Tags: Senate | housing | mutli-family | homes

Senate Explores Housing Finance Reform — Part III

By    |   Wednesday, 16 October 2013 02:16 PM

The Senate Banking Committee, chaired by Tim Johnson, D-S.D., on Oct. 9 held the third in its series of hearings on housing finance reform legislation that will preoccupy the committee throughout the fall.

This time, the topic was multi-family housing, which refers to rental properties of at least five units. Following the pattern of earlier hearings, industry witnesses presented their views, virtually in the nature of demands, that the legislation meet a long list of conditions to their liking.

Witnesses were Thomas Bozzuto, CEO of The Bozzuto Group, whose buildings are prominent in the D.C. area and who represented he National Multi Housing Council and National Apartment Association; E. J. Burke, executive vice president of Key Bank Real Estate Capital, who represented the Mortgage Bankers Association; Shekar Narasimhan, managing partner at Beekman Advisor; Terri Ludwig, CEO of the nonprofit Enterprise Community Partners Inc.

In opening statements, Johnson said the hearing would focus on the third of the U.S. population who rent. He noted that multi-family housing mortgages maintained a default rate near 1 percent throughout and since the 2008 crisis episode. Finally, in Al Franken, D-Minn., he zeroed in on the key question, what does all this mean for affordable multi-family housing in South Dakota?

Michael Crapo, R-Idaho, the ranking Republican, from another rural state, credited strict underwriting standards employed by Fannie Mae and Freddie Mac, including a policy of sharing risk of default with investors, for the low delinquency rate.

Still, he acknowledged that with Fannie and Freddie dominating this market, taxpayers are still at risk. He asked what could be done to bring more private capital into this business and how the government can avoid under pricing risk and crowding out the needed private capital. He pledged to continue to work toward a bipartisan housing finance reform bill.

Even more than the representatives of the single-family market, the witnesses from the multi-family segment bluntly stated that they like the present system in which Fannie and Freddie, backed by the federal government, ensure that there is ample financing available to support multi-family housing.

They allow that the role of the government should be reduced, but they insist that for rental housing to remain relatively affordable, there must be government subsidies and government guarantees of the securities investors buy to support the industry. For them this matter is so urgent that they want to jump the line ahead of the other groups in the Housing Industrial Complex and get their provisions separated from S. 1217, the draft bipartisan bill, and enacted ASAP.

Moreover, if Congress decides that Fannie and Freddie must be reorganized, they recommend a spinoff of these entities so that the multi-family finance programs could be ported over to the new housing finance system.

Bozzutto testified that the multi-family market has performed well, thanks to the programs offered by Fannie and Freddie. A number of other private sources of capital participate in this market, but they are unable to provide the $150 billion per year required to meet the full needs of the industry.

Therefore, "To provide liquidity at all times, the government must play a role." He concluded that an "affordability mandate" would be proposed as a condition of the government support, perhaps set at 80 percent, but the industry considers it unnecessary, because 80 percent of multi-family units are already affordable.

Burke proclaimed that his industry, multi-family housing, "is a critical component of our housing system," and only the government can play the "countercyclical role," through GSEs like Fannie and Freddie, of "ensuring liquidity in all markets and all economic cycles." He called for the government to provide an entity to guarantee securities backed by multi-family mortgages, to regulate this market, but not to impose an "affordability mandate," because 93 percent of the units are affordable.

Narasimhan gushed that he has "developed a deep and abiding passion for affordable housing." To help enable this, he wants Fannie and Freddie to be "part of the solution," as they have when private capital has scaled back its participation in the market. He specifically urged that Fannie and Freddie be spun off by the government, and the government would also guarantee the mortgage-backed securities of Fannie and Freddie.

Unlike the previous witnesses, Narasimhan supports a "prescriptive" mandate that a percentage of multi-family units whose mortgages are guaranteed be affordable.

Ludwig added her voice to the industry campaign for maintaining Fannie and Freddie, with a "limited, explicit, paid-for government guarantee," and she cited a report by the Federal Housing Finance Agency (FHFA) finding that mortgage interest rates would "skyrocket" in the absence of Fannie and Freddie.

She agreed with Narasimhan that these entities should be spun off, and she would set the affordability mandate at a modest 60 percent. (Her agenda, of course, begs the question as to who would pay for the "paid-for" government guarantee.)

One is left to wonder what the industry people are thinking, except that they may have been led by the politicians to believe that despite, or even because of, the experience of 2008, the federal government can provide an ideal environment for multi-family housing at all times and in every market in the country. Also, where is the reality/realty check on the idea that people who move to remote areas to get away from the noisy city can expect to find high-rise condos out there?

Finally, it will be interesting to see if when the housing reform effort bogs down, as nearly everyone expects it to, whether the committee will be willing to give this segment a bill while the others must wait, probably for years.

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The Senate Banking Committee, chaired by Tim Johnson, D-S.D., on Oct. 9 held the third in its series of hearings on housing finance reform legislation that will preoccupy the committee throughout the fall.
Wednesday, 16 October 2013 02:16 PM
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