In their paper, “Housing Finance Reform and Its Impact on Multifamily Real Estate Lending,” Collett and McRoberts points to aspects of the individual plans that Congress must address, as well as more general concerns. On the Milken plan to spin off Ginnie, for example, they ask about the level of involvement the government should have in transactional approvals and individual securitizations.

“Currently, Ginnie Mae signs off on each individual deal,” they write. “If this is not structured properly, it could bog down the system and slow access to capital for multifamily real estate investors.”

There's also the question of inviting multiple guarantors to the party. “On the one hand, the potential for guarantor expansion and competition incentivizes existing guarantors to innovate and stay efficient,” write Collett and McRoberts. “However, at what point does the market reach a point of diminishing returns? There is a delicate balance that Congress will need to strike as they consider how much power they give the FHFA (or another regulator) to charter more guarantors.”

More broadly, Congress will need to consider the viability of separating single-family and multifamily finance into standalone platforms. In the run-up to the housing bubble of the prior cycle, Collett and McRoberts write, “most of the problems the GSEs encountered were on the single-family side,” and therefore a standalone multifamily platform could be more stable than a combined entity.

“Would a standalone multifamily platform be less distracted by the rules and regulations required for the single-family side and thus more focused on multifamily-specific issues?” they ask. “Are there other potential benefits to breaking these apart? The consequences of separating them also need to be considered.”

Whatever structure is ultimately adopted, though, Congress will need to ensure a smooth transition from what's in place. “It is essential that Congress considers how the proposed changes could impact the market on 'day one,' ” write Collett and McRoberts. “This requires clarity on the roles, responsibilities and players within each of the primary and secondary segments before moving forward.” Another consideration, they add, will be “the feasibility of a transition period where a parallel process is managed to effectively wind down existing pipelines and ensure transactions are moving efficiently.”

MADISON, NJ—Three possible pathways to GSE reform, each with a few twists and turns not shared by the other two. In weighing the merits of these plans, Congress needs to consider the potential impact on access to capital and market dynamics, particularly in multifamily, write Hal Collett and Mike McRoberts at PGIM Real Estate Finance.

The Milken Institute, the Mortgage Bankers Association and the Urban Institute each have put forth proposals for reforming housing finance. Under the Milken scenario, Fannie Mae and Freddie Mac would be reconstituted as lender-owned mutual funds, while Ginnie Mae would become a standalone government corporation that handled secondary market securitization functions.

Along with opening up the possibility of multiple guarantors, MBA's plan would replace Fannie and Freddie with privately owned independent utilities. It would also impose a regulatory structure for the Federal Housing Finance Agency to determine rates of return.

The Urban Institute's Promising Road proposal advocates merging Fannie and Freddie into a single government corporation, the National Mortgage Reinsurance Corp. The NMRC would purchase conforming single-family and multifamily mortgage loans from originating lenders or aggregators and would securitize these loans through a single issuing platform that it owned and operated.

In their paper, “Housing Finance Reform and Its Impact on Multifamily Real Estate Lending,” Collett and McRoberts points to aspects of the individual plans that Congress must address, as well as more general concerns. On the Milken plan to spin off Ginnie, for example, they ask about the level of involvement the government should have in transactional approvals and individual securitizations.

“Currently, Ginnie Mae signs off on each individual deal,” they write. “If this is not structured properly, it could bog down the system and slow access to capital for multifamily real estate investors.”

There's also the question of inviting multiple guarantors to the party. “On the one hand, the potential for guarantor expansion and competition incentivizes existing guarantors to innovate and stay efficient,” write Collett and McRoberts. “However, at what point does the market reach a point of diminishing returns? There is a delicate balance that Congress will need to strike as they consider how much power they give the FHFA (or another regulator) to charter more guarantors.”

More broadly, Congress will need to consider the viability of separating single-family and multifamily finance into standalone platforms. In the run-up to the housing bubble of the prior cycle, Collett and McRoberts write, “most of the problems the GSEs encountered were on the single-family side,” and therefore a standalone multifamily platform could be more stable than a combined entity.

“Would a standalone multifamily platform be less distracted by the rules and regulations required for the single-family side and thus more focused on multifamily-specific issues?” they ask. “Are there other potential benefits to breaking these apart? The consequences of separating them also need to be considered.”

Whatever structure is ultimately adopted, though, Congress will need to ensure a smooth transition from what's in place. “It is essential that Congress considers how the proposed changes could impact the market on 'day one,' ” write Collett and McRoberts. “This requires clarity on the roles, responsibilities and players within each of the primary and secondary segments before moving forward.” Another consideration, they add, will be “the feasibility of a transition period where a parallel process is managed to effectively wind down existing pipelines and ensure transactions are moving efficiently.”