WASHINGTON, DC—The GSEs are going to be history if any number of politicos in Washington has something to say about it, which they do. The most recent player to discuss their fate was US HUD Secretary Julian Castro, who told Bloomberg Television earlier this week that Congress should begin the process of their privatization.
Yesterday we spoke with people in the industry who are sanguine about the GSEs' expected departure from the scene. Today we hear the other side.
Some people, such as Bill Baumann, senior managing director of Chicago-based Kiser Group, can't help but point to the disruption their dismantlement will cause.
"Winding down multi-billion dollar enterprises like Fannie and Freddie even over the proposed five-year period under the Johnson-Crapo bill would be a monumental challenge," he tells GlobeSt.com. "While Fannie and Freddie today account for approximately 35-40% of the multi-family mortgages originated by financial institutions, they represented probably 85% in 2009 when other lenders left the market. The recent real estate recovery, which has been led by multi-family, was largely fueled and supported by the government backed guarantee of Fannie and Freddie, and, unlike the agencies' single-family division, was done at a profit."
From a political perspective, there may be more common ground among the parties on this issue than many other issues currently being debated in Congress, he concludes. That said, reaching a bi-partisan agreement and passing a bill which doesn't threaten to de-stabilize the multi-family sector is still a tall order.
Another person with doubts is Bonnie Y. Hochman Rothell, a Washington, DC-based partner at Morris, Manning & Martin, LLP.
She says the government would be better off at least maintaining the multifamily side of Fannie and Freddie or at the very least, if the system must be replaced by private finance then back it with a government guarantee.
It is noteworthy that banks, life insurance companies and commercial mortgage backed securities have reentered the market in greater strength over the past few years and are increasing in market share, Rothell tells GlobeSt.com. "However, experts question whether they could totally replace the GSEs role and the better approach would be to maintain the multifamily side of the GSEs or to go with the semi-privatized model with government guarantees."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
