Biden Could Set a New Course for the GSEs

In the last couple of days, there has been much focus on the circumstances around the transition from Mark Calabria Federal to Sandra Thompson (at least on an interim basis) at the Federal Housing Finance Agency. 

However, Evan Blau, chair of the Agency Lending and Affordable Housing practice at Cassin & Cassin LLP, says the real important news will be the Biden Administration’s plan for Fannie Mae and Freddie Mac and their relationship with FHFA on a going-forward basis.

“With the removal of Director Calabria, there is, of course, the strong indication that the Biden Administration will choose a new course for the GSEs from the highly publicized potential exit from conservatorship that the Trump Administration had backed and taken affirmative steps to implement,” Blau says.  “This said, very little has been said about the Biden Administrations’ ‘plan’ for Fannie Mae and Freddie Mac and their relationship with FHFA.”

On the immediate horizon, Blau thinks the Biden Administration will focus on affordable housing, homeownership opportunities and mission-oriented transactions with less focus on whether they remain in conservatorship. “While we have seen key personnel changes in Fannie Mae and Freddie Mac in the last 12 months, I do not foresee structural changes,” Blau says. “Fannie Mae and Freddie Mac have always proved to be resilient and their stabilizing effect in the national housing market during the pandemic are Exhibit A of their importance on a going-forward basis.”

Blau doesn’t see Fannie and Freddie’s overall footprint in the market changing, but he thinks they will become increasingly more mission-oriented. “If you look back in the last four to five years, this was the arc they were on and I would expect it to be further emphasized,” he says.

Right now, the 2021 lending caps by FHFA mandate that 50% of Fannie Mae and Freddie Mac’s multifamily volume be affordable business, but Blau wonders what will happen in the future.

“Going forward, the real question is will FHFA mandate higher volumes of affordable housing?,” Blau says. “I think that is likely where we are going with the Biden Administration, but it’s really an issue of how much more?”

Blau says that FHFA created the trend of increasing affordable housing volume in the last four to five years, with the multifamily volume caps moving to the current highwater mark of 50%. However, he thinks it’s possible they could move even higher to 60% or 75%?

“I do think there should be an emphasis on increasing production in the ‘workforce housing’ space,” Blau says. “This is a segment of the population that is unable to qualify for traditional affordable housing programs – the 60% to 120% AMI [area median income] group – but still suffer from shrinking housing stock and increasing rents. Included in this group are many of the frontline workers that our country relied so heavily on during the pandemic.”