Obama Throws His Weight Behind GSE Wind-Down

WASHINGTON, DC-Fannie Mae's and Freddie Mac's days are numbered, if President Barack Obama has anything to say about it—which, as he showed on the stump in Phoenix, Ariz., he certainly does.

Delivering a speech from the epicenter of the housing crisis, the president called for a complete revamp of the housing finance industry, at least in terms of the government's involvement. This revamp, namely, calls for the wind-down of the GSEs.

Specifically, the president pointed to a measure introduced in the Senate this summer by Republican Bob Corker and Democrat Mark Warner that would eliminate the GSEs and replace them with a system in which the private market would purchase the home loans from lenders and then securitize them. The government's role in this scenario would be to insure or guarantee the securities but at a cost to investors.

 The bill calls for:

• Private market participants to hold 10% of the first loss of any mortgage-backed security that purchases a government reinsurance wrap--twice the loss severity experienced by Fannie and Freddie during the crisis.

• A new infrastructure that would split up credit investors, who want to take on this risk of loss, from rate investors, who have traditionally supplied our market with the funds necessary to borrow at low rates.

• The dissolution of Fannie and Freddie within five years of bill passage and transfer appropriate utility duties and functions to a different, modernized and streamlined agency.

• The elimination of the GSEs' affordable housing goals, which will be replaced with counseling and rental assistance programs.

• The formation of a new corporation mutually owned by small banks and credit unions to give them direct access to the secondary market.

While none of these ideas are brand new to the commercial real estate industry, Obama's promotion of them suggest they are closer to being realized than in years' past. While this possibility may be dismaying to multifamily borrowers, others in the sector are taking a longer-view of what this proposal could mean.

MBA President and CEO David H. Stevens, for instance, likes the fact that the president promoted "a common securitization platform and risk-share options." MBA believes that both of these elements are essential to the reform of the secondary mortgage market, he says in a prepared statement, "and can be implemented now without legislation."

Still, reading between the lines, some industry advocates do seem concerned that the GSEs might be wound down too quickly--especially the support provided to the multifamily space. There are also concerns that the multifamily programs are being painted with the same broad single-family housing brush.

Cindy Chetti, National Multi Housing Council Senior Vice President of Government Affairs urged Congress to avoid a "one-size-fits all" approach, in a prepared statement.

"Unlike single family, the multifamily market uses commercial mortgage debt products," she says. "Imposing single family market reforms on the multifamily sector could undermine the ability to provide rental housing to millions of Americans, including student housing, seniors housing, affordable housing and military housing."