As the Treasury Department looks to wind down Fannie Mae and Freddie Mac, it is considering different options for what will replace them in the mortgage market. But there will also be a gap left behind in the rental housing sector, too. One option, the Treasury suggested is to expand the Federal Housing Administration‘s capacity to fill this void. Renters face as many affordability challenges today as homeowners. Half of all renters spend more than one-third of their income on housing, and 25% spend more than half of their income. For every 100 extremely low-income American families, 32 adequate rental homes are affordable for them, according to the Treasury white paper. Fannie Mae and Freddie Mac did many things wrong, but they did manage to generate profits by providing financing to support this market of renters. “As we wind down Fannie Mae and Freddie Mac, it will be critical to find ways to maintain funding to this segment of the market,” the Treasury said. The Treasury said the FHA could take up this role but using its ability to insure loans on multi-family units. This would save the government time and resources from establishing a new replacement just for this sector. “We will consider a range of reforms, such as risk-sharing with private lenders, to reduce the risk to FHA and the taxpayer, and the development of programs dedicated to hard-to-reach property segments, including the smaller properties that contain one-third of all rental apartments,” the Treasury said in the report. Already on Friday, the National Multi Housing Council applauded the Obama administration for addressing the future of this rental market specifically. It reiterated that the government-sponsored enterprises’ multifamily programs were not broken and said that without them, foreclosures would have been widespread in the sector over the last two years. “Reform is absolutely necessary to address the serious flaws in the single-family sector,” NMHC President Doug Bibby said in a statement. “But as the Administration recognizes, policymakers need to understand that the GSEs’ multifamily programs were not part of the meltdown, and they are a vital capital source for the rental housing sector.” Whatever replaces Fannie and Freddie in rental housing, the NMHC said a government guarantee is this sector is needed to meet the growing demand. Between 2008 and 2015, nearly two-thirds of new households formed will be renters. “The apartment industry is prepared to pay a risk-based price for such a guarantee to insulate taxpayers from any losses,” Bibby said. “We also believe the guarantee should be priced so it does not unfairly compete with private debt capital. But a federal guarantee not only protects the nation from shocks during financial crises, it also ensures sufficient liquidity to the apartment industry during normal times.” Write to Jon Prior. Follow him on Twitter: @JonAPrior