Coinciding with the announcement of third quarter net worth deficits at Fannie Mae and Freddie Mac, the Federal Housing Finance Administration submitted related funding requests for $13.2 billion to the Treasury. Under the terms of the Senior Preferred Share Agreement in place since the September 2008 conservatorship of the two government-sponsored enterprises, the Treasury has seen its related stake in the mortgage giants increase to $72.2 billion at Freddie Mac and $112.6 billion at Fannie Mae†. A direct result of the terms of these investments, the agencies' required dividend payments back to the public purse - approaching $20 billion per year - preclude their return to profitability and independent emergence from conservatorship without some structural change.

Consistent with the counter cyclical performance of mortgage loans, the more recent vintages of the agencies' single-family mortgages exhibit relatively low default rates when compared to loans made during the housing boom. And while the latter remain a drag on the overall health and viability of the agencies, both have remained active in supporting both single-family and rental housing credit availability as part of their current policy mandates.

While reengagement by a broad array of lenders seeking to make multifamily loans has seen the agency share of activity narrow from its crisis peak, they remain the dominant source of credit. During the first three quarters of 2011, Freddie Mac facilitated the financing of over 200,000 rental apartment units; Fannie Mae, 289,000 units. Fannie Mae currently accounts for approximately 20 percent of all US multifamily debt outstanding.

Although the apartment market benefits enormously from access to low-cost capital, effectively subsidized by GSE bonds' preferential treatment, investors and lenders must remain cognizant that this arrangement may not persist indefinitely. Expectations to the contrary find support in the outstanding performance of the agencies' legacy apartment loans. Freddie Mac's multifamily delinquency rate was just 0.33 percent at the end of the this quarter, an order of magnitude lower than banks' non-performing rate or the CMBS apartment delinquency rate of 9.2 percent.

In spite of the GSE observable role in driving apartment outcomes, decisions about their long-term role in supporting the sector's credit needs are not a simple function of the book of businesses' current profitability. The political and policy calculus that will ultimately reconsider the government's role in supporting housing outcomes is in flux. For apartment market participants, that reality and its attendant risks demand consideration.

† Includes initial liquidation preferences