GSEs Reducing Expanded Role in SF Rental Market

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MORTGAGE EXPERT
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Pilot programs previously put in place by the government-sponsored housing enterprises will be concluded as that market appears to operate fine without them.

The Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. historically have supported the rental market through their robust multifamily lending programs.

In addition, the secondary lenders provide single-family financing for properties with up to four units. Fannie Mae allows investors to own a maximum of 10 properties, while Freddie Mac allows six.

But during the past two years, the two firms have participated in the single-family rental market on a larger scale, according to Determination On Enterprise Activity In the Single-Family Rental Market from the pair of secondary lenders’ regulator and conservator, the Federal Housing Finance Agency. Their increased participation came through pilots designed to “test and learn” more about the single-family rental financing market and best practices.

“Historically, single-family rentals have played a substantial role in the overall housing market,” the report stated. “In recent years, the single-family rental sector has become the quickest growing segment of the rental market.”

Institutional investors, as well as small and mid-sized investors who have fewer financing options, participated in the pilot transactions.

At the same time, FHFA convened a workshop last year to solicit feedback, identify market challenges and opportunities, and gain perspective about the overall single-family rental market. It also conducted an impact analysis and obtained feedback from industry stakeholders like investors, lenders and ratings agencies.

FHFA tasked Fannie and Freddie with developing strategies to address market liquidity needs and provide information that would be useful for its final decision on the GSEs’ appropriate role in the market — including estimated market size, potential market growth projections, investor business models and existing financing options.

“What we learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the enterprises,” FHFA Director Melvin Watt — who is actively battling allegations of sexual harassment by Simone Grimes — said in a news release Tuesday.  

So FHFA has determined that Fannie and Freddie will conclude their single-family rental pilot programs. The pair will then terminate their participation in the single-family rental market.

However, previously existing investor programs including Fannie’s Multiple Financed Properties and Freddie’s Investment Property Mortgages will not be impacted.

In addition, the regulator said Fannie and Freddie can continue to propose changes to their existing programs.

“While the enterprises’ single-family investment home rental programs have played an important role for small investors, the market for larger investors has performed successfully without enterprise participation,” the report concluded.

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