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Fannie Mae, Freddie Mac ending expansion into single-family rentals

FHFA says single-family rental market can function without GSEs

Over the last year or so, Fannie Mae and Freddie Mac both expanded their presence in the single-family rental market, with both of the government-sponsored enterprises beginning to fund single-family rental investments for larger players in the market.

But that expansion is about to end.

The Federal Housing Finance Agency announced Tuesday that Fannie and Freddie will both be shutting down their single-family rental pilot programs and ending their participation in the single-family rental market, outside of their previously existing small investor programs – Fannie Mae’s Multiple Financed Properties and Freddie Mac’s Investment Property Mortgages.

According to the FHFA, the GSEs’ expansion into single-family rentals was conducted on a “test and learn” basis, designed to determine if the GSEs were needed to support the growing single-family rental market.

But the FHFA said that it has since learned that the market can function without the GSEs.

“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 statement.

In its announcement, the FHFA notes that much of the single-family rental market is still controlled by “small” investors, who own between one and 50 properties, despite the recent growth of massive operators in the space. 

The expansion was met with pushback from other market participants but had since expanded.

Back when Freddie Mac completed its first single-family rental financing, it touted the program’s ability to maintain housing affordability for lower income households.

“We’ve said from the beginning that the goal of our single-family rental pilot is to increase the availability of affordable rental housing in communities across the country, and this transaction does exactly that,” David Leopold, Freddie Mac Multifamily vice president of targeted affordable sales and investments, said earlier this year. “All of the homes in this transaction will remain affordable for working families, with over 90% affordable for low- and very-low income families.”

That was eight months ago. And the landscape has apparently changed since then.

“While the Enterprises’ single-family investment home rental programs have played an important role for small investors, the market for larger investors has performed successfully without Enterprise participation. As a result, FHFA is directing the Enterprises to conclude their single-family rental pilot programs,” the FHFA said in its announcement.

The FHFA said that it recognizes the “potential need for long-term financing for mid-size investors that own affordable single-family rental assets,” but states that it believes it is “premature” to allow the GSEs to enter that part of the market because the potential impact on rent growth, long-term affordability, for-sale assets, and homeownership is currently “insufficiently understood” and requires “significantly more extensive research and analysis.”

The FHFA notes that its decision does not prevent the GSEs from proposing changes to their existing programs that would meet the needs of the single-family rental market, or from developing proposals that are designed to utilize single-family rentals as a pathway to homeownership.

The GSEs' pullback from the single-family rental market was cheered by the Community Home Lenders Association.

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

The National Association of Realtors also welcomed the FHFA's decision.

"With inventory shortages facing housing markets across the country, the National Association of Realtors has long advocated for the FHFA to end its expansion into the single-family rental market and return its focus to promoting a liquid and efficient housing market, as Congress intended," NAR President Elizabeth Mendenhall said in a statement.

"By financing the purchase of thousands of single-family homes for institutional investors to use as rentals, Fannie Mae and Freddie Mac compounded on inventory shortages and affordability concerns, which are holding back prospective homebuyers across the country," Mendenhall continued. "NAR applauds today’s FHFA decision, and we look forward to continue working with Fannie Mae and Freddie Mac to help more Americans achieve homeownership going forward."

When contacted for comment, both of the GSEs referred HousingWire to the FHFA for additional information.

[Update: This article is updated with responses from Fannie and Freddie, and a statement from the National Association of Realtors.]

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