What Lies Ahead for Fanny and Freddie?

Is 2018 the year that Congress finally passes housing finance reform and puts an end to the conservatorship of Fannie Mae and Freddie Mac?

Housing finance reform is at the forefront of a full slate of issues that Congress may tackle in 2018. Both the House and Senate are actively working on crafting reform proposals, holding hearings and meeting with stakeholders including representatives from the real estate industry. NAA/NMHC are actively participating in these discussions to ensure that the reform package adequately addresses the unique characteristics of the multifamily industry. In fact, in November, 2017 NAA/NMHC secured a key invitation to testify before the House Financial Services Subcommittee on Housing and Insurance.
The testimony stressed the importance of maintaining access to an explicit, paid-for federal guarantee for multifamily-backed mortgage securities.

As 2017 drew to a close, FHFA Director Mel Watt indicated that he believed that a $3 billion capital reserve is necessary to cover ordinary income fluctuations, modifying the terms of Preferred Stock Purchase Agreements (PSPA) for Fannie Mae and Freddie Mac. Treasury and the Federal Housing Finance Agency (FHFA) have since announced they are modifying the terms of the PSPA. In the joint Treasury/FHFA statement, Treasury Secretary Steven T. Mnuchin explained, “This agreement balances the concerns of the FHFA with compensation for taxpayers. The Administration looks forward to working with Congress on comprehensive housing finance reform, a top priority in the year ahead.”

Originally, the PSPA had called for the Enterprises’ capital reserve accounts to shrink to $0 at the beginning of 2018. FHFA Director Mel Watt indicated that he believed that a $3 billion capital reserve is necessary to cover ordinary income fluctuations.

This announcement received mixed reviews. Some expressed concern that this could delay housing reform discussions.
As previously reported, tax reform will cause a write-down of certain assets of the Enterprises that will cause a draw on the line of credit from Treasury. While this move will have no operational impact on the Enterprises, it will likely result in negative, simplistic news coverage when it occurs at the end of the first quarter.

In November 2017 FHFA announced that the 2018 multifamily lending caps for Fannie Mae and Freddie Mac (the Enterprises) will be $35 billion for each Enterprise, down from $36.5 billion in 2017. The caps are based on projections of the overall size of the 2018 multifamily originations market, which FHFA expects to be slightly smaller than that market in 2017.
Finally, In December 2017, FHFA released the 2018 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions and provided additional plans that including details on the lower production cap. Those details noted that FHFA plans to:

• Further support liquidity in the multifamily workforce housing market and consider market cost differences
• Explore opportunities to further support liquidity in multifamily workforce housing, including through pilots and initiatives
• Manage the dollar volume of new multifamily business to remain at or below $35 billion for each Enterprise
• NAA/NMHC will closely monitor all these issues to ensure the flow of capital to the multifamily industry is not
  negatively impacted.
  
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