Fannie Mae and Freddie Mac multifamily mortgage originations and mortgage debt outstanding will continue to show strong growth over the next 18 to 24 months, analysts at Keefe, Bruyette & Woods predict.
The report by Bose George, Jade Rahmani and Ryan O’Steen calls the multifamily business at the two government-sponsored enterprises “a success story” as delinquencies and losses are at low levels and are generating strong profits for both. It added, while the programs at the two companies are different, each has a risk-sharing component which drives the strong credit performance of these loans.
As for the growth in the GSEs’ originations, KBW notes that banks and securitizers are less active in the sector. Furthermore, the GSE existing portfolios are seeing a growing number of loan maturities. The report says data suggest that maturities will grow at a compound annual rate of over 40% through 2015. It also cited Mortgage Bankers Association forecasts which predict over the next four years $29 billion to $60 billion of these loans held by investors (not including commercial banks) will mature each year.
In the meantime, the Federal Housing Finance Agency has called for the GSEs to explore privatizing their multifamily businesses. KBW said there is unlikely to be any near-term change in the status of GSE multifamily lending, especially if the economy remains weak.
“However, over the long term, a smaller role for the GSEs in the multifamily market is likely and we anticipate the same in the single-family market. However, we think that any transition will take many years, which would give the industry enough time to adapt.
“Finally, we believe that the GSE multifamily market also offers a potential template for the GSE single-family mortgage market as that market looks for ways to attract private capital and reduce credit risk to the government,” KBW said.
