FHFA halts program expanding GSEs' role in rental market

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The Federal Housing Finance Agency is ending single-family rental pilot programs that were aimed at testing the need for greater involvement from Fannie Mae and Freddie Mac in the market.

"What we learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the Enterprises," FHFA Director Mel Watt said in a press release.

The existing single-family rental programs will remain in place and the move does not preclude future proposals on addressing housing needs using SFR strategies, the agency said.

The pilot programs run through the government-sponsored enterprises were launched two years ago in response to growth in the single-family rental market.

Fannie and Freddie provided data and other assistance for the test runs, while the FHFA administered its own impact analysis from a range of investors, lenders, rating agencies, data providers and consulting firms. The agency also held a single-family rental workshop in June 2017, where it collected additional feedback from stakeholders.

"Workshop participants noted a potential liquidity need for midsized investors to preserve affordability of current single-family rental properties, a lack of financing options for properties valued under $100,000, and the need for standardization in asset and property management practices," according to an FHFA document.

Workshop attendees also proposed changes to Fannie and Freddie's existing programs, including underwriting cash flows and offering non-recourse loans.

The FHFA said while it recognizes a potential need for long-term financing for midsize investors owning affordable single-family rental assets, it is "premature" to allow GSE involvement in this segment of the rental market.

"The effects of their participation on rent growth, long-term affordability, for-sale assets, and homeownership is insufficiently understood without significantly more extensive research and analysis," the agency said.

The Community Home Lenders Association also expressed concern about the pilot programs in a March 2017 letter to the FHFA responding to reports that Fannie Mae was providing $1 billion in financing to the Blackstone Group unit Invitation Homes. The association questioned the transaction's mission, risk, lack of transparency and impact on communities and consumers.

"The Community Home Lenders Association is pleased that FHFA has concluded that GSE financing of large-scale single family rental portfolios should be ended. Fannie Mae and Freddie Mac can now go back to focusing on smaller investor loans for affordable single family rental properties, as CHLA argued they should," Scott Olson, the group's executive director, said in a press release Tuesday.

Institutional investors, who own more than 2,000 properties, comprise only a small share of the overall rental housing stock, according to the Urban Institute.

Before the "test and learn" programs were launched, Freddie and Fannie were only limited to providing financing to investors owning no more than six or 10 properties. After launching them, the GSEs initially embraced the pilot programs in different ways.

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GSEs Commercial lending Mel Watt FHFA Fannie Mae Freddie Mac