Fannie Mae Offers Incentives Tied to Well Being of Tenants

Fannie Mae is offering incentives for borrowers that are tied to providing services that improve the health and well being of residents. From an article in Multifamily Executive:

The incentive, in the form of a lower borrowing rate, is called Enhanced Resident Services and aims to foster services that address the needs of renters and support health and wellness programs, day care, food access, youth and education programming, and job training, according to Fannie Mae. The new offering became available to borrowers on Jan. 15.

“We believe the strength of an affordable rental housing property is directly linked to the health and stability of the people and families who live there,” said Bob Simpson, vice president of affordable and green financing at Fannie Mae, in a statement. “Affordable borrowers have recognized the value of providing enhanced resident services at their properties for years but have been constrained by the inability to ensure a long-term source of financial support. By participating in our Healthy Housing Rewards program, borrowers will save between $15,000 and $75,000 per year. The amounts saved can be used to offset resident-services costs at [the borrowers’] property for the life of the loan, thus ensuring that the low-income residents who live there have access to health care, education, and other community services.”

Fannie will implement Enhanced Resident Services with the assistance of Stewards for Affordable Housing for the Future (SAHF), a nonprofit, multistate group of affordable housing providers that offers initial and ongoing compliance certifications for both the borrower and the multifamily affordable housing property providing the special services. To qualify, at least 60% of the units in the properties seeking the pricing incentive must serve residents earning 60% or less of the area median income.

 

Fannie Moves Into House Rentals

Fannie Mae, the government-controlled mortgage-finance company, is moving into the home rental space. From an article in the Wall Street Journal:

The government-controlled mortgage-finance company said it would guarantee up to $1 billion in debt from Blackstone’s Invitation Homes Inc., which owns the country’s largest pool of rental homes.

The deal was disclosed as Invitation began pitching investors on its shares this week with an initial public offering expected as soon as next week. Invitation’s stock-market debut could be the largest U.S. IPO since October 2015, if the shares price in the middle of their expected range, raising about $1.5 billion for the company.

Fannie Mae’s involvement signals a belief that homeownership will remain out of reach for many Americans. Homeownership has declined since the housing crisis amid stricter lending standards, mounting student debt, and potential buyers whose savings and credit diminished during the recession. Last year, the homeownership rate reached its lowest level in at least 50 years, according to U.S. Census Bureau data.

Fannie’s guarantee also suggests a view that Wall Street’s housing wager is a long-term business, not just an opportunistic trade made after the foreclosure crisis.

So it looks like institutionally owned and managed SFH rentals are here to stay, at least for the foreseeable future.

Why Mortgages Are Still Hard to Get

If you’re wondering why people are still renting instead of buying the Wall Street Journal has an item that helps explain what’s going on. In short, the banks are covering their butts and doing whatever they can to not repeat the mistakes they made during the housing bubble. After having to buy back toxic mortgages and pay billions of dollars in fines they’re playing things extremely close to the vest:

One way to reduce the risk of having to buy back mortgages is to make sure than any loans sold to Fannie or Freddie or submitted for a Federal Housing Administration guarantee not only meet official standards but surpass them. That way, if a loan falls short of the bank’s standards for some reason, it still will likely meet official ones.

Federal housing officials refer to the higher standards as “overlays” and want to eliminate them. To that end, officials have tried to clarify what triggers a buyback and strengthening procedures that allow banks to resist repurchase demands.

So far, however, these have had little effect. Banks have made it clear that it isn’t just repurchase risk that is triggering the overlays. They are the result of internal rules prohibiting banks from making loans their analysis predicts will have a high rate of default.

That is, banks are second-guessing Fannie, Freddie and the FHA. Even if the agencies approve a certain type of loan and promise not to ask the bank to repurchase it, the banks refuse to make the loan if they view it as too risky. Their aim: avoid a situation similar to the one that just cost them billions.

Those of us of a certain age can remember when bankers were seen as stodgy and boring, then deregulation happened and all the sudden they were running with the wolves on Wall Street. Looks like it’s time to say, “Welcome back, stodgy.”

What About Fannie and Freddie?

