Earlier this year, Fannie Mae backed Blackstone’s Invitation Homes’ $1 billion single family rental debt.

Now, many are beginning to speculate over the GSE’s future moves in the SFR market. The Urban Institute published a report explaining why Invitation Homes was an important first transaction for Fannie Mae

The report, published by Laurie Goodman and Karan Kaul, explained backing this SFR deal allowed Fannie Mae to learn about the institutional single-family rental market by partnering with an established player.  This expansion, the report continues, opens the door for programs in the middle sector, those that own 10 to 1,000 units.

Currently, Fannie Mae and Freddie Mac cover about 85% of the SFR market by backing small investors through its single-family financing. But while 85% of the market is owned by small investors who own from one to 10 properties, another 5% is owned by investors with over 50 units. Just 1% of the market is owned by investors with more than 1,000 properties.

“Demand for institutional SFR financing is likely to grow as investors increasingly rely on leverage to maintain an acceptable rate of return,” the report states.

But for now, the Federal Housing Finance Agency has yet to conclude if the GSEs should participate in the growing SFR market. If the FHFA decides to expand, the report claims affordability questions should be a main target.

The Urban Institute lays out several questions the GSEs should ask when entering the space, including whether there should be explicit affordability requirements, whether this type of financing should count toward the GSEs’ multifamily caps and whether SFR rentals should count toward meeting either the single-family or the multifamily housing goal requirements.

The report concludes that the FHFA needs to lay out a clear vision for the mortgage giants’ role in the SFR market which includes explicit guardrails and provisions that expand the availability of rental housing.