For investors interested in multifamily housing, the proposed unwinding of Fannie Mae and Freddie Mac, the government-controlled GSEs that many hold largely responsible for the housing crisis of the past few years, could be great news. In the white paper released two weeks ago to much fevered debate, one overlooked aspect of the end of Fannie and Freddie has been their impact on the multifamily market. While many investors fear that removing the GSEs from the multifamily loan equation could leave them high and dry without funding for development and other deals, the Obama administration’s proposal paper emphasized that “as we wind down Fannie Mae and Freddie Mac, it will be critical to find ways to maintain funding to this segment of the market”[1].

Of course, if the government remains heavily involved in this arena of real estate investing, it leaves the industry open to the same problems that have plagued the residential market. Many experts fear that poor lending decisions could lead to a commercial dip that could tank the already-delicate economy, while others believe that the administration is merely paying lip-service to concerned multifamily investors while not actually planning to continue to support the market. This belief is backed by the lack of specific strategies for insuring that there are “rental options near good schools and good jobs,” a goal cited in the report but not backed by solid strategy and action plans at this time.

Tom Musil, a finance professor and real estate specialist at the University of St. Thomas, points out that Fannie Mae and Freddie Mac essentially have kept the multifamily housing market afloat in the past three years – and probably longer[2]. “When it comes to multifamily housing, especially affordable, we’ve fallen way behind in this nation…The agencies are the players that kept working in those underserved markets,” he has said. In 2010 the GSEs delivered 60 percent of all multifamily loans, while in 2009 the number was even higher, 80 percent.

Do you think that it is appropriate for Fannie and Freddie to play such a big role in the multifamily housing sector?

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[2] http://finance-commerce.com/2011/02/fannie-freddie-reforms-could-threaten-rental-market/