This week members of PTAA were in Washington for the National Apartment Association’s Capitol Conference and on our last day there we were urged to meet with our members of Congress to discuss several issues, including housing finance reform. For the last few years NAA has urged its members to urge their members of Congress to not throw the multifamily baby out with the mortgage bathwater. Since the government had bailed out the mortgage industry when its near-collapse helped plunge the country into the Great Recession, Congress has been trying to figure out what to do with the Government-Sponsored Enterprises (Fannie Mae and Freddie Mac) and the smart people at NAA and the National Multifamily Housing Council (NMHC) had been pointing out that while housing finance reform is necessary, the multifamily sector had not had the problems that the residential home mortgage had. From the briefing papers provided at Cap Con:

The bursting of the housing bubble exposed serious flaws in our nation’s housing finance system. Yet, those shortcomings were confined to the residential home mortgage sector. The Government-Sponsored Enterprises’ (GSEs) (i.e., Fannie Mae and Freddie Mac) very successful multifamily programs were not part of the meltdown and have actually generated over $14 billion in net profits to the government since the two firms were placed into conservatorship.

More than just performing well, the GSEs’ multifamily programs serve a critical public policy role. Unfortunately, even during normal economic times, private capital cannot fully meet the industry’s financing demands. The GSEs ensure that multifamily capital is available in all markets at all times, so the apartment industry can address the broad range of America’s housing needs from coast to coast and everywhere in between. 

NMHC/NAA urge lawmakers to recognize the unique needs of the multifamily industry. We believe the goals of a reformed housing finance system should be to:

  1. Maintain an explicit federal guarantee for multifamily-backed mortgage securities available in all markets at all times;
  2. Ensure that the multifamily sector is treated in a way that recognizes the inherent differences of the multifamily business; and
  3. Retain the successful components of the existing multifamily programs in whatever succeeds them.

Relevant to those points made during the briefing session provided by NAA/NMHC staff members before we headed to the Hill they mentioned that leaders in the Senate Banking Committee had just announced a plan that the apartment industry could get behind, but let’s just say it was a little difficult for us in the audience to grasp. Too bad we didn’t have a chance to read this Wall Street Journal article that laid out the issue pretty well:

The plan, by Senate Banking Committee leaders Tim Johnson (D., S.D) and Mike Crapo (R., Idaho), calls for replacing Fannie and Freddie with a new system of federally insured mortgage securities in which private insurers would be required to take initial losses before any government guarantee would be triggered.

The agreement, which faces a long road to approval, represents the most concrete step so far to resolve the last major piece of unfinished business from the 2008 financial collapse.

“It would be a huge step forward,” said Phillip Swagel, who was an assistant secretary for economic policy under Treasury Secretary Henry Paulson, who oversaw the government’s seizure of the firms in 2008.

Yes, this is a complicated issue but at its core it’s pretty simple:

  1. There’s a lot of demand for apartments right now and not nearly enough are being constructed to keep up with it.
  2. Without adequate financing there isn’t going to be enough construction to catch up with that demand, and with low inventory comes high rent.
  3. It’s imperative that Congress not further constrict the housing market by instituting housing finance reform that cripples a sector, multifamily housing, that didn’t contribute to the economic problems caused by the residential housing finance sector.
  4. The early signs are that the Senate Banking Committee is moving in the right direction, but there’s a LONG way to go before they get committee approval, not to mention the full Senate and then the House.

In other words we have a pretty good idea what we’ll be talking about to our members of Congress when they’re back home in their districts and this time next year when we return to the Capitol.

Talking to Our Leaders About “Frannie”

According to the Wall Street Journal the Federal Housing Finance Agency is trying to move forward with reforms to Fannie Mae and Freddie Mac despite a decided lack of direction from Capitol Hill:

Fannie and Freddie’s overseer, the Federal Housing Finance Agency, is contemplating new structures to hopefully prepare markets for whatever changes may ultimately come the mortgage giants’ way. Its latest thinking, detailed in a paper released Tuesday, talks, among other things, about creating a single, utility-like platform for selling mortgages to investors.

This could help lead to the creation of a single government mortgage-backed security. Along with other moves under way to standardize mortgage data and improve transparency, this could help prepare for a return to securitization markets that sell bonds with no or only a partial government guarantee.

