Senate Banking Committee Holds Hearing on Multifamily Aspects of Housing Finance Reform

Housing finance reform legislation should ensure that the federal government continues to play a role in the multifamily housing finance system, according to witnesses at an October 9 Congressional hearing.The Senate Committee on Banking, Housing, and Urban Affairs examined what reform of federal housing finance policy should mean for multifamily housing and the federal government’s role. E.J. Burke of the Mortgage Bankers Association testified that the future multifamily finance system should rely on private capital and protect taxpayers, and that a government backstop should ensure stable and continued liquidity in all economic cycles. On behalf of the National Multi Housing Council and the National Apartment Association, Thomas Bozzuto testified that private capital has always been integral to the multifamily housing finance system. “However, historically, private capital has been either unwilling or unable to meet the full range of the multifamily industry’s capital needs, even during healthy economic times,” Mr. Bozzuto said. “There is no evidence to suggest that the situation is any different today.” Terri Ludwig of Enterprise Community Partners and Shekar Narasimhan of Beekman Advisors proposed spinning off Fannie Mae’s and Freddie Mac’s multifamily business as privately capitalized entities with a government guarantee. Addressing how housing finance reform legislation can ensure that smaller communities are better served, Ms. Ludwig said several programs already target such underserved markets as rural communities, but more must be done. She raised the possibility of using the proposed Market Access Fund to launch securitization pilots and identify ways to promote these goals (see Memo, 6/28).In response to Committee Chair Tim Johnson’s (D-SD) question about an affordability threshold in a new system, Mr. Narasimhan said 65% of Fannie Mae’s and Freddie Mac’s multifamily business already serve households at 80% or below of area median income. He believed that this minimum standard should be maintained as experience demonstrates that Fannie Mae and Freddie Mac can achieve it.Senator Jack Reed (D-RI) asked about the role that Section 8 vouchers and other subsidies play in attracting private capital and providing stability to housing deals. Without them, Mr. Bozzuto said it is virtually impossible to build housing affordable to households with the lowest incomes; the funding’s stability is useful in attracting private capital.Senator Mike Johanns (R-NE) noted that the multifamily sector was not part of Fannie Mae’s and Freddie Mac’s single family problems, but that it nonetheless has not functioned as well outside large metropolitan areas. Senator Jerry Moran (R-KS) raised differences in the ways that multifamily financing works in rural settings and asked about the uniqueness. Mr. Burke replied that it is more difficult to close loans in these areas due to their small size. Absent a model to improve this situation, additional testing could lead to ways that better securitize smaller products. Echoing other Senators’ concerns, Committee Ranking Member Mike Crapo (R-ID) discussed the need for greater access to capital in rural areas. He raised the idea of a cooperative system for multifamily financing. Senator Mark Warner (D-VA) expressed concern about FHFA’s decision to cut back on Fannie Mae’s and Freddie Mac’s multifamily business by 10% (see article below in Memo) and is worried that rural areas would be the first ones cut under an arbitrary reduction. He added that the Section 8 and Low Income Housing Tax Credit programs make affordability possible, and that the Committee’s efforts, through such mechanisms as the Corker-Warner bill, would create a stable fee that could be used to fund the National Housing Trust Fund (NHTF) and Capital Magnet Fund (CMF).As for the major drivers behind strong multifamily sector performance and system affordability, Mr. Narasimhan emphasized the importance of risk sharing. Ms. Ludwig added that the NHTF and CMF are established ways to incorporate affordability, and that Congress must ensure their funding in a future system. She proposed expanding these funds through a Market Access Fund, which she said would “expand our thinking on how to promote affordability.” Mr. Narasimhan said it could encourage players in the system to take more risk.Senator Jeff Merkley (D-OR) discussed different affordability strategies that the multifamily provisions of a GSE reform bill could include. The first option, a basis point fee, would fund the NHTF and other affordable housing programs. The second option, two “spinoff” entities, would deal exclusively with Fannie Mae’s and Freddie Mac’s current multifamily business and would have responsibility to fund affordable housing programs at a defined affordability standard. Other options include a cooperative system and a requirement that entities submit annual plans detailing ways they will meet the standards. Mr. Narasimhan testified that Fannie Mae’s and Freddie Mac’s or their successors’ primary objective should be to “keep doing what they have been doing all along,” that is, support financing of projects that are affordable to households with incomes at 80% or below of area median income. He emphasized the need to level the playing field and establish standards that guarantee stable affordability goals.Read the witness testimony and watch the archived hearing webcast: http://1.usa.gov/18VtK59