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Susan Graham is president and chief operating officer of Financial Industry Computer Systems Inc. (FICS), a mortgage-software company
specializing in cost-effective, in-house mortgage-origination, residential mortgage-servicing and commercial mortgage-servicing software
for mortgage lenders, banks and credit unions. FICS’ software solutions operate on Microsoft Windows platforms using Microsoft .NE T
Framework and provide customers the flexibility to choose an in-house or cloud-hosting solution. The company also provides innovative
document management and web-based capabilities in its full suite of products. Reach Graham at email@example.com.
<< GSE continued from Page 57
roposals for GSE reform have been advanced by a
variety of interests in the multifamily-housing sector.
Multifamily rental housing represents a significant
portion of the U. S. housing market, with more than one
in three American households renting their dwellings and more than
19 million households residing in multifamily rental housing. The GSEs’
multifamily businesses may not be as large as their single-family portfolios,
but their role is vitally important in supporting affordable housing.
The federal tax overhaul passed in late 2017 decreased the value of some
tax-deferred assets on the GSEs’ books. That, along with other factors
impacting the multifamily mortgage space, prompted the GSEs — which
have been under government-supervised conservatorship since 2008 — to
draw money from the U.S. Treasury for the first time in several years to cover
losses sustained during fourth-quarter 2017.
The GSEs experienced a combined loss of about $10 billion in fourth-quarter
2017, much more than the $3 billion capital buffer set up for each enterprise.
Consequently, Fannie Mae and Freddie Mac had to draw an aggregate $4 billion
from the U.S. Treasury to offset these losses. Although the GSEs rebounded
this past first quarter, the prospect of potential future losses and Treasury draws
is a constant refrain and reminder of the GSEs’ precarious position.
GSE reform most likely won’t happen in 2018, according to Treasury Secretary Steven Mnuchin. Federal Housing Finance Agency (FHFA) director
Mel Watt’s term is up in January 2019 and the Trump administration is
likely to replace him with someone who will push a GSE-reform agenda.
Suggestions for reform
GSE reform has been a divisive issue among policymakers, depending on
their constituency and market philosophies. Similar to what’s happening
among politicians, commercial mortgage professionals also disagree when it
comes to GSE reform.
Despite the changing industry landscape, many commercial lenders continue
to sell and service GSE loans. Last year, acknowledging the importance of
the GSEs, a group of small lenders and some well-known affordable-housing
groups released a reform proposal that advocated changes many community
lenders hope to see shape the future GSE landscape.
Some of the suggested reforms include restructuring the capital buffers
for Fannie Mae and Freddie Mac, maintaining the FHFA as an independent
regulator of the GSEs, providing fair access for lenders of all sizes and ending
the GSEs’ conservatorship status. In short, although commercial lenders and
other industry experts have advanced a range of reform proposals, there
seems to be some consensus among commercial real estate professionals
that the GSEs should not be gutted or completely eliminated.
The Mortgage Bankers Association (MBA) has voiced its support for future
GSE changes in which two or more guarantors engage in securitizing and
guaranteeing multifamily mortgages under a utility-like business model.
Although the guarantors would be owned by private shareholders under the
MBA plan, the mortgage-backed securities (MBS) they issued would carry an
explicit government guarantee.
Under the MBA’s proposed changes, taxpayers would gain several layers
of protection, including risk sharing and transfers, a capital cushion for each
guarantor and a mortgage insurance fund. Guarantor debt obligations,
however, would not be backed by the government. The MBA recommends
leveraging the existing infrastructure and processes of Fannie and Freddie,
such as their multifamily deal structures that provide liquidity and place
significant risk with private-capital providers.
The major multifamily mortgage-focused GSEs — Freddie Mac, Fannie Mae
and Ginnie Mae — were originally established to provide lenders with more
liquidity. Combined, Fannie Mae and Freddie Mac provided about $1 trillion
in liquidity to mortgage markets in 2017, including millions of apartment units.
At the end of 2017, the GSEs and government programs like the Federal
Housing Administration held or guaranteed about $606 billion in commercial
and multifamily loans, or 48 percent of multifamily mortgage debt outstanding.
Origination volumes for the GSEs have grown significantly in recent years,
from $57 billion in 2014 to $130 billion in 2017.
The federal government is the only entity that can ensure the availability
of liquidity in all market cycles, including recessions. As demonstrated by
the conservatorship of Fannie Mae and Freddie Mac, the federal government
provides capital when necessary. In the wake of the most-recent economic
downturn, the GSEs continued to provide monetary resources when many
private-capital sources exited the multifamily mortgage market.
The GSEs support affordable housing through investments in individual
multifamily properties or groups of properties, as well as through securitizations
of loans on these underlying properties. During this past first quarter, Fannie
Mae provided $11 billion in multifamily financing and helped to fund
154,000 new units of multifamily housing.
More than 90 percent of the multifamily units financed during the first
quarter were classified as affordable to families earning at or below 120 percent
of their area’s median income (AMI). Freddie Mac, meanwhile, funded $13 billion
in new multifamily purchases during first-quarter 2018, equating to 152,000 new
rental units, 83 percent of which were affordable for families earning 100 percent
or less of AMI.
The Ginnie Mae difference
Ginnie Mae, which is also considered a government-sponsored enterprise,
differs from the quasi-government corporations Fannie Mae and Freddie
Mac in a few key ways. Unlike Fannie and Freddie, which define the
conventional-loan market, Ginnie Mae is a federally owned corporation that
“There seems to
be some consensus
among commercial real
estate professionals that
the GSEs should not