CHANGE IS COMING. As Congress works to reform the
government-sponsored enterprises (GSEs) and
America's housing finance
system, the National Multi Housing Council (NMHC) suggests
that lawmakers look to the highly successful
governmentsupported multifamily secondary market programs
as a model for this reform.
For the past two decades, the existing housing finance
system—backed by Fannie Mae and
Freddie Mac—has ensured a
reasonably-priced, reliable source of liquidity to the
apartment sector. What's more,
the story for the GSEs'
multifamily loans is very different from the
well-documented problems in the single-family market:
Overall loan performance in the $2 trillion multifamily
sector remains healthy, with delinquency and default rates
falling under 1 percent—a tenth
of the size of the delinquency/ default rates plaguing
In the fall of 2009, NMHC and the National Apartment
Association (NAA) created a special GSE Reform Task Force
to discuss the best strategies for change. The task force
has told Congress, HUD, and the Treasury eight key messages
1. Preserve Lending Programs.
Apartments are a critical component of our
nation's housing market and are
inherently affordable to a broad range of families at or
below their area's median
2. Private Capital is Preferable to a Government
The apartment sector fully supports the return to a
marketplace dominated by private capital. Leveraging
private capital allows for innovation and flexibility to
meet the industry's evolving
3. Federal Guarantee Should Be Explicit; Market Pricing
Attracting sufficient private capital, however, requires
an explicit federal government guarantee on multifamily
mortgage securities and portfolio-held loans. Such a
guarantee should be priced at an appropriate level that
reflects the mortgage risk and the value of the
enhancement— and in such a way
that it does not compete unfairly with private credit.
4. Liquidity Backstop Should be Available at All
Any federal credit facility should be available to the
entire apartment sector and not restricted to specific
housing types or renter populations. Narrowing any future
credit source would remove a tremendously important source
of capital to a large portion of our industry, namely
market-rate developers who actually provide a large volume
of unsubsidized workforce housing.
5. Mission Should Focus on Liquidity, Not
The public mission of a federally-supported secondary
market should be focused primarily on using a government
guarantee to provide liquidity. Instead of requiring
affordable housing mandates, the new system should provide
incentives to support affordable housing. Absent
incentives, the government should re-direct the
affordability mission to HUD/FHA and the Low- Income
Housing Tax Credit program.
6. Retain Portfolio Lending and Expand
Securitization must be used to attract private capital
for multifamily mortgage capital.
However, unlike single-family loans, multifamily loans
are difficult to
Without the ability to hold some loans in portfolio,
multifamily lending activities will be significantly
curtailed. In addition, securitizing multifamily loans is
not always the best way to manage credit risk. Portfolio
capacity is also required to aggregate mortgages for a
structured securities sale.
7. Maintain Strong Regulatory Oversight and Risk
The government must ensure proper oversight and consider
means (including retained risk by mortgage originators and
servicers) to both preserve the strong mortgage loan
performance and track record and protect the taxpayer.
8. Retain Existing Resources and Capacity During the
During the transition, it's
important to retain many of the resources of the existing
GSEs. They have extensive expertise as well as established
third-party relationships with lenders, mortgage servicers,
appraisers, engineers, and other service providers who are
critical to a well-functioning secondary market.
Let Us Be Heard I am happy to report that the
multifamily message is taking hold. For example, Rep. Paul
Kanjorski (D-Pa.), chairman of the House Capital Markets
Subcommittee, recently said that any GSE reform should take
a cue from the multifamily sector, which is still
Policy makers should know that the secondary market
systems have met the test: They helped finance an enormous
volume of affordable units; they sustained liquidity in all
economic climates; and they ensured safety in their
multifamily loans and securities.
Surely that's worth
DOUG BIBBY is president of the National Multi
Housing Council in Washington, D.C.