GSEs Sticking to Their Mission in Flat 2019

L to R : Justin Wheeler, Rob Levin, Deborah Jenkins, Scott Bassin

If you want to know the direction of the multifamily mortgage market, ask the GSEs.

Since 2010, Fannie Mae and Freddie Mac have done the lion’s share of multifamily mortgage originations, and they currently hold more outstanding multifamily mortgage debt than any other category of lender.

“No matter how you slice it, whether it is originations or debt outstanding, the GSEs are close to 50 percent of the market and banks are increasing their share as well,” said Scott  Bassin, executive vice president & co-head of PNC Real Estate.

At the MBA CREF conference in San Diego, Bassin moderated a panel discussion titled “All in the Family: Trends and Dynamics Impacting Apartment Finance.” Fittingly, Fannie Mae and Freddie Mac were both represented.

To put things in perspective, there were a lot of mortgages originated between 2010 and 2018, noted Deborah Jenkins, who was promoted to executive vice president of multifamily for Freddie Mac back in November.

Last year, Fannie Mae and Freddie Mac were responsible for about $143 billion out of the $261 billion of mortgage banker originated loans (a 7 percent rise over 2017). Total multifamily lending was $312 billion. Overall, mortgage banker originations were $526 billion, according to MBA.

“Our market share is about the same in 2010—just the overall pie has grown,” said Jenkins, noting that bank and insurance companies are also about the same. “The only change you see is CMBS, but that is because of the volatility in the market.”

Low Expectations

According to MBA’s preliminary (final numbers are due out in March), multifamily originations grew by 22 percent in 2018 over 2017, but the pie is not expected to grow much this year. 

MBA predicts multifamily mortgage originations will only inch up about 1 percent, and the overall market will grow about 3 percent. The market has been “plateauing since 2015,” according to Jamie Woodwell, MBA’s vice president of commercial-multifamily research. 

Freddie Mac’s expectations for the overall market in 2019 and 2020, Jenkins said, are slightly higher at 3-4 percent. But the agency lender is also predicting it will have a flat 2019, in part, because of its exit from the single-family rental market. 

So, Bassin said, current conditions beg the questions: In a no-growth year, will the GSEs and other lenders move beyond their traditional product types in order to increase originations? Will all lenders become more aggressive in their underwriting?

“Everyone is looking for risk-adjusted yield right now. Everyone is trying to find it whether that be the borrowers or the lenders,” said panelist Justin Wheeler, CEO of Berkadia. “There is some blurring of the lines on the margins where you have some of the different capital sources who are encroaching a bit on the others … but from our perspective, for the most part everyone is staying in their swim lanes …”

Rob Levin, senior vice president of Multifamily Customer Engagement at Fannie Mae, said Fannie Mae will generally stay in the affordable/workforce housing space. “There is not much crossover there,” said Levin.

Affordable/workforce housing, Jenkins added, is “90 percent” of what Fannie Mae and Freddie Mac does. Bringing liquidity and stability to the multifamily market and savings to tenants is not only their swim lane but their mission.

With cap rates still low, portfolios performing well and new construction moderating acquisition pricing, Levin noted that lenders do not need to be aggressive.

New Competitors?

One group of lenders that is making some bold moves, however, are the debt funds, which participate in the market mostly in the bridge lending space.

“Yes. The debt funds are going into that space but because they are playing in such a short term and such a specific property type, while they have growth, I do not think they will impact the overall marketplace,” Levin said. “I think the rest of the marketplace will be real reasonable.”

Nevertheless, everyone is watching where these funds—there are an estimated 140 of these lightly regulated vehicles—go and on what terms.

“It feels to me much like the days when CMBS was opening itself up and trying to figure itself out,” said Wheeler. “There were hundreds of conduits and now really, in essence, there are probably less than 10. It will be interesting to see how that plays out. Where do they play and where do they find their yield?”