It’s been just over two years since the government takeover of troubled mortgage lenders Fannie Mae and Freddie Mac, and the government-sponsored enterprises continue to struggle with financial issues as they await promised reform–reform that is unlikely to move any faster as Republicans take control of the House of Representatives when the 112th Congress meets in January.
The consensus among many in the housing industry is that the shift in power will actually slow decision making on an endeavor that has already been moving at a snail’s pace. There has been more talk than action regarding the much-needed makeover–or, as some suggest, the dissolution–of Fannie Mae and Freddie Mac. Fannie Mae reported a net loss of $1.3 billion in the third quarter, slightly more than the $1.2 billion loss incurred in the second quarter, and Freddie Mac’s third quarter loss totaled $2.5 billion, although the figure is far less than the $4.7 billion loss in the previous quarter.
“Neither party has a solution,” David B. Cardwell, vice president of capital markets and technology with the National Multi Housing Council, tells MHN. “There have been talks on how to deal with it, but not how to solve it.”
And those talks, of course, will continue, but with different minds at the helm in some cases. “The changes in the House were significant,” he notes. “There have been changes in the leadership in the House and it has changed the political philosophy, but the issue is still the same. Republicans were trying to force the issue, but now they own the issue and it’s unclear what they are going to do. There was an earlier proposal to put it on the government’s balance sheet, but they may not want to do that now because they are trying to reduce the size of the budget.”
The White House has not been any more successful in expediting housing finance reform; the Administration is expected to present a plan to Congress in January. “It’s also unclear what the administration is going to propose. Before, the House might have looked to the Treasury and HUD for guidance, but now it’s unclear what the White House will do because they don’t know what the House will do.”
Cardwell concedes that it is all speculation, but the word on the street is the power shift will not do the GSE reform process any favors. “I’ve heard individuals knowledgeable on this issue on both sides of the aisle acknowledge that it is going to be more difficult now than it was before–but it was going to be difficult anyway,” Cardwell says. “There will be hearings, debates and conversations, and there may be legislation introduced, but whether we get a bill out of both chambers remains to be seen.”
The matter will not be settled over night, but time is of the essence. The call for affordable housing has only increased. Speaking on behalf of NMHC and the National Apartment Association at a House Committee on Financial Services on Housing Finance Reform hearing earlier this year, Robert E. DeWitt, president and CEO of GID Investment Advisers L.L.C., noted that demand has skyrocketed due to the foreclosure crisis and the record number of immigrants, many of whom are long-term renters. “A government-supported secondary market is absolutely critical to the multifamily sector and our industry’s ability to continue to meet the nation’s demand for affordable and workforce housing,” DeWitt testified. “Multifamily may only represent 10 percent on average of the GSEs’ mortgage debt, but they currently provide nearly 90 percent of multifamily mortgage capital.”