Fannie, Freddie Privatization: Here’s What Could Happen
Herrick Real Estate partner, Neil R. Shapiro, was quoted in the Commercial Observer in an article discussing how multifamily lending could be impacted by the potential privatization of Fannie Mae and Freddie Mac, which have been under conservatorship since the 2008 Global Financial Crisis.
The article noted that "Fannie and Freddie are often undervalued in the multifamily rental market, despite the agencies' roles as two of the largest lenders in the multifamily space."
"They're a huge source of debt that allows owners to keep rents down because their borrowing cost is low," said Neil. "Their mission is to provide lower costs for home borrowers, and, while it doesn't get much play, they are also a significant player in the multifamily space."
The article highlighted that many agency-watchers agree that Fannie and Freddie should become privatized and consolidated into one entity "as each offers similar products, and buys and packages similar loans, differing only in the guaranteed fees and terms at each origination."
Neil agreed the system doesn't need two sets of firms with two sets of similar managers, but [he] was skeptical of the notion of a race to the bottom, as interest rates can be just as competitive as underwriting standards. He did, however, express caution toward the idea of a single private entity controlling more than two-thirds of the U.S. home mortgage market.
"When you remove a major competitor, because they are competitors with each other, it changes the marketplace as there is only one source of funds," Neil said. "If one entity accounts for 70 percent, instead of two different ones, that's a big monopolistic control issue. They could exert their own pricing and, with less competition, pricing goes up."
Read the full article in the Commercial Observer here. Access may require a subscription.