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GSEs to Get Makeover Under Biden

GSEs to Get Makeover Under Biden
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With former Federal Housing Finance Agency Director Mark Calabria ousted, any plans to privatize Fannie Mae and Freddie Mac are over. The question now becomes: How will the Biden administration use the government-sponsored enterprises (GSEs) to implement its ambitious plans for the housing market?

Calabria, who was appointed to head the agency by President Donald Trump in 2019, made no secret of his desire to shrink Fannie Mae and Freddie Mac’s footprint in the multifamily lending market and return them to private status. With Calabria out, talk of privatization is dead, but it remains unclear exactly how the Biden administration will operate the agencies.

Given the priority that Biden has placed on creating affordable housing and combating climate change, and his long-held ideological inclination to use the levers of government to affect policy, it seems a good bet that Fannie and Freddie will do more rather than less. “The smart bet on the GSEs is that multifamily will be able to do more volume, but with a continued mission-driven focus. It won’t be a blank check,” said David McCarthy, senior director of government and policy relations at the CRE Finance Council, a Washington, D.C.-based trade group.

Some possibilities include ramping up loan production, increasing access to the correspondent program for smaller lenders, and expanding the use of loans with affordable and green components. “We’re likely to see an increased focus on affordable and green lending, a review of the multifamily caps and a renegotiation of the conservatorship agreement between the Treasury Department and the FHFA,” said Mike Flood, a senior vice president of commercial/multifamily policy at the Mortgage Bankers Association.

Potential Policy Changes

Calabria was removed last Wednesday after the U.S. Supreme Court released a decision on a lawsuit that said a president could fire agency heads without cause. Sandra L. Thompson, previously the FHFA’s deputy director of housing mission and goals, was appointed as acting director. The court’s ruling was significant because Calabria had set ambitious goals to release the GSEs from conservatorship, where they have been since being bailed out by the federal government in 2008. After he was appointed to a five-year term in 2019, Calabria ended the cash sweep that sent Fannie’s and Freddie’s profits to the federal treasury, the first step toward financial stability and setting them free.

Privatization will not be an issue in a Biden administration. Instead, the questions will center around how the GSEs can be used to support the president’s activist housing policy. Biden and Vice President Kamala Harris campaigned on a multi-tier plan to increase the stock of affordable housing and provide incentives for municipalities to remove barriers to construction. Some of the possibilities that would enable the GSEs to be tools for Biden’s agenda moving forward include:

  • Increase production caps. Calabria set hard limits on Fannie’s and Freddie’s loan volume at $70 billion apiece, but that can be increased by the next FHFA director.
  • Increase allocations for green loans and allow them outside the caps. Before 2021, loans with an environmental component did not count against the cap, in effect giving the GSEs wide latitude to originate such loans. Given Biden’s emphasis on climate change, the next FHFA administrator could increase green loan production by removing the limitations.
  • Increase production of loans with an affordable component. Calabria required that half of Fannie’s and Freddie’s loan production have an affordable component, on properties that were affordable to tenants with an 80% of the area median income (AMI). The next FHFA director could expand originations on affordable properties in many ways, including increasing GSEs’ participation in loans with low-income housing tax credits (LITEC).
  • Another strategy to increase affordable housing loans would be to change the formula to qualify in high-income areas. Lawmakers and industry participants have long noted that 80% AMI requirement made it difficult to qualify for properties in high-rent areas such as New York and San Francisco.
  • Increase the number of correspondents that originate for Fannie and Freddie to bring in more smaller lenders. Bringing in smaller lenders to the programs would increase participation among less well-heeled property owners.

The consensus in the industry is that the administration will wield its authority to try to increase affordable housing stock. “I think you will also start to see a focus on developing products that are geared toward tenant bases in the 60% to 120% AMI group,” said Evan Blau, chair of the agency lending and affordable housing practice at law firm Cassin & Cassin. “Generally, this segment suffers from shrinking housing stock and increasing rents while being unable to qualify for the benefits of traditional affordable housing programs. This is likely to be the next large area of focus and further serves Fannie Mae and Freddie Mac’s mission.”

A full analysis can be found at Multi-Housing News

About the author

Paul Fiorilla

Paul Fiorilla has more than 25 years of experience as a researcher and writer in the commercial real estate markets. He previously served as a vice president of research at Prudential Real Estate Investors in Madison, N.J., where he oversaw publishing of outlooks and thought leadership research. Before that, he covered real estate capital markets and CMBS at Commercial Mortgage Alert.

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