FHFA Faces Pushback on Cuts to Fannie Mae Apartment Lending

According to Bloomberg,

The U.S. regulator of Fannie Mae and Freddie Mac is proceeding with plans to scale back their financing of apartment-building loans next year, shrinking what opponents call a critical support for rental housing.

The government-owned companies back about 45 percent of the multifamily market. While the size of the cuts is still undetermined, they will add to a 10 percent reduction in apartment financing the Federal Housing Finance Agency required Fannie Mae and Freddie Mac to make this year as part of a broader effort to boost private investment in housing finance.

Developers, lenders and affordable-housing advocates are pushing back, saying the move could deprive rural areas and smaller cities such as Boise, Idaho, and Topeka, Kansas, of rental housing that private investors may neglect. Dozens responded to a recent FHFA request for suggestions with the same message: Don’t do it at all.

“Without Fannie and Freddie our ability to get deals done in smaller towns would be greatly reduced,” E.J. Burke, chairman of the Mortgage Bankers Association and an executive vice president at Cleveland-based KeyBank, said in an interview. “We haven’t seen that impact yet, but down the line I’m very concerned if the conservator continues to cut their volumes.”

FHFA officials say Fannie Mae (FNMA) and Freddie Mac’s multifamily footprint is still larger than their 30 percent market share before the financial crisis. The market absorbed this year’s cuts “without major disruption,” FHFA Acting Director Edward J. DeMarco said in a speech Oct. 24.

Long-Term Plan

The reductions are part of a long-term FHFA plan to create more room in housing finance for private capital. In the absence of action from lawmakers to set up a new mortgage finance system, “we will continue to take gradual steps to reduce the enterprises’ exposure in this market, while maintaining a market presence,” DeMarco said.

Fannie Mae and Freddie Mac purchase mortgages and package them into securities on which they guarantee payments of principal and interest. They were seized by regulators in 2008 after investments in risky single-family loans pushed them to the brink of insolvency. They are now owned by the U.S. government, and their profits go to the Treasury.

Since the financial crisis, the companies’ multifamily portfolio has provided steady profits. Before taxes this year, Fannie Mae earned $1.4 billion through Sept. 30 on its apartment business and Freddie Mac (FMCC) earned $1.8 billion, according to company filings.

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