Legislation Impacts GSE Affordable Multifamily Goals

MBA (8/6/2008 ) Murray, Michael
The Housing and Economic Recovery Act of 2008 would allow Fannie Mae and Freddie Mac to continue borrowing to finance their portfolio holdings—nearly all of their multifamily business—and it enforces new affordable housing goals.
“Their ability to borrow at reasonable rates is critical to the execution of their multifamily programs,” said Cheryl Malloy, senior vice president of multifamily at the Mortgage Bankers Association.

The GSE regulatory reform provisions include a new provision that requires its new regulator, the Federal Housing Finance Agency, to give its approval of any product before the initial offering. The director of FHFA would have 30 days following a 30-day public comment period to approve or deny the request to offer a new product. The provision excludes modification to mortgage terms and conditions or underwriting criteria, and activity “substantially similar” to current actions.

“The director can give temporary approval without public comment if there are ‘exigent circumstances’ that make the delay contrary to the public interest,” Malloy said. “If there is a ‘new activity’ that a GSE does not think is a new product, it must provide written notice to FHFA, and FHFA has 15 days to determine whether it is a product.”

While current affordable housing goals remain in effect for 2009, the FHFA director could adjust goals after a 30-day comment period based on current market conditions.

The goals for 2010 and beyond differ substantially from the current statute with separate goals for single family and multifamily. Under the new statute, there will be one multifamily goal for units affordable to families at less than 80 percent area median income—down from 100 percent—with special requirements for families at less than 50 percent AMI—down from 60 percent.

“This will mean that FHFA will need to determine the size of the multifamily market and what percent of that market is affordable at 80 percent and 50 percent AMI,” Malloy said. “The ‘special requirements’ will probably be interpreted as a sub-goal.”

“The GSEs are better off with a strong world-class regulator, and the Federal Housing Finance Agency is such a regulator,” said Rodrigo Lopez, president and CEO of AmeriSphere Multifamily LLC, Omaha, Neb.

“Before, the GSEs had to look at OFHEO [Office of Housing and Enterprise Oversight] for the safety and soundness of their operations, and it was hard for affordable housing requirements,” Lopez said. “Now, it is under one regulator, and that is positive. It is easier for the GSEs to work under business plans and implement those business plans. Clearly, it is better for all of us who have relationships with Fannie and Freddie.”

The GSE goals would then be set based on a number of factors, including Fannie Mae and Freddie Mac’s ability to “lead the market in making multifamily mortgage credit available,” the legislation states. The GSEs must also report on their small multifamily business—defined as five to 50 units or less than $5 million mortgage amount. FHFA could establish “additional requirements” on these loans.

“With separate single family and multifamily goals, there will no longer be the pressure to increase multifamily production because single family volumes are high,” Malloy said.

“The legislation retools the existing goals to address and provide units for low and very low income families” Lopez said.

Under the legislation, GSEs have new duties to serve manufactured housing, affordable housing and rural markets. Affordable housing would include Section 8, Section 236, Low Income Housing Tax Credits and “comparable state and local affordable housing programs” as well as other programs and products.

The legislation said the GSEs would need to develop loan products and “flexible underwriting guidelines” for a secondary mortgage market geared to “very low, low- and moderate-income families” and housing.

“While there are no specific criteria for how the GSEs are to be evaluated on these duties, the duties are enforceable in the same manner as the goals,” Malloy said.

“The legislation is a huge document but, like everything else, details are important and details will be contained in the regulations,” Lopez said. “Those [details] will not only be written and specified in the course of the next six [to] 12 months, but the current administration and the new administration will have a lot to say as to how they are written and implemented. We will clearly not know some of those details until the regulations are written, but we have the essence of what the law is—what the statute is.”

The legislation requires the GSEs to set up an Affordable Housing Fund based on an amount equal to 4.2 basis points “for each dollar of the unpaid principal balance of its total new business purchases.” The GSEs would deposit 25 percent of the total allocation into a Treasury fund to establish a HOPE reserve fund to cover costs of the new FHA HOPE program. As for the remaining 75 percent, each GSE must transfer 65 percent to HUD to fund the Housing Trust Fund and 35 percent to The Capital Magnet Fund—a special account in the Community Development Financial Institution fund.

Under the Housing Trust Fund, HUD would provide grants to states on the basis of a “needs-based formula,” beginning in fiscal year 2010.

“Each state must develop an allocation plan that distributes funds to eligible recipients which can be for-profit or non-profit entities that have demonstrated experience and capacity to undertake the eligible activities,” Malloy said.

Through the Capital Magnet Fund, the Treasury secretary must carry out a “competitive grant program” to attract private capital for and increase affordable housing investment and economic development activities or community service facilities. Treasury-certified CDFIs and non-profit organizations would be the only eligible grantees for these funds, with the development or management of affordable housing as a principal purpose.

“I'm hopeful those who will have the responsibility to allocate those resources do it in a prudent and effective manner,” Lopez said. "That, still, in my mind, is a question mark. I'm hopeful those funds will go to not only make affordable housing possible in certain communities but that those funds will be used effectively.”