Harvard University, NMHC Paper Prompts Government to Look at MF Financing Issue Closely

By Anuradha Kher, Online News EditorWashington, D.C.–A new policy paper issued by Harvard University’s Joint Center for Housing Studies with support from the National Multi Housing Council (NMHC), is urging policymakers to recognize the important differences between single-family and multifamily financing and take steps to ensure an adequate supply of capital to the multifamily sector during and after the current economic crisis.Titled “Meeting Multifamily Housing Finance Needs During and After the Credit Crisis”, the paper details the importance of apartments and points to a possible liquidity crisis that could seriously impair the sector. If regulators’ mandated reductions in the GSEs’ (Government Sponsored Enterprises) portfolios take place next year as scheduled without a substitute liquidity backstop in place, there could be critical housing shortages in the rental market. The paper argues this will happen because unlike single-family loans, which tend to be sold as securities, the GSEs hold most multifamily loans in their portfolios as investments.”Most of the attention paid to the mortgage crisis has been on how to reform the single-family finance system, but the apartment sector relies on the same federal institutions and agencies—Fannie Mae, Freddie Mac and the Federal Housing Administration—to ensure liquidity,” says Nicolas P. Retsinas, director of the Harvard Joint Center and a former FHA Commissioner.  “To avoid unintended adverse consequences in our rental markets, lawmakers need to understand the differences between the two sectors as they undertake long-term GSE reforms,” he adds.The paper urges that planning for these reforms should take place now so that if the anticipated GSE portfolio reductions take place, a liquidity substitute can be put in place. “The good news is that the multifamily story is very different from the single-family story,” says Doug Bibby, NMHC president. “Multifamily loan performance remains quite strong and underwriting standards have remained prudent.”America will increasingly rely on rental apartments to house our citizens as the largest generation of children under the age of 20 in the history of the U.S. reaches adulthood by 2020, the number of seniors begins to skyrocket, mortgage credit standards tighten and demand for affordable housing grows, according to Bibby.But the poor performance of single-family subprime loans has resulted in the credit crisis, which threatens the multifamily sector’s ability to meet this need.