In the nearly five years since the impossible happened and too big to fail turned into too big to not bail out, wholesale housing finance reform has largely been a hollow promise.

Growing apartment demand has reinvigorated the private multifamily mortgage market while government-backed financing programs at Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) continue to deliver a steady source of mortgage capital. In 2012, these three agencies accounted for an estimated $78 billion in multifamily mortgages.

However, housing finance reform is emerging in earnest as a cause célèbre for key political leaders. Proposed bills, congressional hearings, and major regulatory changes are creating additional momentum. While it’s unclear how soon new rules could be in play, wholesale reform efforts could expand beyond Fannie and Freddie to also target FHA programs, pinching critical mortgage capital flow to the apartment industry.

The Ball Gets Rolling on GSE Reform

After an extended period of gridlock, lawmakers appear ready to pick up the pace on government-sponsored enterprise (GSE) reform.

As a first step , four senators—Bob Corker (R-Tenn.), David Vitter (R-La.), Mark Warner (D-Va.), and Elizabeth Warren (D-Mass.)—recently proposed legislation to prevent the government from using guarantee fee hikes at Fannie and Freddie to pay for other spending initiatives, or selling GSE preferred shares owned by the Treasury, without completing GSE reform first.

To that end, both House Financial Services Committee Chairman Jeb Hensarling (R-Texas) and Ranking Member Mike Crapo (R-Idaho) indicated that they would soon lay out their visions for long-term GSE reform.

Key congressional committees also recently took up the issue of housing finance reform. A marked change in tenor of the dialogue suggested that Congress is eager to move more expeditiously.

For example, during a House Financial Services Committee hearing in March, which featured testimony by Edward J. DeMarco, director of the Federal Housing Finance Agency (FHFA), Hensarling said: “I am determined that this hearing will be the last time that Director DeMarco—or if you believe press reports, his successor—will testify before this committee before we finally and belatedly mark up a true GSE reform legislation. ”

In the meantime, the FHFA has already taken incremental steps, releasing its 2013 strategic plan for the GSEs, which created a single platform between the two organizations for securitizing single-family loans. Another provision called on Fannie and Freddie to reduce their respective multifamily lending by 10 percent.

Scope of Housing Finance Reform Could Expand

The focus today may be on rethinking Fannie and Freddie going forward, but future discussion and negotiations may broaden the scope of the reform mission, affecting FHA multifamily programs.

Concerned that a wind down at Fannie and Freddie, or even another paring back of lending volumes at the GSEs, could send too many borrowers to FHA, some lawmakers are suggesting that reform measures may need to be put in place at the FHA in tandem with GSE reform to prevent demand from taxing the FHA system. The FHA is struggling to meet current demand levels due to budgetary issues.

Few surviving the financial market meltdown would argue that reform is unnecessary. However, the risks of a prescriptive reform plan are significant for the apartment industry. Not only could the severity of the issues in the single-family system lead to a myopic solution, where the uniqueness and successes of the multifamily system are largely overlooked, but wider reform efforts could also affect multifamily capital availability beyond the GSEs. This could change the availability and pricing of mortgage capital, exacerbating some of the long-term housing supply and affordability issues dogging the industry.

The National Multi Housing Council continues to work with lawmakers to craft a solution that will preserve adequate liquidity in the market to meet tomorrow’s rental housing needs.

David Cardwell is vice president of capital markets at the NMHC. He can be contacted at [email protected].