Speaking at ULI’s Housing Opportunity Conference yesterday, former Freddie Mac CEO David Brickman did not answer the burning questions in multifamily finance today: Will the GSEs exit conservatorship and will Mark Calabria continue to lead them as FHFA director until the end of his term in 2022?
Brickman, now executive chairman of Meridian Capital, waited until the end of his remarks to say he had no insight into policy or strong opinion either way but hopes that a few changes occurred over the past couple of years to change the perception of the GSEs.
“‘Some say ‘there is always room for improvement,’ but I hope, in that, there is a recognition that they are pretty well run,” he said. “I know this may sound self-serving, but it is true, and it is a testament to the great people who work at those institutions and the staff at the FHFA and the Treasury who have been great stewards of them.”
The housing veteran spent more than 20 years at Freddie Mac, rising to president in 2018 then CEO in 2019. In January, he resigned and joined Meridian, where he will also be CEO of Barings Multifamily Capital following the merger between Meridian and Barings Mulitfamily Capital.
Brickman did, however, offer recommendations to the current administration on how to face the myriad challenges and changes facing the housing market: Think more flexibly and further harness the capabilities of the GSEs.
“Standardization is valuable for creating liquidity, but it creates challenges in terms of adaptation, innovation and evolution,” he said.
Some of today’s regulatory inflexibility, particularly when it comes to new products, Brickman noted, is due to the bad “product design” that led up to the financial crisis. But the strictness creates a “friction” that impedes the industry from addressing current needs.
Tapping the GSEs
As Brickman sees it, there are three sets of housing challenges: affordability and supply for both single-family homeowners and multifamily renters; problems caused by COVID-19 and its aftermath; and long-term challenges, like climate change and changing demographics.
The GSEs, FHFA, HUD and the private sector are all capable of change, Brickman said. “The housing finance industry cannot remain static when we have change all around us.” But he focused on opportunities that can result from “tapping the muscle and energy” of the GSEs.
First, Brickman recommended leveraging and expanding the progress made in the credit risk transfer program, particularly since investors globally are struggling to find assets.
CRTs reduce risk to the GSEs, the government and taxpayer; create a price for risk; provide an additional check and balance; are conducive to experimentation; and can be combined with impact investing, Brickman said.
“There is a natural tension between risk and mission, and I think CRT and aggregate risk reduction can help provide part of the solution to that tension,” he said.
Next, Brickman recommended innovation. “The GSEs, FHFA and others around them have incredibly committed knowledge people,” said. “They have scale, and they know how to and are very capable of executing on scale…The GSEs, in my opinion, which is admittedly biased, are significant assets with a moderate degree of under-utilized capacity.”
Innovation could come in the form of new products (new mortgage products, financing vehicles or types of housing); new risk pricing structures and new technologies that lower processing costs and time; and or new public and private partnerships.
Last, Brickman suggested finding new ways to leverage the GSEs to execute against policies. This could include implementing incentive programs, delivering subsidies, carrying out green programs, or delivering on emergency programs, like loan forbearance.
“I want to be absolutely clear on this that I am not suggesting, for a moment, that GSEs should ever be involved in setting policy or influencing policy.”
When asked to name the top three priorities for the housing finance system, Brickman said: supporting the single-family rental market, which he called the “third leg of housing at this point”; revisiting how to support construction of new affordable multifamily and affordable single-family homes; and broadening opportunities for preservation with equity and mezzanine programs as well as debt.