Obviously there’s a lot of interest in “Frannie’s” fate from the apartment industry, and during next month’s NAA Capitol Conference leaders from the industry will be sharing their concerns with our elected representatives.  If you would like to participate there’s still time to register; simply visit the registration page and sign yourself up. This will be a pivotal year for the apartment industry so it’s important that they hear from as many industry leaders as possible.

Fed Endorses Converting Foreclosed Homes to Rentals

The Federal Reserve made an unconventional foray into housing policy due to concerns that housing troubles are stifling an economic recovery.  From the January 5, 2012 Wall Street Journal:

Housing policy is outside the traditional purview of the central bank, but Fed Chairman Ben Bernanke and others are clearly worried that housing has stymied the effect of the bank’s low-interest-rate policies.

In a 26-page paper sent to top lawmakers on congressional banking committees, the Fed warned that tight mortgage- lending standards threaten to hold back the economy.

The Fed also signaled support for more aggressive use of Fannie Mae and Freddie Mac to support a housing recovery. The firms, which don’t make loans but purchase them from lenders, were taken over by the government three years ago and are overseen by a separate regulator, the Federal Housing Finance Agency, which has strictly interpreted its charge to limit the firms’ losses…

The paper endorsed converting foreclosed single-family homes into rentals in order to stem home-price declines. While housing is more affordable than at any time in the past decade in many markets, prices could sink further as banks dispose of thousands of foreclosed properties in the coming year. That has led Fed officials, the FHFA and the Obama administration to study ways to shrink the glut of bank-owned homes by selling them to investors to rent out.

The paper said some 60 metro areas had at least 250 foreclosed properties for sale by Fannie, Freddie and federal agencies—enough to efficiently execute rental programs. About two-fifths of properties held by Fannie could produce returns that justify converting them, it said.

It will be interesting to see what effect, if any, this has on lending standards and housing policies in general.

GSEs’ Single Family vs. Multifamily Performance

From Multifamily Executive:

Fannie lost $5.1 billion in the three-month period, while Freddie saw a $4.4 billion loss, resulting in the companies asking for a combined additional $13.8 billion in government aid. Sadly, the resulting uproar around the losses, coupled with the sizable compensation paid to the companies’ top execs, is nothing new.

What isn’t being talked about in the debate, however, is the phenomenal performance of the multifamily business lines of the government-sponsored enterprises (GSEs). Not only are the multifamily divisions profitable and making money for the taxpayers that bailed them out, but the delinquency rates and amount of REO are miniscule in comparison to the GSEs’ single-family business.

What’s more, the multifamily divisions are also mission-rich: While the multifamily book is only a fraction of the single-family portfolio, the amount of affordable housing units financed by the GSEs last year tilts heavily, and disproportionately, in favor of the apartment operations.

Fannie and Freddie Floating a Plan to Juice More Private Mortgage Action

From the Wall Street Journal:

The Obama administration and a federal housing regulator are considering a program to draw private investment back into the government-dominated mortgage market by having Fannie Mae and Freddie Mac sell slices of securities that wouldn’t carry a federal guarantee but would pay a higher interest rate than current mortgage-backed bonds…

Officials see it as a step toward reducing the $10.4 trillion U.S. mortgage market’s dependence on government-controlled mortgage companies Fannie Mae and Freddie Mac.

The move would test the willingness of private investors to share the risk of funding home loans that are packaged by Fannie and Freddie. If the program were expanded significantly, it would likely raise mortgage rates over time because private investors would require greater returns than Fannie and Freddie currently do.

Under the pilot program, a small piece—perhaps 5% or 10%—of a bond issued by Fannie or Freddie would be sold without a federal guarantee, according to people familiar with the matter.

This plan for the single-family sector is similar to what Freddie’s done in multifamily:

Mr. Haldeman said the pilot program idea is “still in the talking stage.” Freddie Mac has tried the approach since 2009 with bonds issued to fund multifamily housing developments.

Administration officials say that by getting private investors involved, they will receive feedback on how much Fannie and Freddie should raise the fees they charge to guarantee mortgages. Those fees are expected to increase gradually next year.