MARCH IS HOME to the first day of spring—a day that is also the Persian New Year. And as in most Eastern cultures, this transition between the gloom of winter and the dawn of a rejuvenating season is marked by food. Lots and lots of food.Now, I have a large, loud, loving family. So when we gather for the New Year, let's just say there is never a shortage of good eats. The 20 or 30 or 40 of us who happen to be around at the time will all pitch in to make sure there are plenty of platters of dill rice, lamb kabobs, smoked fish, feta, herbs, and fresh fruit for everyone. The leftovers will last well into the next day, and by the time the tea and pastries are circulated, everyone is feeling extremely full and satisfied.
So it's no wonder that the biggest disaster to strike a Persian home is to come up short at mealtime.
Heaven forbid there not be enough cucumber-mint yogurt for those who want it. Which is why we always overcook. Since I was a child, I have known that when it comes to food, there should always be more than enough to satisfy the demand.
It's an interesting principle: Make sure there's enough to go around. And it's one I think aptly applies to what's happening at the federal level with the GSEs.
The Obama administration has put forth a plan for scaling down the massive agencies in order to reduce the government's risk and involvement in housing finance. By now, we've all heard the three options proposed: 1) The government could limit its guarantee to the FHA only; 2) the same as the first, except the government guarantee could scale up in times of crisis; and 3) a complete departure, wherein private companies would guarantee securities but have the option for limited government support (not in the form of guarantees).
These three separate paths are simultaneously safe in their sweeping generalities and terrifying in their departure from how the GSEs currently operate. Ultimately, all three options advocate winding down the existing system and replacing it with one based on private capital, with or without government assistance.
Despite the fact that these proposed changes are at least five to seven years away, they fail to answer one fundamental question: What will we do if the private sector comes up short in filling the gap between what it is able to finance and the volume of business that the GSEs are currently doing? In other words, will there be enough on the private side to go around?
Interestingly, the Obama report acknowledged that the GSEs have a profitable apartment business. However, multifamily constitutes only 5 percent of the GSEs' total business. On the flip side, that 5 percent allocation accounted for more than 60 percent of 2010's entire multifamily debt market. Which means that if the GSEs were to begin to slowly transition their apartment business to the private sector, institutions such as banks, life companies, and CMBS providers would buckle under the weight of the added volume.
It's akin to asking a kitchen made to serve 40 diners to whip up more than 2.5 times the number of meals it has the capacity to produce. Frankly, when it comes to apartment finance, the production capacity in the private sector is just not there. Or at least, not yet.
And therein lies the rub: Currently, there is not enough volume among private capital providers to carry the existing volume of apartment debt. Sure, in 2010, we saw GSE debt volumes decrease as life companies and banks grew more active. (Consider that Freddie Mac's market share fell from 37 percent in 2009 to 30 percent last year.) But that slight downtick, which in my opinion is more of a normalization than a gain by the private sector, is insignificant when compared with the volume of business that the private institutions will have to make up when the GSE proposals are put into action.
Can that capacity eventually emerge? Perhaps. It will require a concerted effort by private and public parties to get into the kitchen and rework the menu. Unfortunately, until that happens, there will likely be a lot of people hungering for a plate.
