WASHINGTON, DC-As CEO of one of the leading multifamily loan originators, Willy Walker keeps a wary eye on what Washington does. We caught up with him between two major events: a week after the S&P downgrade of Fannie Mae and Freddie Mac’s credit and the day before it was reported that President Barack Obama wanted to keep the government actively engaged in the mortgage market--an about face from his earlier call to privatize the residential mortgage market. Walker predicted as much the day before.

GlobeSt.com: Let’s start with the downgrade of Fannie and Freddie. What does that mean for multifamily finance?

Walker: Nothing. Absolutely nothing. It has had zero impact in terms of financing for the borrower. Spreads have widened, rates have come down and the overall coupon is the same. What has happened is that we had an inversion of the base rate and spreads.

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GlobeSt.com: I guess that cancels out the next question I had planned, which was what do you think will have a greater impact on multifamily finance--the downgrade or the pending reform of the GSEs? 

Walker: Well, since the downgrade has had no impact the obvious answer would be the GSE reform but I have to tell you I don’t see GSE reform happening anytime soon.

GlobeSt.com: Because of the partisan gridlock? Or the downturn in the economy?

Walker: Both I would say. But there has been a change in attitude towards the GSEs on the part of Washington lately, especially compared to the position paper the White House released earlier this year. In Q1 the talk was all about how to wind these things down. Now I am hearing talk of ‘we may need these things [the GSEs] so let’s figure out what to do to reform them and not get rid of them.’

GlobeSt.com: So you don’t see a major reform or privatization on the horizon for Fannie and Freddie?

Walker: Nope.

GlobeSt.com: I guess that brings me to another now-irrelevant question. If the reform/privatization does happen, do you see the private sector ready to step into the breach?

Walker: No, even if Fannie and Freddie were privatized or partially privatized I don’t see that happening. Look, RMBS is dead as we knew it. There was one securitization this year, Redwood, and that has been it. Private capital won’t come back to that market until Congress tells world what it will do with the single family mortgage business.

And banks are unwilling to hold that paper, at least not in the volume that would be needed. So if the securitization market won’t step in and banks won’t step in, there is no capital.

GlobeSt.com: Given all this, do you think the current forecasts for the multifamily industry are too rosy? Is there, perhaps, a bubble forming?

Walker: Fundamentals are now trending multifamily’s way now, that is true. Nothing lasts forever--real estate is a cyclical business--but multifamily is a great class to be in right now.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.