Freddie Mac displayed a new prowess on Capitol Hill when it quietly won a skirmish with the Department of Housing and Urban Development late last year.
It lobbied members of Congress to alter the final rule for counting its loan purchases toward affordable housing goals, arguing that its multifamily portfolio is smaller than Fannie Maes and should be considered proportionately.
The goals, which are set and overseen by HUD, are intended to spur both Freddie and Fannie to serve the needs of low-income homebuyers; they require that 50% of the mortgages purchased this year by the government-sponsored enterprises must be loans to low- and moderate-income borrowers.
Under the change, on loans Freddie buys for multifamily properties in very low-, low-, and moderate-income areas, it is allowed to multiply each unit over 50 by 1.35. For example, if Freddie buys a loan for an apartment building with 55 affordable housing units, it earns credit for 75 low-income loans.
This is a good example of where substance prevailed over rhetoric, said Mitchell Delk, Freddies senior vice president of government relations. The arguments that HUD put forth were rhetorical, nonsubstantive, and not supported by the facts.
It can be seen as the second such victory for Freddie and Mr. Delk in recent months, some observers say. In October, he struck a valuable truce with congressional critic Rep. Richard H. Baker, R-La., who had been questioning the GSEs financial safety and soundness.
Under terms of that agreement, Freddie and Fannie will make additional financial disclosures and will issue subordinated debt. A Fannie Mae lobbyist said that the deal was a coordinated effort, but several sources contended that Freddie chairman Leland Brendsel and Mr. Delk orchestrated it on their own.
In the latest conflict, Mr. Delk began making the rounds on Capitol Hill late last year, asking lawmakers to expand an incentive that HUD granted Oct. 31 in its final rule establishing the housing goals.
He said that the change was intended to address a fundamental difference in the size and character of Freddies multifamily portfolio: Fannies is larger and more seasoned than Freddies; it holds roughly $50 billion of multifamily loans compared with Freddies $10 billion to $15 billion, he said.
Another disadvantage for Freddie, Mr. Delk said, was that a significant part of meeting the multifamily affordable housing goals depends on refinancing of existing multifamily loans; Freddie estimated that a multiplier of 1.35 was needed to account for the disparity.
Its almost like were racing to the top floor of the apartment building, and HUD is saying we should start two floors below Fannie, he said. It made no sense for them to give us the multiplier for only two and not three of the goals. Mathematically, you can determine that it takes a 1.35 multiplier to achieve parity.
HUD assistant secretary William Apgar, who wrote in a Nov. 30 letter to former House Banking Committee Chairman Jim Leach that the final affordable housing goals were fair, said that he was disappointed by Congress decision.
During the lengthy rulemaking process, of the over 200 individuals and organizations submitting comments, only Freddie Mac argued in support of the relaxed standards, he said.
Mr. Delk argued that HUD was more than a little hypocritical in the incentives it chose to offer. The multiplier is not the only incentive thats in the rule to compensate or incentivize the GSEs to do certain businesses.
In its written comments to HUD, Fannie had argued against giving Freddie any multiplier at all. It said that judging the companies by different yardsticks would mask their respective fulfillment of their public purposes and would create confusion in the eyes of the public about their relative performance.