WASHINGTON, DC-Even though—or perhaps because—it is an election year, government entities on both side of the Pennsylvania Ave. are moving forward with plans to wind down the GSEs. The latest sign comes from the Federal Housing Finance Agency, which sent a 21-page strategic plan for the two GSEs to Congress. In it, it discusses how housing loans could be securitized without the intermediation of Fannie Mae and Freddie Mac. Nor was this a blueprint for a hazy years-off future scenario. FHA said it viewed it as an interim plan to get the market used to their absence. 

“With the conservatorships operating for more than three years and no near-term resolution in sight, it is time to update and extend the goals and directions of the conservatorships,” acting director Edward J. DeMarco wrote in the report’s introduction.
“FHFA is contemplating next steps to build an infrastructure for the secondary mortgage market that is consistent with existing policy proposals and will support any outcome of the leading legislative proposals.”

Briefly, the report focuses on three broad areas: 1) Building a new infrastructure for the secondary mortgage market; 2) Gradually scaling back the GSE’s dominant presence in the marketplace; and 3) maintaining foreclosure prevention activities and credit availability for new and refinanced mortgages.
 
Much of the report discussed, not surprisingly, the bulk of the GSE’s business, which is single-family home lending. It did acknowledge the strong role multifamily plays in their portfolios though, noting that each GSE’s multifamily business has weathered the housing crisis and generated positive cash flow.

”Rising rental rates and declining vacancy and delinquency rates reflect, in part, the shift of some households from home ownership to renting as well as other demographic trends.” In fact, the report went on to say, demand for enterprise employees with expertise in this specialized market is also strong that both companies have lost key personnel to other market participants.

Well not exactly. To hear insiders explain it, personnel in the GSEs’ multifamily divisions are leaving, yes, but it is a combination of the lure of the private sector coupled with a sense of foreboding and disgust at the way the GSEs have been portrayed in Washington.
 
Speaking at RealShare Apartments East, produced by ALM's Real Estate Media Group held in Washington, DC, last week, Manny Menendez, vice president and head of Multifamily and Customer Engagement for Fannie Mae, told the audience that the continual “noise” about the GSEs from Congress is definitely impacting morale.
 
“Fannie Mae has been able to retain most of its team through this cycle—our people are focused deal junkies,” he said. “If the deals are there, they want to do them. But there comes a point where all the noise wears on people.” Still, he added, the consensus is that nothing significant will happen to the GSEs, at least this year.
 
What is even more discouraging, Freddie Mac managing director Tom Hamill, who was also at the conference said, is that “I don’t think the regulators or many people in Congress even knew we did multifamily until recently.” He too agreed that Freddie Mac’s biggest risk right now was the loss of human capital, especially in the Central and Southeast regions.
 
In an interview with GlobeSt.com, David Brickman, SVP of Freddie Mac Multifamily
Freddie Mac interview, said that Freddie Mac has been preparing for a change in regime—which is as good a way to describe the still amorphous plans for the GSEs—for some time.
 
“We are undertaking significant investments in infrastructure and our platform to provide better services. We are also looking at our own internal reporting process to see what it would take to report as a private company.” In short, he said, the GSE is looking at everything to see it will be able to return to being a private capital company.
 
“We want to be ready for when the policy decisions are made,” he said. Morale, because of the constant political chatter about the GSEs, however, is a problem, Brickman agreed. “I would have to say our biggest challenge right now is retaining our people and keeping them motivated in an environment where there is tremendous uncertainty about our ability to fairly compensate our people.”

The FHFA seems to have its own ideas about the role the GSEs play in multifamily finance, at least according to its new report. In conservatorship, it noted, the GSEs have seen their market share grow in the multifamily sector “but they do not dominate that market as they do in single-family.”

“Given these conditions, generating potential value for taxpayers and contracting the enterprises’ multifamily market footprint should be approached differently from single-family, and it may be accomplished using a much different and more direct method,” it said.

To evaluate how to accomplish the second strategic goal in the multifamily business, each enterprise will undertake a market analysis of the viability of its multifamily operations without government guarantees, it said. “This will require market reviews of their respective business models and the likely viability of those models operating on a stand-alone basis after attracting private capital and adjusting pricing, if needed, to attract and retain that capital.”