Learn how changes to these GSEs may impact the success of multifamily investments

With many financial experts predicting an economic downturn in the housing sector on the horizon, the U.S. Department of the Treasury recently took action to reduce the federal government’s potential exposure.

In September, the Treasury made changes that will allow Fannie Mae and Freddie Mac to retain more of their earnings as a reserve against potential future losses.

So what does this mean for multifamily investors? Let’s explore more about Fannie Mae and Freddie Mac, and how these changes may impact investments for multifamily owners.

What are Fannie Mae and Freddie Mac?

Established by Congress to provide liquidity, stability and affordability to the mortgage market, Fannie Mae and Freddie Mac are the two most prominent government-sponsored enterprises (GSEs).

They buy mortgages from lenders and either hold these mortgages in their portfolios or package the loans into mortgage-backed securities (MBS) that may be sold. These purchases help ensure that homeowners and multifamily investors have a continuous, stable supply of mortgage money.

Fannie Mae (otherwise known as the Federal National Mortgage Association) was first chartered by the U.S. government in 1938 to help ensure a reliable and affordable supply of mortgage funds throughout the country. Today it is a shareholder-owned company that operates under a congressional charter.

Freddie Mac (or the Federal Home Loan Mortgage Corporation) was chartered by Congress in 1970 as a private company to likewise help ensure a reliable and affordable supply of mortgage funds throughout the country. Today is a shareholder-owned company that operates under a congressional charter.

Fannie Mae and Freddie Mac can also help stabilize mortgage markets and protect housing during extraordinary periods when stress or turmoil in the broader financial system threaten the economy. (Source: Federal Housing Finance Agency)

What changes have been made to Fannie Mae and Freddie Mac?

During the National Multifamily Housing Council’s fall meeting in Washington, D.C., Federal Housing Finance Agency Director Mark Calabria announced plans to recapitalize the GSEs.

In a bid to ease market uncertainty, simplify lending caps and expand affordable housing guidelines, Fannie Mae and Freddie Mac now each have $100 billion in lending capacity over the next five quarters. This change came into effect on October 1. Calabria also stipulated that 37.5 percent of the loans purchased by Fannie Mae and Freddie Mac would be for affordable properties. 

Our opinion

These recent changes to Fannie Mae and Freddie Mac are a good move to preserve liquidity in the multifamily market, and a great step towards solving the country’s affordable housing shortage.

Coupled with the Federal Reserve’s recent interest rate cut, we’re continuing to see strong levels of commercial and multifamily borrowing and lending. “If you’re buying property today,” says Joe LaFleur, Multifamily Investment Advisor at 100Units.com, “you’re getting some of the best cost of capital.”

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