In the first quarter of 2008, there were 27 percent fewer multifamily originations than in the same period a year earlier. That drop-off is noteworthy considering that the fourth quarter of 2007 was “extremely strong,” says Jamie Woodwell, vice president of commercial/multifamily research for the Washington, D.C.-based Mortgage Bankers Association.

For the most part, the first quarter of 2008 was buoyed by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Just look at the office sector, which didn't have GSE support and, when combined with multifamily, fell 53 percent from the first quarter of 2007 to the first quarter of 2008. The latest MBA numbers only reinforce the GSEs' influence on the multifamily market. Between the end of 2007 and March 2008, the amount of outstanding multifamily debt went from $837 billion to $865 billion. Fannie Mae, Freddie Mac, and Ginny Mae were responsible for 73 percent of that $18.5 billion increase.

“The GSEs have really been providing a lot of capital to the market,” Woodwell says. “While most of the others declined in originations, Fannie and Freddie saw a big increase in originations in these two periods.”

Unfortunately, now the question on everyone's mind is how the industry will fare in light of recent turmoil at Fannie Mae and Freddie Mac. In July, the mortgage giants' stock prices fell sharply on the heels of reports speculating whether they needed to raise more capital to overcome writedowns. By July 7, shares of Fannie Mae fell 62 percent, while shares of Freddie Mac tumbled 62 percent—pushing both to 13-year lows. On the one hand, the Federal Reserve is making its short-term loan programs available to the two companies, and the Bush administration is pushing Congress to pass a plan that would allow the Treasury Department to put billions of dollars into the two companies through investments and loans.

In the meantime, industry observers are wary. In his travels around the country, Doug Bibby, president of the National Multi Housing Council, sees trepidation among NMHC's apartment owner and manager members. “They're just very nervous that this lifeline will go away,” he says.

Bibby, who thinks market speculators and the ensuing media circus created much of the trouble, can't imagine the multifamily markets without the two GSEs. “If anything happens to these two, it will cripple the housing market,” he says.

Not all signs are cause for concern, however. “Fannie and Freddie raise the funds necessary to purchase multifamily loans by selling debt,” says Jerry Howard, CEO of the National Association of Home Builders. “That market is working well, as evidenced by the Freddie Mac sale of $3 billion on Monday [July 14].”

Despite the problems, Woodwell thinks Fannie and Freddie can continue to support the multifamily industry. “Just last week, Fannie Mae reiterated their strong appetite for multifamily mortgages,” he says. “The recent market disruptions don't appear to have diminished either Fannie Mae's or Freddie Mac's desire for multifamily mortgages going forward.” David Fitch, for one, doesn't see things changing right now. “It is kind of business as usual,” says the CEO of Gables Residential, an apartment owner based in Atlanta. “What we have heard is that both Freddie and Fannie are still actively quoting new multifamily loans, still rate locking, issuing new commitments, and buying mortgage loans. I've got to believe that there will be some moderation from the ‘F's,' but it isn't a shut down at this point.”

But will it continue? If other sources of liquidity, such as CMBS, come back, Fannie and Freddie may lose some market share. Eventually, though, Woodwell thinks the extremely low delinquency rates in multifamily will bring other servicers back. For now, they're cautious. “Some of what the lenders see is an ability to make sure they're getting the underwriting right,” he says.