Financing for Multi-Family Housing Needs Security of Government-Backed Financing
Chiming in on the argument that companies such as Fannie Mae and Freddie Mac have helped sustain a viable real estate market since the 1960’s, NAHB Chairman Rick Judson, a home builder from Charlotte, N.C. testified before the Senate Banking Committee regarding financing for the multi-family sector.
“NAHB believes that the U.S. housing finance system must be multifaceted with both competing and complementary components, including private, federal and state sources of housing capital,” said Judson. “To achieve this, it is important to reform and restructure the conventional mortgage market and also improve other parts of the housing finance system, including FHA, the Federal Home Loan Banks and state housing finance agencies.”
Most proponents of reforming or completely dismantling Fannie Mae and Freddie Mac have been strongly pushing for complete privatization of mortgage financing and lending. Representatives of the NAHB (National Association of Home Builders) have urged members of Congress and lobbyists to rethink this stance because this would raise the cost of a loan for low-income buyers who do not have “perfect credit.”
For financing of the multi-family sector, the concern is that the loans are typically 30-year mortgages and that private companies would not be able to sustain this type of loan for the period of time it would take to repay the loan. Low-income families currently benefit from FHA loans and some conventional mortgages that are also 30-year loans in order to spread the payments out over a longer period of time in order to make the loan affordable. The way that Fannie Mae and Freddie Mac were able to offer these loans is because they were able to bundle the mortgages into securities and then sell them to investors. The Recession occurred because these bundled mortgages ended up being worthless because they were structured incorrectly.
The NAHB is urging those working on the reform of the lending system in the United States to not throw out all of the components that were utilized by Fannie Mae and Freddie Mac but to partially privatize both companies while leaving the ability to still “securitize” mortgage in order to offer longer loans for affordable interest rates. This debate will continue as Congress reviews new regulations for real estate financing nationwide.
