GSEs Unlikely to Break Up

WASHINGTON, DC-After convening some of the best minds in the housing financing industry this week, the Administration--as well as the industry--does not foresee that much will change in the way that housing is financed, at least not in the near future. The White House housing financing summit, held this week, is a prelude to an expected proposal to reform the GSEs that will be offered in January.

From comments made by Treasury Secretary Timothy Geithner, it is clear that the government will keep a limited hand in the guarantee of home mortgages. While Fannie Mae and Freddie Mac’s mission and approach to the market may well be overhauled, the constant of a government presence will remain, despite calls for the agencies’ privatization. 

The status quo, of course, will be welcome to the multifamily industry, which has benefited greatly from the GSEs’ support. One of the attendees at the summit was National Multi-Housing Council president Doug Bibby, who pointed out that 90% of the apartment units financed by Fannie Mae and Freddie Mac over the past 15 years--more than 10 million units--were affordable to working families at, or below, their communities' median income. He also noted that GSEs' multifamily business’ default rates are below 1%. 

At least from the multifamily perspective, the GSEs have served the economy well, Bob O’Brien, Deloitte’s US real estate leader, tells GlobeSt.com. "In the darkest days of the downturn and credit crisis there was more availability of debt capital for multifamily commercial investments than there was for any other asset class. That, of course, was primarily because of the GSEs’ support."

Now, the apartment sector is proving to be the first to recover from the downturn and the liquidity support is one reason why, O’Brien says. Jeff Friedman, principal of Mesa West Capital, approaches the question of GSE from a different perspective--that of a private sector competitor. "We made 40% of our loans in the early part of our decade to multifamily developers,” he says. “Now it is impossible to compete with the GSEs. Fannie and Freddie have low rates, mild structures and aggressive advance rates."

Friedman, too, believes Congress will leave this model alone for the most part, if only because of the upheaval any change will bring. "It would have a dramatic impact on financing for multifamily projects,” he says. “Only the best, core projects with substantial cash flows would get funded. I would say half of all deals getting done now wouldn’t receive backing under a privatized system."