FHFA: Fannie, Freddie M-F Businesses Not Independently Viable

By Scott Baltic, Contributing Editor

Without their government guarantees, “the multi-family businesses of Fannie Mae and Freddie Mac have little inherent value,” according to the Federal Housing Finance Agency, which on Friday released two reports, one from each of the government-sponsored enterprises. The reports also conclude that “the sale of these businesses would return little or no value to the U.S. Treasury and to taxpayers.”

The reports, which had been completed in December but not released until now, had been written at the direction of FHFA, in connection with its goal of contracting Fannie Mae and Freddie Mac’s market footprint and potentially generating value for taxpayers. The two GSEs had been directed to analyze the viability of their multi-family businesses in the absence of a government guarantee and review the likelihood of these models operating viably on a stand-alone basis.

The two reports are “Analysis of the Viability of Fannie Mae’s Multifamily Business Operating without a Government Guarantee” and “Report to the Federal Housing Finance Agency: Housing Finance Reform in the Multifamily Mortgage Market.”

The reports “represent the first objective, rigorous, quantification of the effect of the GSEs on the multi-family market,” David Brickman, senior vice president and head of multi-family for Freddie Mac, said in a release. 

“The high-level findings,” Brickman continued, “are that we could provide financing to the multi-family market without a government guarantee, but the markets would feel the cost … apartment owners, operators and low-income renters would be the hardest hit.

“We also concluded that any new sources of debt capital would not fill the entire gap left by the GSEs, and the market would experience more frequent and severe boom and bust cycles. In addition, we provided an analysis of a scenario where Freddie Mac could viably operate with a limited government guarantee,” Brickman said.

“There’s nothing surprising in these reports … This is pretty much what everyone expected them to say,” Willy Walker, chairman, president and CEO of Walker & Dunlop, Bethesda, Md., told Commercial Property Executive. Walker & Dunlop is the nation’s largest Fannie Mae DUS lender and one of the largest Freddie Mac servicers.

If Fannie and Freddie were spun off and had to lend without government guarantees, Walker said, they would lend just like private lenders. For example, they would avoid affordable housing and would operate predominantly in larger markets.

Fannie and Freddie would be worth something substantial on the market with their guarantees — but not without them, Walker concluded. “The reports basically reinforce why the federal government is in these businesses.”