LOS ANGELES—The University of Southern California's annual Casden Real Estate Economics forecast this year included a debate on the necessity of government-sponsored enterprises, which have recently seen a comeback, in the multifamily market. Dwight M. Jaffee, Willis Booth professor of banking and finance at the Fisher Center for Real Estate and Urban Economics, opposed GSEs while David K. Min, assistant professor of law at the University of California, Irvine School of Law, took the pro-GSE position.

“There is a general consensus that GSE hybrid model for Freddie Mac and Fannie Mae will continue lending to excess risk taking and taxpayer losses,” Jaffee said at the beginning of the debate, taking the position that fully private entities would create a better and more successful multifamily market. According to Jaffee, fully private entities dominated the market in 2005, during a time, which he said, was a very successful marketplace. Unlike HUD and FHA, which support housing, GSEs support mortgages, which, Jaffee says, encourages people to take out larger and larger mortgages. Rather than use the GSEs as support for low-income housing, which Jaffee asserts is a poor mechanism of support; he believes we should expand programs like HUD and FHA to meet low-income needs. “We do need an emergency back-up in times of need, but GSEs responded through the crash by buying mortgage-backed securities, which has caused them to change their operation,” he says.

“Government entities are integral to the success of this country,” Min said as the opening to his pro-GSE position. He reviewed the history of the country to show the positive role the GSEs have always played in the health of the multifamily market, pointing out that even private entities are backed through the government programs, like the FDIC. In 2007, he explains, we saw GSEs step in and pick up 71% of the multifamily financing. “When we talk about the future, we have to think about that counter cyclical role,” says Min. “If you take that away, you are looking at a total collapse of the market.” In response to Jaffee's comment about the strength of the market in 2005, Min agrees that the market was nearly run by private entities that year; however, he notes that this was the height of the multifamily bubble.” Although he isn't opposed to a more defined government entity for mortgaged-backed securities, he says that politics, particularly within the Republican Party, are too divided to accomplish that. To complete his position, he said, “For all the criticism, they have done a great job in multifamily, providing liquidity and counter liquidity.”