands that the NAR seeks to mitigate taxpayer riskthrough the use of mortgage insurance on certain higher LTVmortgages and with MBS guarantee fees. "However, until many moredetails emerge, use of explicit federal government guarantees makesit hard to understand how the newly non-profit Fannie and Freddiewould be different from FHA or Ginnie Mae; or at least differentenough that it makes sense to continue them as separategovernment-sponsored entities."

|

For many in the commercial real estate space—or rather, forthose that rely on the GSEs for multifamily finance—any delay indebate and subsequent government action on their ultimate fate isjust fine. Another year of the status quo brings the industry thatmuch closer to a healthier financial and capital markets wheremultifamily could possibly find support, says a source that usesthe GSEs.

|

Meanwhile the GSEs are forging ahead with their mission nevermind what Congress and the Administration may be planning for thelong run. "We continue to see increasing interest in our deals andproducts, and we will be increasing the number of deals we do as aresult," Freddie Mac's David Brickman, VP of multifamily capitalmarkets and CMBS told GlobeSt.com in January during the CMSAconference held in Washington, DC.

|

The GSE plans to broaden and deepen its capabilities wherepossible, he adds. For example, it is looking to introducefully-guaranteed securities to accommodate financing needs of moreborrowers—such as deals that are difficult to sell because they aremore highly structured. "In general we are moving more fully to asecuritization model where the vast majority of assets arepurchased and securitized."

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.