As Congress continues to mull housing finance reform, the multifamily industry has grown more visible in the debate, said panelists on the "Permanent Shift: Making Sense of the Impact of GSE Reform" panel at the 2011 Multifamily Executive Conference.
Many fear that the debate will be hijacked by the single-family industry, since multifamily comprises only about 5 percent of the government-sponsored enterprises’ (GSEs) business. While multifamily is a small part of the GSEs, the GSEs are a huge part of the multifamily industry, providing about 60 percent of the total permanent debt market for apartment owners.
“When you mention Fannie Mae to members of Congress, single-family is primarily what they think of,” said David Abromowitz, a senior fellow at Washington, D.C.-based think tank Center for American Progress (CAP), and a Boston-based partner at law firm Goulston & Storrs. “There’s a lot of education left to do.”
Yet, there is a growing awareness among legislators of the importance of the apartment industry. But it’s all relative. In the past, multifamily received such little consideration from Capitol Hill that any increased attention seems like a white-hot spotlight. “For the first time, legislators are more aware of multifamily housing than ever before,” said Michael Berman, president and CEO of Boston-based CWCapital, and chairman of the Washington, D.C.-based Mortgage Bankers Association (MBA). “The good news is that, as low as that education level is, because of the single-family crisis everybody now knows that a third of Americans live in rental housing.”
Another source of concern is in multifamily paying for the sins of the single-family housing meltdown. While more legislators understand that the GSEs play a key role in the apartment industry, they may not see the stark difference in business models.
“One of the main points we try to make to members of Congress is, ‘If it ain’t broke, don’t break it’,” Abromowitz said. “They don’t realize that Fannie’s and Freddie’s multifamily default rates are still under 1 percent, that even in the boom times there was skin in the game.”
The good news is, there’s time to educate Congress. Nobody expects any comprehensive legislation to move forward until after the 2012 elections, keeping the status quo intact for the near term. “The focus of Congress is deficit reduction, so right now GSE reform is way down on the backburner,” said Cindy Chetti, senior vice president of government affairs at the Washington, D.C.-based National Multi Housing Council.
And the more time that goes by without a solution, the more it becomes viable for the GSEs to enter a glide path off of the government’s books, and back into the private sector. A year ago, nobody on Capitol Hill would’ve suggested this path of least resistance. But if the GSEs’ single-family businesses start turning a profit a year from now, it could change the whole dynamic of the debate.
“A year ago, whether it was Democrats, Republicans, the administration—everybody felt that something had to be done on Fannie and Freddie,” Berman said. “But over the last six months there have been a number of people in back hallways saying, ‘If we start to see several quarters in a row of profitability, and we start to see a way out, maybe doing nothing isn’t so terrible’.”