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WASHINGTON, DC – Earlier this month, the Trump administration presented a plan privatize Fannie Mae and Freddie Mac. Many of the items described required congressional action to be completed, but the plan also included administrative actions that could be taken immediately. On Friday of last week, with little fanfare or formality, the Federal Housing Finance Agency radically changed the way GSEs will lend by taking one of these steps: It revised the structure of the ceiling of the multi-family business of Fannie Mae and Freddie Mac.
The new purchase limits for multi-family loans will be $ 100 billion for each GSE for the five-quarter period beginning from the fourth quarter of 2019 to the fourth quarter of 2020. In addition, the new limits apply to all multi-family businesses. – in other words, there are no more exclusions allowed.
“These new multi-family ceilings close loopholes, provide sufficient market support without crowding out private capital and dramatically increase support for affordable housing from previous levels,” FHFA Director Mark Calabria said in prepared remarks. . He also warned that the GSEs had to make the capital last for the entire five-quarter period.
The new rules can be a blow to developers who have relied on GSEs excluding green loans from their ceilings: in the future, loans that finance energy and water efficiency improvements will be considered conventional businesses, unless they meet affordability requirements. Indeed, the FHFA has put affordability at the center of GSE’s new mission, apparently crowding out, at least in part, green loans.
Under the new directive, the FHFA requires at least 37.5% of multi-family businesses in GSEs to be affordable housing.
It was in 2014 that the FHFA began to cap traditional multi-family loans from GSEs, excluding several categories of businesses from their ceiling. In 2016, loans that funded certain energy and water efficiency improvements were added to the list. By requiring at least 37.5% of loans to be affordable housing and removing caps, green loans are likely to feel the effects.
Critics have argued that the cap exclusions extend the reach of GSEs by allowing them to take out more loans than the spirit of the regulations allows and indeed, the Trump administration’s proposal made this point. “Partly because of these general exemptions, caps have not been effective in limiting the multi-family footprint of GSEs. GSEs have gone from holding or guaranteeing 25% of outstanding multi-family debt at the start of 2008 to almost 40% today, ”the proposal states.