The uncertainty surrounding the fate of the government-sponsored enterprises has industry officials wondering what the market could look like absent Fannie Mae and Freddie Mac.
Ed Pettinella said a year ago he wouldn’t have expected to see any type of movement to either eliminate or change the government-sponsored enterprises, or GSEs. However, in light of recent announcements and shakeups from the Obama Administration, action on the agencies may come sooner rather than later.
During a session at the MFE Conference in Las Vegas on Sept. 9, Pettinella, CEO of Home Properties, called the GSEs “dead on arrival” in the future. However, he thinks other key players in the market will step in and fill the void if government officials decide to gradually remove the GSEs from the multifamily space.
“I think there’s a huge vacuum in that market,” he says. “If you look at the multifamily performance of public or private companies, the track record is impeccable in terms of nobody defaulting. So if GSEs get out of the room and they allow major banks, life companies to come in and bid. I think you’re going to see them scoop up a lot of the business.”
The Needs of Tertiary Markets, Affordable Housing
Tom Bozzuto, CEO of The Bozzuto Group, agreed that action may come soon, but only with a focus on serving the most underserved markets.
“I had been of the opinion that nothing was going to happen,” he says. “I now think there is at least some slight possibility that something will happen. But if this administration has anything do with it—and I suspect this could really happen because this is where the Republicans and the Democrats do tend to come together—there will be an affordable requirement tied to the GSE financing in a way that it hasn’t quite existed in the past.”
Bozzuto, chairman of the National Multi Housing Council, suspects GSE reform will pin an affordable aspect onto GSE financing because without the government guarantee, it will be extremely hard to get deals done in tertiary markets.
“If you begin to create a list of jurisdictions, regions in the country that would be capital-starved, it would be a very long list,” he says. “The perspective that we can allow the government guarantee to get out, to go away ... would be great for the publics; [but] it would be horrible for those who rent and it would be horrible for the apartment industry.”
Eric Bolton, CEO of Mid-America Apartment Communities, said he also feels like there’s a definitive need for Fannie and Freddie noting the GSEs were put into the mix for the right reasons, but the founding vision has been skewed over the years.
“I think we need to go back and fix some things,” he says. “But the fundamental mission and what it represents in terms of living standards for this country: absolutely we need that.”
Significant Long-term Implications
Tom Toomey said the removal would be damaging to the quality and availability of housing across the nation. Toomey, CEO of UDR, noted how he belives U.S. housing is the best in the world and will be damaged in the future without government participation.
“And the government intervention, if it’s just the pricing paper, that gives us that ability to have that strong of a housing market from top to bottom for our children,” he says. “Why are we not standing up and saying, ‘Wait a minute, this threatens our children’s ability to have quality housing down the road.’?”
The GSEs are still an active part of the market, with Fannie Mae scoring $16 billion in newly originated multifamily mortgage loans this year, according to the agency’s September economic outlook report. The agency also reported Freddie Mac as originating about $13.5 billion in multifamily loans in the first half of this year.
Rick Graf, CEO of Pinnacle, had strong feelings about the future as well, noting he doesn’t feel any action will be taken until after the next Presidential election.
“I do think the thing we need to do as an industry is standing up and saying not just no, but hell no, because this is not good for our business, this is not good for our country and not just our kids but our grandkids,” he says. “We need to be involved, we need to have a common voice, we need to be saying that.”
But he agreed there will be enough liquidity to continue making deals, at least in the immediate future.
“Are there vehicles that will fill the vacuum and fill the void in the short run? I think there is,” he said. “But the question is: what is the long-term implication? And it’s significant.”
Lindsay Machak is an Assistant Editor for Multifamily Executive. Connect with her on Twitter @LMachak.