Fannie Mae and Freddie Mac—the government-sponsored enterprises (GSEs)—played a crucial countercyclical role during the recession. They provided liquidity when private capital sources largely scaled back.
But what now? The current state of the GSEs—which hold or guarantee about 35 percent of multifamily mortgages in this country—in government conservatorship is unique, unprecedented and requires a long-term policy solution.
The multifamily housing market serves more than 15 million—that's one in seven—American households, spanning workforce housing, seniors housing, student housing, and market-rate and affordable rental properties.
In fact, multifamily rental housing is a critical source of affordable housing for Americans; 93 percent of apartments have rents affordable to households earning the area median income or less.
With greater policy focus on housing finance reform anticipated in 2013, the Mortgage Bankers Association’s GSE Multifamily Task Force developed, "Ensuring Liquidity and Stability: The Future of Multifamily Housing Finance and the Government-Sponsored Enterprises," a white paper in which we laid out a framework for attracting greater private capital, while providing for a government-backed insurance program to ensure the market has access to liquidity in all market conditions, good and not-so-good.
Our five primary recommendations regarding the future of Fannie and Freddie are:
1. Fundamentally, our nation’s housing policies should reflect the need for liquidity and stability in all multifamily market cycles.
The roles of the GSEs and the Federal Housing Administration in financing multifamily mortgages have been substantial, but other market participants--including life insurance companies, banks and other lenders--have maintained a strong presence as well. Our task force recommends that policymakers keep this in mind, along with the countercyclical role of the GSEs during periods of illiquidity, as they move forward with their work.
2. Private capital should be the primary source of financing for multifamily housing with support from a well-defined government-backed insurance program that ensures the market has access to liquidity in all cycles.
We believe that a focused role for the federal government through a government-backed risk insurance fund with a federal catastrophic backstop would ensure continuous liquidity and stability in all market cycles. Eligible mortgage-backed securities would have a Ginnie Mae-like wrap. The insurance fund--paid for through risk-based premiums--could be modeled after FDIC programs and would support such mortgage-backed securities, not at the level of the issuer, as is the case today.
3. Well-regulated entities should be eligible to issue government-backed multifamily securities. These entities should be mono-line, funded by private capital, focused on securitization and serve the workforce rental market.
Under our recommendations, a strong government regulator with market expertise would provide oversight regarding the entities that issue government-backed securities, including their safety and soundness, risk-based capital requirements, and products offered. The issuing entities would assume a significant risk position, providing an entity-level buffer, placing private capital at risk ahead of any government backstop.
4. Stewardship of the existing GSE assets and resources on behalf of taxpayers should be a core consideration of any policy action.
The talent and expertise at the GSEs, their existing books of business, their market executions and any profits generated by their multifamily businesses are valuable to U.S. taxpayers—and indeed the nation’s housing system—and should be viewed and deployed in a manner that supports the future state of multifamily housing finance.
5. And finally, the long-term liquidity and stability of the multifamily finance system in all market conditions should be the core driver of whether or not the GSEs’ multifamily business should operate on a standalone basis relative to their single-family credit guarantee businesses.
We strongly believe that whether the GSEs’ multifamily businesses should operate on a standalone basis should not be determined in a vacuum, nor should it be based solely on the financial viability of multifamily standalone enterprises. That would be shortsighted. The primary criterion should be the long-term strength of the multifamily housing market.
In short, we believe that any policies enacted must reflect a focused but important government role while encouraging private capital to enter and remain in the market as the primary source of financing for multifamily housing.
The Obama Administration’s 2011 white paper on reforming the housing finance system called for a "renewed commitment to affordable rental housing." We agree. Let's work together toward this end.
Brian Stoffers is president of CBRE Debt and Equity Finance. He also chairs the Mortgage Bankers Association's Commercial Real Estate/Multifamily Finance Board of Governors and its GSE Multifamily Task Force.