Multifamily Activity Unfazed by GSE Developments

MBA (7/17/2008 ) Sorohan, Mike
Despite concerns on Capitol Hill and on Wall Street about Fannie Mae and Freddie Mac, the multifamily secondary market appears to be chugging along with little or no disruption.
“We’ve talked to several multifamily lenders who do business with Fannie Mae and Freddie Mac and they say it is ‘business as usual,’” said Cheryl Malloy, senior vice president of multifamily and governance with the Mortgage Bankers Association. “Fannie Mae and Freddie Mac are closing loans and locking rates on new loans; there has been no let-up.”

Rodrigo Lopez, president and CEO of AmeriSphere, Omaha, Neb., said despite a “tremendous amount” of speculation about the future of the government-sponsored enterprises, business with Fannie Mae has been normal.

“As a business partner of Fannie, we are confident in the GSE’s position and [its] ability to continue to provide liquidity in the multifamily markets,” Lopez said, “We are providing competitive Fannie Mae quotes to our customers daily and remain optimistic about annual Fannie Mae production volumes.”

Malloy said the GSEs are putting multifamily loans into their portfolios. “The default rates there are low,” she said. “I think they see them as good business not only for their bottom lines but also from a mission standpoint, to help meet their goals.”

The announcements this weekend by the Treasury Department and the Federal Reserve outlining steps the government would take to bolster the GSEs’ liquidity and stability succeeded, despite continued deterioration in their stock prices. Additionally, the Office of Federal Housing Enterprise Oversight, which oversees the safety and soundness of the GSEs, issued several statements insisting that Fannie Mae and Freddie Mac have more than enough capital to conduct business.

Among the steps the government announced was an open-ended extension of the line of credit to the GSEs (subject to congressional approval), currently at $2.5 billion. In testimony this week before the Senate Banking Committee, Treasury Secretary Henry Paulson Jr. said he did not expect the GSEs to take advantage of the lines of credit (an action that has not previously occurred).

Malloy noted that the announcement made more explicit the “implicit guarantee” that the government would support the GSEs in the event of a financial crisis. “It is now an explicit guarantee,” she said. “The government has basically said that the GSEs are too big to fail.”

While the government’s announcements did little to bolster the GSEs’ stock prices, it did help stabilize the markets, Malloy said. “The impact was broad—what it allows them to do is borrow more easily because of the ties to the government,” she said. “This helps support their portfolios. So it’s important on the multifamily side because what the government is saying is that it is guaranteeing the GSEs’ debt. This will provide some stability and lower the GSEs’ borrowing costs.”

Additionally, last week Fannie Mae announced that it planned to increase its investments in small multifamily loans (up to $3 million), noting that it had already invested $20 billion in multifamily during the first half of this year, compared to $27 billion in all of 2007.

All of which multifamily lenders said is good news. Scott Suttle, senior vice president at AmeriSphere, said “We have a steady volume of deals in our pipeline and our team is staying focused on providing our customers with timely, competitive Fannie Mae quotes.”
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