During the first half of 2019, active participants in the multifamily sector heard rumblings about the current Administration’s goal of re-privatizing Fannie Mae and Freddie Mac (the Agencies), which were brought under Federal conservatorship in 2008. Those rumblings grew steadily louder over the summer, culminating with a memo released last week by the Federal Housing Finance Agency (FHFA) which attempts to provide guidance and expectations for the mortgage lending Agencies for the next year.
Background
The Trump Administration has indicated at several points in time that it prioritizes an exit plan from the government’s control of the Agencies – something it considers a last vestige of the Great Recession. In April 2019, economist Mark Calabria was named Director of the FHFA, and tasked with examining the health, production and sustainability of the two mortgage Agencies. Under Director Calabria’s watch, the FHFA began applying pressure on Fannie and Freddie to dramatically tighten up terms on newly quoted multifamily loans. The result – to the disappointment of borrowers – has been wider spreads, virtually no pricing waivers, lower LTV’s, less interest-only, and a variety of other conservative measures aimed at curbing production volume and increasing profitability.
To provide clarification, last week the FHFA released a memo redefining program priorities and production caps for the Agencies through the end of 2020. The memo stops short of defining any longer-term privatization plans, but does begin to address a number of other questions and concerns regarding near term expectations.