Provisions in the comprehensive housing finance reform bill introduced by U.S. Sens. Tim Johnson and Mike Crapo will modestly dampen prices of multifamily properties and increase refinance risk, according to a new report by Moody’s Investors Service, Proposed Housing Finance Reform Will Be A Moderate Credit Negative for Multi-Family CMBS.
The Johnson-Crapo bill proposes replacing Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) responsible for securitizing single- and multi-family home loans, with a new and independent federal agency called the Federal Mortgage Insurance Corporation (FMIC). The bill also proposes creating a multi-family office within the FMIC that would insure mortgage-backed securities to facilitate the availability of multi-family loans.
“If this bill becomes law, higher loan coupons on the FMIC-backed share of debt will exert downward pressure on multifamily property prices and increase refinance risk, but the impact would be moderate,” said Tad Philipp, Moody’s director of Commercial Real Estate Research. “U.S. government backing for multi-family debt that had been implicit and free would become explicit and bear a guarantee fee. While GSE-backed multi-family debt often had pricing advantages relative to private market debt, loan spreads on FMIC-backed debt would more closely align with those of private market originators.”
Multi-family properties are a key component of US housing stock. Because Fannie Mae and Freddie Mac are the largest source of multi-family debt capital, the ultimate implementation of GSE reform and the smoothness of the transition are thus critical credit considerations, according to Moody’s.