Fannie and Freddie Under the Gun on Multifamily Housing for Poor

Pressure is mounting on the nation's secondary mortgage agencies to accelerate their purchase of multifamily housing loans to low-income borrowers.

The agencies - the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) - have been criticized by banks and community housing groups for drying up the multifamily market.

The agencies typically buy mortgages from banks and lending consortiums, then package them for resale to investors as mortgage-backed securities. But they focus on single-family housing loans.

"They want too much standardization," grumbles one lender who has been trying to increase his multifamily sales. "We need flexibility."

Adds another banker: "Fannie looks, but it doesn't touch."

If lenders could get the loans off their books, they would be able to originate more mortgages and increase their activities in low-income communities.

NCNB Corp. keeps all low-income, multifamily loans in its portfolio because "the secondary market is very difficult," said Cathy Bessant, senior vice president for community development. In Texas alone, NCNB originates about $20 million of such loans annually.

Fannie Mae executives bristle at charges that they are insensitive to low-income needs. "We are proud of our programs," said Martin Levine, senior vice president for low-income housing.

Mostly Single-Family Loans

Indeed, the agency has recently bolstered its presence in the market. From 1978 to 1990, it securitized $1.4 billion of single-family low-income loans. New programs have raised that to more than $3 billion in the first nine months of 1991, Mr. Levine said.

However, the activity has been almost solely in single-family mortgages.

Freddie Mac suffered losses when it bought multifamily loans in New York City a few years ago. The agency is virtually out of the multifamily market, but is said to be rethinking its strategy. Officials could not be reached for comment.

Fannie Mae owns about $19.4 billion of unsecuritized multifamily loans, a relatively hefty segment of its $125 billion portfolio. By contrast, the agency has $350 billion of securitized loans outstanding.

"Multifamily has been a risky category," said Thomas W. White, the agency's senior vice president for multifamily activities.

From a credit-quality viewpoint, the agencies have a point. Financing packages for multifamily units are often creative - and difficult to analyze. They contain loans from multiple sources such as government, foundations, and financial institutions.

Some Basis for Optimism

In recent months, however, some progress has been made.

"We keep having meetings and seem to get closer and closer," said Daniel Lopez, who runs California Community Reinvestment Corp., a low-income housing pool in Burbank. "But we can't get the combination to the safe."

Charles Goetz, executive director of the Savings Association Mortgage Co. in Santa Clara said he, too, is hopeful that some loans will be sold soon to the agencies.

First Chicago Corp., makes about $40 million a year in community reinvestment loans in one division, most of them multifamily, according to Kathleen Connor, a vice president. The bank has been negotiating with Fannie Mae on multifamily loans, and expects a selection process from the portfolio to start early next year.

The Matter of Standards

The agencies' are being asked to modify their acceptance standards. For single-family low-income loans, the agencies typically want borrowers who have made a 5% down payment and who spend no more than 33% of their family income for the mortgage. Fannie also allows 2% of the down payment to be from a nonprofit agency.

So far, according to housing industry sources, only the Community Preservation Corp. in New York and the Community Investment Corp. in Chicago have managed to sell pools of low-income multifamily loans, but not through the agencies.

The Chicago consortium of 27 banks and thrifts sold loans back to institutions in the group. The New York coalition of banks, thrifts, and insurance companies has sold its loans since 1984, but they have been privately placed with state and city pension and retirement funds.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.