The Federal Housing Finance Agency’s goal of shrinking Fannie Mae and Freddie Mac’s multifamily originations by 10% could negatively impact the multifamily real estate investment trust sector, Fitch Ratings said.
Multifamily REITs are reducing their dependence on secured debt due to forthcoming strategic and structural changes regarding the government-sponsored enterprises, the ratings firm asserted.
"All multifamily owners (including REITs) would be affected by softening capital values driven by properties/borrowers heretofore dependent upon abundant inexpensive capital, a similar low interest rate environment and/or achieving pro forma underwriting projections to refinance," Fitch wrote.
The GSEs are a critical cog in the multifamily market, accounting for 45% of total mortgage debt outstanding as of Sept. 2012, according to the Mortgage Bankers Association.
The enterprises served as a "lending backstop through the crisis when their combined multifamily-mortgage portfolio significantly increased by $85 billion, compared to a decrease of $91 billion for all other participants," the MBA noted.
"Multifamily REITs are unlikely to be affected by the FHFA's goal in the short term. However, a more concentrated mortgage supply channel would likely lead to higher funding costs, all else being equal, should it prove to be a harbinger of an eventual GSE exit from lending to the asset class," Fitch said.