Last week the conservator of mortgage giants Fannie Mae and Freddie Mac confirmed what housing experts have long suspected: a limited government guarantee is critical to a well-functioning U.S. rental market.
That was the upshot of a
This conclusion should inform FHFA's next strategic plan, which
We now know that there is tremendous value to the government guarantee, and that fully privatizing the multifamily mortgage market would actually harm taxpayers. Here are a few reasons why, based on data from last week's reports.
First, this business brings important social and economic benefits to working families. By issuing and guaranteeing securities backed by multifamily mortgages, Fannie and Freddie provide liquidity to the U.S. rental market, translating into more rental homes, better maintained properties and lower, more stable rents.
According to
Second, the guarantee on Fannie- and Freddie-backed mortgages serves a critical countercyclical role. Private capital is a key player in multifamily housing finance, both by funding projects without a government guarantee and sharing a portion of the risk on Fannie and Freddie loans. But those who provide this capital such as life companies and Real Estate Investment Trusts tend to be procyclical, providing ample capital when the market is booming and holding back when the market is struggling. It's also worth noting that purely private capital tends to flow to higher-end apartments in major cities, not the more affordable rental properties in smaller towns and rural areas.
The guarantee helps to keep money flowing to the rental market during economic downturns. The
This countercyclical support was particularly important during the most recent housing crisis. In 2007, Fannie and Freddie combined for
Finally, the multifamily business has been both low-risk and profitable for Fannie, Freddie and taxpayers, even in the midst of the worst foreclosure crisis since the Great Depression. Today only about 0.2% of Fannie- or Freddie-backed multifamily loans are delinquent by 60 or more days,
As a result of these low credit losses in addition to revenue from fees and the capital and other benefits of the government guarantee Fannie's multifamily business reported a
These findings come as the U.S. housing market is at a crucial crossroads. The market for single-family homes is showing promising signs of recovery, but many renters are facing a growing affordability crisis. According to a
The data show that this crisis would be drastically worse if we were to do away with the government guarantee on multifamily mortgages and U.S. taxpayers would be no better off. So as policymakers
Andrew Jakabovics is the senior director for Policy Development and Research at Enterprise Community Partners. John Griffith is a senior analyst at Enterprise Community Partners.