Washington, D.C. — The White House released a report on Friday advocating the end of agency lenders Fannie Mae and Freddie Mac. In “Reforming America's Housing Finance Market,” the Obama administration calls for the gradual exit of both lenders from the financial market.
The report outlines four steps to reducing the market share of the agency lenders, which, when combined with the Federal Housing Administration (FHA) and Ginnie Mae, currently account for more than 90 percent of new mortgages issued today.The steps include increasing guarantee fees to reduce the capital advantages the agency lenders had over private lenders, requiring larger down payments for mortgages, letting the temporary increase in conforming loan limits expire this October, and reducing the investment portfolios of the two lenders at the rate of no less than 10 percent per year.
The report says that future government lending should be reduced to the current FHA loan program and current lending services provided by the Department of Housing and Urban Development, the Department of Agriculture and the Department of Veterans Affairs.
The White House outlines three options for the future role of the government in residential mortgage lending. The first is for the government to only provide financing for the groups mentioned above. The second is similar to the first proposal but includes a guarantee mechanism that would serve as a way to ensure credit could be accessed by consumers during a time of crisis. The mechanism would maintain a minimal presence during normal market conditions. The final option would include the first option but the government would also provide catastrophic reinsurance for the securities of a select range of mortgages as a way to hedge them against another economic crisis.
This will ultimately affect the commercial multifamily sector by removing one of the largest lenders from the market. However, the proposal includes several ways to lure private lenders back into the market to fill in the gaps.
The proposal also stipulates that providing more affordable rental housing should be a priority to any future government efforts. Several options to achieve this goal are mentioned including expanding FHA's capacity to support multifamily lending and risk sharing with private lenders.
In a prepared statement, Doug Bibby, president of the National Multi Housing Council, said, “We encourage lawmakers to focus their attention — at least in terms of serving the rental housing industry — on the third option identified in the Obama plan, which would provide a federal guarantee at all times.”
The statement goes on to read, “The liquidity needs [of the multifamily sector] extend beyond the targeted affordable housing the Obama Administration plan identifies. It is the lifeline of the “middle market,” which the Obama plan agrees reform should continue to fund. Without a federally backed secondary market for multifamily mortgages, the apartment industry will not be able to meet the growing demand for rental housing. Between 2008 and 2015, nearly two-thirds of new households formed will be renters — that is 6 million new renter households.”
In related news, Freddie Mac revealed in a SEC filing yesterday that its COO, Bruce Witherell, has stepped down from his role with the lender. The filing cited personal reason for the cause and mentioned Witherrell will not be receiving termination benefits. Further information could not be obtained.
— Coleman Wood