Multifamily Swaps Draw Scrutiny

Freddie Mac's purchase of $6 billion in multifamily loans from Washington Mutual has come under government scrutiny and GSE critics are trying to get Congress to investigate the transaction, which Freddie employed to boost its affordable housing performance.

Freddie Mac paid a $100 million fee to the Seattle-based thrift for the right to securitize the loans, which are backed by multifamily properties with five to 50 units.

However, WaMu has the contractual right to reverse the swap transaction after one year, which has raised eyebrows at the Department of Housing and Urban Development.

"HUD is looking at the details of the WaMu transaction to ensure that housing units associated with the transaction are eligible for credit under HUD's [affordable housing] regulation," HUD assistant secretary John Weicher said.

HUD sets the affordable goals for Freddie Mac and Fannie Mae and it is currently reviewing the affordable housing data submitted by the two government-sponsored enterprises.

Freddie and Fannie recently announced that their loan purchases exceeded their affordable housing goals for 2003.

At a shareholders meeting last week, Freddie Mac chairman and chief executive Richard Syron said the WaMu transaction added liquidity to the market for small multifamily loans and it helped Freddie meet its affordable goals in 2003.

"In the future, we intend to rely much less on these types of transactions," Mr. Syron said.

Following up on the HUD inquiry, which was first reported by The New York Times, FM Policy Focus is trying to get the House and Senate banking committees to investigate the WaMu transaction. The special interest group, which represents lenders and other financial firms that compete with the GSEs, claims the WaMu transaction is a "shell game." And Freddie Mac should not get affordable housing credit for the deal and it should not get the bonus points that HUD awards on the purchase of loans backed by multifamily properties with five to 50 units.

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