NJAA

Treasury Blueprint for GSE Reform Recognizes Rental Housing

February 11, 2011

This morning, the Treasury Department released its long-awaited blueprint for the GSEs. The report's stated goal is to return to a market dominated by private capital and to wind down the operations of Fannie Mae and Freddie Mac.

Notably, the report states that federal support for the housing market must acknowledge that not all Americans should be homeowners and that any future system must also include support for the rental housing sector. However, the Administration's rental housing plans focus predominately on the targeted affordable housing sector.

As has been widely reported in the media, the report outlines three possible options for dealing with the GSEs without stating a preference for any single option.

The three choices include:
• Completely eliminating Fannie Mae and Freddie Mac;
• Phasing out the government's guarantee of mortgage-backed bonds until it is left as the insurer of the last resort for times of crisis; and
• Continuing to offer a more limited federal guarantee at all times.

Among the ways it would bring back private capital are: raising guarantee fees and capital cushions and forcing the GSEs to reduce their portfolios by no less than 10 percent a year.

In terms of rental housing, the plan does not identify a specific proposal for dealing with the GSEs' multifamily programs. It does state that Fannie Mae and Freddie Mac have developed considerable expertise in profitably financing the middle of the rental market. It notes that "As we wind down Fannie Mae and Freddie Mac, it will be critical to find ways to maintain funding to this segment of the market."

However, it suggests that it will do so by exploring ways to expand FHA's capacity to support multifamily lending and is silent on what would happen to the existing GSE multifamily programs.

The NAA/NMHC press statement in response to the report is available here.

NAA/NMHC continue to advocate for a federal guarantee for multifamily, noting that the multifamily programs did not contribute to the housing meltdown, continue to operate with default rates under one percent, are generating net revenue (profits) for the government and have been a vital and necessary source of liquidity for the apartment sector that cannot be replaced entirely by private capital. Given the growing demand for rental housing, it would be a mistake to allow the very successful GSE multifamily programs to become a collateral victim of the single-family housing bubble. They also express their concern that an "emergency-only" solution not only fails to address the industry's broad liquidity needs, but is also likely to lack the capacity to adequately ramp up to adequately respond to a real financial crisis.

The Treasury plan and this week's GSE hearing on Capitol Hill (see below) are the opening salvos on what most experts agree will be a very long process toward achieving a final resolution. The divided Congress means that beyond numerous hearings, final reform legislation is unlikely until after the 2012 elections. Any transition to a new system is expected to take several years.

House Subcommittee Holds GSE Hearing

On Wednesday, House Republicans kicked off their effort to reform the GSEs with a hearing by the Housing Financial Services Capital Markets and GSE Subcommittee on what immediate steps could be taken to "end the bailout."

NAA/NMHC submitted a statement to the Subcommittee reiterating their call for a federally backed secondary market for the multifamily industry.

They were encouraged that the Subcommittee chair, Rep. Scott Garrett (R-NJ), was quoted this week at a securitization conference as saying "I believe that, if there is to be any government assistance to homeownership, it should be limited to first-time homebuyers or rental housing."

While the hearing focused primarily on the single-family mortgage market, efforts to ensure that multifamily is not forgotten were evident in the comments made by several Subcommittee members reminding other lawmakers to ensure that whatever steps they take don’t have an adverse effect on multifamily lending. Ranking Member Representative Maxine Waters (D-CA) noted that multifamily was one criterion she would use in evaluating any GSE reform proposals.

The full House Financial Services Committee is scheduled to hold another hearing on GSE reform on March 1.

Reprinted from NAA/NMHC AIMS News