The Industry Prefers Status Quo for Fannie, Freddie

By Keat Foong, Executive EditorIn the past week, press reports seem to be intensifying in regards to the need for a government bailout of Fannie Mae and Freddie Mac. Financial conditions at the Government Sponsored Enterprises (GSE), it is reported, are continuing to worsen; their stock prices have fallen by a chunk so far this year; investor confidence in the GSEs’ debt securities is falling and consequently, the agencies’ cost of capital is rising. In the midst of all these reports, there is speculation that Fannie Mae and Freddie Mac cannot continue in their present structures in the long term given their heavy burden on the federal government which provides implicit guarantee of the two agencies. That they should be broken up into smaller private entities, that they should be made government-owned, or even eliminated. Much of these proposals are not in the interests of multi-housing financing. In the wake of the mass withdrawal of conduits from the market, Fannie Mae and Freddie Mac have turned out to be a lifeline for permanent, acquisition and rehab financing and almost single-handedly cushioned the industry from a serious credit crunch. Estimates put their share of the multifamily financing to be as high as 75 to 80 percent. So, obviously, the industry absolutely does not want to see Fannie Mae or Freddie Mac go away. Both the National Association of Home Builders (NAHB) and the National Multi Housing Council (NMHC) say they are monitoring the situation with regards to the two agencies very closely.  NAHB says that a strong Fannie Mae and Freddie Mac is now no less than a top priority for the association. NAHB has also created a task force to “study the ramifications of the interim and longer term impact of he challenges” facing the GSEs. The findings will be delivered this winter. No doubt, the government’s explicit guarantees of Fannie Mae and Freddie Mac contained in the recent housing legislation is very much supported by the multi-housing industry. Nevertheless, no one knows right now exactly what a bailout, if it should be triggered, would look like. And “The hope is that we won’t get there,” says David Cardwell, NMHC vice president of capital markets and technology. “The hope is that Fannie and Freddie will weather the storm and come out of this.”And with regards to talk about restructuring the agencies so that they are less of a burden on the government and the financial system? At the lease, the apartment industry has an interest in seeing Fannie and Freddie continue as private companies. More generally, as Cardwell says, “They have served the industry very well for a long time. Why would we want to see that change?”