GSE Reform Could Dampen Multifamily Pricing
Provisions in the comprehensive housing finance reform bill introduced by U.S. Senators Tim Johnson and Mike Crapo could modestly dampen prices of multifamily properties and increase refinance risk, according to a new report by Moody's Investors Service.
The Johnson-Crapo bill proposes replacing Fannie Mae and Freddie Mac, government sponsored enterprises (GSEs) responsible for securitizing single- and multifamily home loans, with a new independent federal agency called the Federal Mortgage Insurance Corp. (FMIC).
The bill also proposes creating a multifamily office within the FMIC that would insure mortgage-backed securities to facilitate the availability of multifamily loans.
"If this bill becomes law, higher loan coupons on the FMIC-backed share of debt will exert downward pressure on multifamily property prices and increase refinance risk, but the impact would be moderate," said Tad Philipp, Moody's director of commercial real estate research. "U.S. government backing for multifamily debt that had been implicit and free would become explicit and bear a guarantee fee. While GSE-backed multifamily debt often had pricing advantages relative to private market debt, loan spreads on FMIC-backed debt would more closely align with those of private market originators."
At the same time, provisions in the proposals could help spur issuance in the private-label residential mortgage-backed securities (RMBS) Moody's noted.
Under the framework proposed in Johnson-Crapo, fewer residential mortgage loans would be eligible for inclusion in government-guaranteed securities because of changes in criteria establishing which securitizations can receive government guarantees.
More issuance would likely result in the private-label and government-guaranteed securitization markets from the introduction of a common securitization platform.