A key house subcommittee on April 6 passed eight Republican-sponsored bills to begin winding down Fannie Mae and Freddie Mac. The votes followed an 11-hour markup the day before during which Democratic members of the subpanel repeatedly criticized Republicans for acting too quickly and taking short-term steps to dismantle the GSEs without having a vision for what should replace them. Such a move, they claim, could further destabilize the housing sector and the economy.
At an earlier hearing on the measure held March 31, a recurring theme among witnesses and some committee members was the need to have a clear vision of the end game for Fannie Mae and Freddie Mac before acting on individual elements of reform. Several participants agreed that while the individual bills are reasonable, it may be ill-advised to act on them before comprehensive reform has been outlined.
The GOP bills would:
- put Fannie and Freddie employees on the government pay scale;
- accelerate reductions of the companies’ $1.5 trillion mortgage portfolios to $500 billion over five years;
- eliminate their affordable housing goals;
- increase GSE guarantee fees over two years;
- prohibit the firms from entering new lending markets;
- require Treasury Department approval for any new debt issuances;
- require the firms to comply with new risk retention rules; and
- enhance the authority of the inspector general of their regulator, the Federal Housing Finance Agency (FHFA).
Though the eight bills largely address problems in the GSEs’ single-family businesses, NAA/NMHC are actively working with lawmakers to prevent unintended consequences that could negatively impact multifamily liquidity.
NAA/NMHC are most closely following the portfolio reduction measure (HR 1224) since it is silent on how multifamily housing mortgages should be addressed. Although both firms are increasingly relying on securitization for multifamily loans, they still rely on portfolio purchases to serve select markets/products and to aggregate and season apartment loans for secondary market transactions.
In an important victory for the apartment industry, the April 5 House hearing reinforced the degree to which lawmakers understand that the GSEs’ multifamily programs are different from single-family—that their multifamily programs are not broken and may require a separate resolution from their single-family programs.
For example, during an extended discussion about a possible carve-out of multifamily housing loans from the portfolio reductions as recommended by House Financial Services Committee Ranking Member Barney Frank (D-MA), Committee Chairman Spencer Bachus (R-AL) noted that the GSEs’ multifamily default rates remain below 1 percent and that most members on the committee agree that there is a great need for multifamily housing right now. Rep. Scott Garrett (R-NJ), Chairman of the Capital Markets and Government Sponsored Enterprises subcommittee, also suggested his support for seeking some separate accommodation for multifamily housing assets.
Another area of concern is the proposal to move Fannie and Freddie personnel to the government. Such action could accelerate the exodus of multifamily housing employees from the companies and create capacity issues that could reduce the liquidity they can provide to the apartment sector.