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Fannie Mae Invests $20 Billion in Multifamily Through First Half

By Jerry Ascierto

Fannie Mae invested more than $20 billion in the multifamily market for the first half of 2008, down from the $27 billion it recorded in the first half of 2007.

The decline was attributable to a sharp decrease in commercial mortgage-backed securities investments, a market segment that all but disappeared in the first half of the year. But the company did see an increase in loan originations through its network of Delegated Underwriting and Servicing lenders.

Highlights for the first half include $5 billion in small loan production, up from just $3 billion in the first half of 2007. The company also processed about $1 billion in seniors housing loans in the first half of the year, the company said in a July 9 conference call. Full mid-year figures will be released July 28.

The company will also focus on providing credit enhancements on tax-exempt bond transactions in the second half, as well as committing to invest up to $1 billion in military housing bonds.

While Fannie Mae's commitment to small loans, seniors housing, bond-credit enhancements, and the military housing market will help restore stability to those segments, the 800-pound gorilla in the room is the low-income housing tax credit (LIHTC) market. The absence of both Fannie Mae and Freddie Mac from this market has severely hobbled affordable housing production this year. And Fannie Mae's already diminished appetite for LIHTCs will likely continue to shrink in the second half.

According to the company, the LIHTC market's best bet is to find a new home for the credits. "There needs to be identified a new class of investors for these products that are willing to take the credits at the price that they're offered at, at the moment," said Jeff Hayward, Fannie Mae's senior vice president of community lending. "That's a market dynamic, and being a secondary market player, that's not something we can immediately affect."

Last week was rough for both Fannie Mae and Freddie Mac. Reports that the companies are approaching insolvency and in need of a government bailout sparked fears throughout Wall Street, causing each company's stock to drop to 16-year lows.

But many believe that last week's developments were an overreaction. "They're well capitalized," said Rep. Barney Frank, chair of the House of Representatives' Financial Services Committee. "The market is rational in the long run, but not always in the short run."