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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   June 2014

Viewpoint: Government-Sponsored Enterprises Are Still in the Game

Fannie Mae continues to support the evolving multifamily market

Fannie Mae’s multifamily division has an important mission: to finance rental housing for millions of Americans. We keep capital flowing to the market for affordable rental housing, providing stability for our communities and the nation. Fannie Mae had a very good year in 2013, with $28.8 billion in acquisitions and $2.1 billion in pretax earnings — one of the most successful years in our history. I’m proud of my colleagues for delivering these results — and equally proud that 85 percent of the nearly 507,000 housing units we financed in 2013 were affordable to working families that earn at or below the area median income.

Like Fannie Mae, other market  players — Ginnie Mae, life insurers, banks and thrifts — also had good years for multifamily lending in 2013, and conduits had their largest year since 2006. All of us like this market with its positive job growth, low interest rates and continued demand for rental units. But Fannie Mae serves the multifamily market every year and in every type of economic condition. We continued to provide liquidity during the Great Recession when private capital was scarce, just as we have done during every market downturn. The competitive landscape this year is shaping up along the same lines as in 2013, with strong participation in the market. We anticipate that this year’s activity will be similar to this past year’s level for most multifamily players.


Estimated Multifamily Debt Market Acquisitions

According to our monthly National Housing Survey, one in six Americans prefers the financial and lifestyle benefits of renting over owning. Fannie Mae is an important source of debt financing for this market, and is active in multiple market segments — affordable, student and seniors housing, manufactured housing communities, conventional loans, small loans, and loans to large institutional borrowers that cover multiple properties.

We provide liquidity in all regional markets, and are a primary source of debt financing for affordable housing in underserved communities. The majority of the units we finance are affordable to working families earning at or below the median income in their area, but there is still a great need for quality affordable rental housing in the U.S. One of the challenges in meeting this need is the difficulty of attracting sufficient equity investment in affordable housing. Although Fannie Mae has financed multifamily housing properties under the federal Low-Income Housing Tax Credit program, it is no longer an active equity investor in multifamily properties — and alternate providers of equity financing have been slow to emerge.

Another major challenge to rental affordability has been the lack of wage growth since the start of the recession. The economy has improved and so has job growth, but wages have stayed flat while rents have gone up. This means that the burden of renting has become greater. People who live in rental housing are considered cost-burdened when they pay more than 30 percent of their household income on rent and utilities. According to the Joint Center for Housing Studies of Harvard University, this share of renters rose more than 12 percentage points from 2000 to 2010. When people must spend a higher portion of their household income on rent, they have less money left over for other essentials such as food, transportation and health care. 

Families with lower incomes have been hit particularly hard. Fannie Mae serves those most in need by financing multifamily housing that is supported by federal, state or local subsidies that result in reduced rents. The problem for the lowest-income renters is particularly acute because each year many affordable rental units are taken away by demolition, deterioration of aging properties and expiring federal subsidies. According to research from the U.S. Department of Housing and Urban Development, 8,000 to 15,000 public and federally assisted housing units are being lost each year because of demolition or disposition. This means that it’s critically important to preserve and maintain America’s existing subsidized affordable properties.

We value our multifamily subsidized, affordable platform, not only because it supports our mission but also because it’s good business. This past year, Fannie Mae financed  $2.3 billion in subsidized, affordable housing. Financing affordable housing is a complex and dynamic business — it’s usually composed of multiple funding sources in an environment where rules and regulations are constantly changing. That’s why Fannie Mae has a dedicated team of highly knowledgeable and experienced professionals who can expertly navigate the complexities of affordable housing finance.

Unique financing model

Fannie Mae serves the multifamily market through a unique business model: Delegated Underwriting and Servicing (DUS®). Our DUS program relies on shared risk with strong, well-capitalized lenders. This alignment of interests positions both lenders and Fannie Mae to make good business decisions around process and property performance. If there’s a delinquency on a DUS loan, the lender covers a portion of every dollar lost. This unique platform has benefited us, our lenders and our borrowers for 26 years, and it has weathered difficult financial markets. In 2013, our DUS partners delivered 99 percent of Fannie Mae’s multifamily-loan acquisitions.

We have a network of 24 DUS lenders that are authorized to underwrite, close and deliver loans to Fannie Mae. Delegation, combined with our breadth of products and single-asset mortgage-backed securities, allows the greatest flexibility for borrowers and lenders — flexibility in structuring loan terms, interest rate types and yield maintenance. Moreover, Fannie Mae is the only national market player that has a dedicated staff for the entire life of the loan — from origination, to credit and underwriting, legal, asset management, and servicing and operations. This translates into the most efficient service available in the industry.

As competition in the multifamily  housing market heats up this year, Fannie Mae will continue to rely on the strength of its delegated model. We will work closely with our lenders, their origination networks, as well as borrowers, to serve the multifamily market.

What’s next?

Many people ask me what’s next for the government-sponsored enterprises — what will housing-finance reform mean for us? There’s a healthy debate around this reform, and it will take time to play out. But we at Fannie Mae remain focused on our mission to provide liquidity, stability and affordability to the multifamily market while maintaining strong credit standards and delivering positive financial returns. We’ll continue to work with our regulator and conservator, the Federal Housing Finance Agency, to meet its goals while running our business well. We’re constantly working to enhance our borrower relationships so our lenders can compete for new business and we can retain high-quality loans. We’re also investing in the DUS platform and streamlining processes so we can improve our execution.

As I frequently remind my multifamily colleagues, I can’t predict the future. But I do know that until policymakers tell us otherwise, we’re going to continue to do our important work. As the demand for quality affordable rental housing continues, Fannie Mae will be there to support the multifamily sector every day, in every market, and through all phases of the credit cycle.  


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