Special Report: NAA’s Greg Brown on Fate of GSEs in New Congress

Joshua Pringle, Associate Editor

Washington, D.C.–Republicans on Tuesday took control of the House of Representatives and nearly eliminated the Democrats’ majority in the Senate. With the lines redrawn, Greg Brown, vice president of Government Affairs at the National Apartment Association (NAA), shares with MHN his expectations for the fate of Fannie and Freddie, and for productivity on Capitol Hill in general.

MHN: What’s your reaction to this Republican sweep that happened on Tuesday, and how do you think it will affect the multifamily commercial real estate industry?

Brown: Obviously it’s historically significant. The sheer number of seats in the House that changed hands is significant. It’s not all that surprising, only because we’ve been hearing about it for a couple of months now. As far as what it means to our industry, I think the first thing that came to my mind was the number of new members of Congress that our industry’s going to have to reach out to and really educate about multifamily and commercial real estate. We’re talking about, I believe, near or over a hundred new members of Congress who, their first time serving, perhaps are not familiar with or intimately familiar with the apartment industry or commercial real estate generally. So our members and the industry overall are going to have a lot of work to do to make that connection and educate them about the role that apartments play in their districts. That’s going to be important as we go forward and the new Congress starts grappling with some of the big issues that we have to deal with.

MHN: What is at the top of the list of those issues that you’ll have to quickly educate the new members of Congress about?

Brown: The biggest one that seems to be in the hopper for immediate attention—immediate meaning the first quarter or second quarter of 2011—is certainly reform of the GSEs: Fannie Mae and Freddie Mac.

MHN: What kind of reform can you reasonably expect, especially now that the lines between parties are much more even and one would expect getting anything through Congress is going to be even harder than it was before?

Brown: I think you’ve hit it right there that not only are the lines much tighter as far as the majorities—at least in the Senate; the Republicans in the House certainly have quite a significant majority—maybe more important are the philosophical divisions between the two parties. You’ve heard a lot of talk about how the Republicans that are now in Congress—certainly most or many of the new Republican members—have a fairly conservative philosophy, and the moderate Democrats who they replaced are all gone of course, so now you have a more liberal Democratic [base]. That’s a generalization, but I don’t think that’s an unfair characterization. My point is that the two sides are further apart on their philosophies, which will also complicate how they deal with all issues, including reform of the GSEs. So what can we reasonably expect? I think it’s to be determined.

I know one of the big topics that’s been bandied about in the last two days has been, which way is this going to go? Are the two sides going to walk away from each other and basically take shots at one another or take a very political route of trying to gain the upper hand, or are they going to realize that they have to work together in order to pass legislation on anything, including GSE reform? I think that’s yet to be determined. You don’t want to presuppose what people are going to do until they actually show up. Certainly there have been a lot of overtures made by both sides, which is a good sign. The president has made overtures, and Rep. John Boehner has made overtures, so that is a positive indication, but we have to wait and see when the committees form and they actually start talking about these issues and how this is going to play out. Time will tell.

MHN: Can you summarize what you think needs to be done, specific to the GSEs?

Brown: What role are they going to play in the housing market? Obviously they’ve played a significant role and they do right now, certainly for single-family and definitely for multifamily; they play a very significant role in the capital markets for multifamily. But what is the future going to look like? Are they going to remain the same? Are they going to be completely privatized? Are they going to be completely taken under by the government? Are they going to be broken up into smaller pieces? Their very existence is what is in question here, and that will determine what kind of role they can play in providing liquidity in the capital markets and serving that role that they have done in the past. I think that’s the biggest thing that has to be addressed, and then everything else just kind of falls after that. Once you decide what role they’re going to play in the market, then the individual details sort of work out from there.

MHN: Are there any specific initiatives that were on NAA’s legislative agenda that were close to being pushed through that are now in jeopardy?

Brown: In the 111^th Congress, the one that we’ve really spent a lot of time on has been the issue of carried interest. And that’s not necessarily something we’re trying to get across the finish line, but rather something we were trying to stop, in terms of changing the taxation of a carried interest, which is of course a very important issue for multifamily and commercial real estate generally. We still have the lame duck session to deal with, so the book is not closed on that issue for this Congress. In the 112th Congress, the Republicans are less supportive—I’d say a lot less supportive—of a change in the taxation of carried interest, so perhaps the issue is on better footing in the next Congress. Of course we’ve been working with both sides to educate members about the danger of that proposal for commercial real estate, so I think our chances are better in the next Congress that that will not be out there. However, tax reform continues to loom as a desirable issue to take on, and carried interest could get wrapped up in tax reform.