That conclusion is a relief to many in the industry. Multifamily may be performing better than most other asset classes-due partly to the GSE support-but its fundamentals are still struggling in many markets.

"Concessions are starting to decrease slightly in some markets and occupancy is increasing, but overall rents are not seeing any substantial increases, ' says Angela Smith, partner and co-founder of Strategic Management Partners, a Marietta, GA-based manager of multifamily properties nationwide. "Inflated unemployment and prior overdevelopment continues to weaken certain markets." Right now, the weakest cities are Jacksonville, FL, Phoenix, Las Vegas, and Atlanta, while the strongest are New York City, Washington, DC, San Diego, and San Francisco.

Not surprisingly, these fundamentals appear to be taking a toll on the GSEs' multifamily lines. In the Mortgage Bankers Association's Quarterly Survey of commercial/Multifamily Mortgage Bankers Originations, the organization reported that the dollar volume of loans for Fannie Mae and Freddie Mac had decreased by 49%.

The political environment, as well, is becoming more hostile toward Fannie and Freddie. The GSEs dodged a call for the end of their conservatorship within two years, when an amendment introduced by Republican Sen. John McCain and two other Republicans was defeated, 43-56, in a May 11 vote. Instead, a weaker amendment calling for further study was passed.

Some in the industry, such as Chandan, breathed a sigh of relief that the original measure was defeated. There was merit in much of that first proposal's conceptual underpinnings, he makes clear: for instance, guarantees are less efficient than a clearly defined and priced insurance mechanism, and they also facilitate moral hazards and the potential for excessive risk-taking.

On a more fundamental level, he says, it is entirely unclear if there is a long-term role for government, either directly or indirectly, in broadly subsidizing the cost of mortgage credit in the modern US economy, distorting private market outcomes. That said,

a restructuring of the GSEs is too important and complex to be crammed into a larger bill on financial reform, Chandan concludes. Neither storyline-its political and economic fortunes-though, has come to an end for Fannie and Freddie. As long as the GSEs bleed their red ink, calls for their reform and privatization will only grow louder.

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