Fannie Mae and Freddie Mac have been the underpinnings of American homeownership for decades, but now, thanks to their role in the collapse of the housing market, they are being targeted for massive reform or elimination. But as leaders in Congress and the Obama administration establish and pursue new policies to guide the housing finance system, it is critical that they preserve the historic and successful — though less well known — mandate of Fannie and Freddie to promote affordable rental housing for moderate and low-income households across the country, a population that is hit hardest by downturns such as the one currently battering our economy.
In stark contrast to the experience of Fannie and Freddie in the home loan market, their multifamily rental loan portfolios have performed very well, providing strong evidence that prudent underwriting continued to drive multifamily rental lending decisions even during the height of the home ownership boom. And the role that these government sponsored enterprises have played in providing a reliable source of loans at favorable terms is of no small value in supporting rental housing that is home to the nation's lower-income individuals and families, and increasingly an option for the middle classes.
In Maryland, under the leadership of Gov. Martin O'Malley, affordable rental housing developments financed by the Maryland Department of Housing and Community Development and Fannie and Freddie are alive and well, revitalizing communities and providing quality affordable rental housing opportunities for Maryland's working families, seniors and persons with disabilities.
Since July 2009, DHCD has financed almost 5,000 units of rental housing, 50 percent of them serving to preserve existing affordable rental housing. These financings reflect DHCD's strong reputation in the marketplace, its creative and prudent use of resources and the critical presence of Fannie and Freddie in the multifamily financing arena. Without this historic mandate to support affordable rental housing, lending rates will rise and opportunities to create and preserve vibrant, strong, sustainable rental communities throughout Maryland will be lost.
DHCD's investments in preserving older assisted housing are turning around some neighborhoods and preventing others from moving down the slippery slope of disinvestment. And these neighborhoods have many of the features increasingly promoted by energy advocates and public health experts. They are often accessible to transit and are already built to densities that make walks for shopping and school and sports more common than piling into a minivan or SUV and traveling long distances. Preserving these units is part of an overall plan for promoting sustainable communities.
As detailed in a new report on rental housing from the Joint Center for Housing Studies of Harvard University, Fannie and Freddie together have expanded their multifamily loan holdings and guarantees by over $55 billion since 2008 while all other holders but state and local governments have pared back. In short, the involvement of these entities in cooperation with DHCD and others have kept the lending marketplace for rental housing going strong during the most severe economic downturn since the Great Depression.
Even before the home ownership crisis, Fannie and Freddie were important sources of long-term fixed rate financing, allowing multifamily rental property owners to lock into fixed payments amortized over long periods. Other sources mostly extend adjustable rate loans with short maturities that demanded balloon payments and required refinancing after five, seven or 10 years.
For Maryland, and for the rest of the nation, the need for more affordable rental housing is obvious; the financing of rental housing may seem less so. This flow of credit on more affordable terms to multifamily and small rental properties has become a mainstay of the market and key to holding down debt costs and hence rents — an important concern to working and middle class families.
Raymond A. Skinner is secretary of the Maryland Department of Housing and Community Development. His email is XX.