The Federal Housing Finance Agency has announced a plan to shrink the role of the government-sponsored enterprises (GSEs) in the multifamily space by about 10 percent.
While 10 percent doesn't sound like much, Fannie Mae and Freddie Mac combined to finance about $62.8 billion in multifamily deals last year, meaning about $6 billion in liquidity will have to come from other sources this year.
The changes were proposed as part of the FHFA’s priorities for 2013 and to lay the groundwork for the creation of a new housing finance landscape despite the strong year the GSEs showed. Edward DeMarco, acting director of the FHFA, announced the plans during remarks addressing the National Association for Business Economics at its annual conference held March 4.
While the announcement may have sounded drastic, multifamily financial experts aren't alarmed. The announcement comes just as the private sector is starting to fire on all cylinders, said Guy Johnson, president and CEO of Irvine, Calif.-based Johnson Capital.
“It sends a direction, it sends a statement, but I don’t think it practically will have that big of an impact,” he said. “There’s still plenty of liquidity.”
And if it does happen, it won’t rock the boat by as much as it seems. Johnson noted the robust volume the GSEs showed in 2012 and said even with a 10 percent reduction, the GSEs would still have a good 2013 coming in at around $54 billion.
Johnson also noted there are other options in the market, which should pick up where the GSEs may be directed to pull back from.
Commercial mortgage-backed securities (CMBS) loans are also on the radar and poised to gain steam in the next year. In fact, 10-year CMBS loans are pricing at around 4.25 percent, which is still much higher than the GSE pricing, but much lower than it has been in years.
“The CMBS market has been very robust in the first quarter, so perhaps that will pick up some of the slack,” Johnson said.
Between the third and fourth quarters of 2012, CMBS loan volume grew 141 percent, according to a Mortgage Bankers Association report. This is a rapid recovery after the loss CMBS lenders took during the Great Recession.
And still, there are more options in the marketplace ready to step up to the plate if the GSEs become less competitive.
“Insurance companies would like to do a little bit more multifamily too to diversify their portfolios,” he said. “So it’ll cover it. It’s coming off a gigantic year, so it should be fine.”