GSEs’ Multifamily Strengths Commended in Housing Finance Reform Hearing

Published by Michael Novogradac on Wednesday, October 9, 2013 - 12:00am

Today the Senate Banking Committee held a hearing on “Housing Finance Reform: Essential Elements of the Multifamily Housing Finance System” during which witnesses spoke in favor of secondary market support for multifamily housing, including affordable rental housing. In addition, many comments noted the strengths of the GSE’s multifamily programs and how well they have performed relative to the single-family side.

Here are a few highlights from today’s testimony:

Thomas S. Bozzuto, testifying on behalf of the National Multi Housing Council and National Apartment Association, said that the GSEs’ multifamily programs adhere to a business model that includes prudent underwriting standards; sound credit policy; effective third-party assessment procedures; risk-sharing and retention strategies; effective loan portfolio management; and standardized mortgage documentation and execution. “In short,” his testimony says, “the GSEs’ multifamily models hit the mark.”

Bozzuto also called for any housing finance reform legislation to contain a separate title addressing the unique needs of the multifamily sector and suggested that a re-formed housing finance system should retain the successful components of the existing multifamily programs in whatever succeeds them.

This was a sentiment echoed in others’ remarks. For example, in his written testimony, E. J. Burke, who appeared on behalf of the Mortgage Bankers Association, said, “The GSEs’ multifamily executions incorporate substantial private capital and risk sharing with other market participants, and have exhibited strong credit performance with current delinquency rates of less than 20 basis points … These businesses are valuable to U.S. taxpayers and should be transferred to new entities that would serve the multifamily housing finance market.”

Shekar Narasimhan, managing partner of Beekman Advisors, said, “The multifamily businesses at the GSEs are not part of the problem in the housing finance system. In fact, they are part of the solution. Every major principle articulated by stakeholders with regard to what a new housing finance system should look like is in practice at the multifamily businesses of the GSEs … I am here today to propose that the multifamily businesses at the GSEs should be used to demonstrate the path to the new housing finance system, by spinning them out as privately capitalized entities with government guarantees limited to only the securities they issue.”

Terri Ludwig, president and CEO of Enterprise Community Partners, also called for housing finance reform to build on the parts of the existing system that work. In addition, in her written testimony, she suggested that to promote affordable housing, any future system of multifamily housing finance should include rules that encourage issuers of FMIC-backed securities to invest in low-income housing tax credit (LIHTC) deals. Her testimony said, “… GSE reform must be part of a series of policy changes and investments to address the needs of low-income families and communities, including preserving and expanding the Housing Credit, reforming rental assistance programs and investing in proven housing and community development programs with adequate appropriations that help communities build capacity to meet their specific housing needs.”