WASHINGTON, DC-Last week Federal Housing Finance Agency Acting Director Edward J. DeMarco unveiled details about a plan to streamline and shrink the GSE's certain operations--including multifamily originations by 10%. The announcement took the industry by surprise, to say the least. GlobeSt.com caught up with Willy Walker, CEO of Walker & Dunlop, to hear his thoughts on the announcement.

Why he found FHFA's initiative surprising: They established this goal with the objective of "bringing more private capital" to the multifamily financing markets. The current model has been successful and highly profitable for taxpayers because it puts private capital in the first-loss position.

Why the first-loss position is so important: Private capital takes the first-loss position on every multifamily loan originated by Fannie Mae and Freddie Mac (by purchasing the B piece risk in Freddie K Securitizations). For Freddie Mac, taxpayers are only on the hook for the AAA risk, which historically, has not generated losses.

On what else is significant about GSE multifamily finance: Fannie Mae and Freddie Mac have provided liquidity in uncertain times. As the market has improved, private capital has returned, as evidenced by the shrinking of their market share from 90% in the crisis to 45% in 2012. In comparison, Fannie and Freddie's single family business has no private capital involved.

What the change means for Walker & Dunlop: We expect it will have little impact on our business in 2013. Walker & Dunlop has anticipated there would be GSE Reform, has been monitoring proposals, and as a company we have been developing proprietary programs that diversify our sources of capital.

His concerns about the initiative: One thing that everyone, on both sides of the aisle, has agreed upon is the need for transparency and a long-term strategy on GSE Reform. The purpose of appointing a conservator for Fannie and Freddie was to preserve and conserve the [their] assets and property and to put [them] in a sound and solvent condition. In my opinion, expanding, not contracting, the multifamily model is consistent with that mandate. This highlights the need for a long-term transparent solution for GSE reform.

Instant Insights /

Willy Walker: Why I am Surprised by the FHFA's Initiative

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