A Treasury Department reform plan that creates a fee-based emergency fund to support the mortgage market in times of crisis is the best plan for multifamily real estate investment trusts, according to Moody's Investors Service (MCO). The plan is one of three possible mortgage market reforms outlined by the Treasury in February. The first option proposed a completely privatized system with government insurance of loans limited to the Federal Housing Administration, the Department of Agriculture, and the Department of Veterans Affairs. Analysts say the second option would limit FHA reinsurance to a small group of borrowers. Since both plans would make it more difficult to woo investors into the multifamily REIT market, Moody's believes a third option offering some type of reinsurance from the public sector is best for multifamily REITs. The rating agency said some type of government support — even if it kicks in only after the private market's liquidity is tapped out — is important since it ensures REITS will have some type of guarantee to offer investors. "Under this (preferred) plan, private insurers would support residential mortgages, but a government reinsurer would be available to step in only after equity in the private entities has been rendered worthless," Moody's said. "The other most likely options presented in the report 'Reforming America's Housing Finance Market, A Report to Congress' would eliminate the consistent government support the multifamily sector currently receives through the government sponsored (enterprises), Fannie Mae and Freddie Mac." Moody's said the third option also would "help maintain liquidity and keep the cost of financing low as investors looked to the government as a backstop." Write to Kerri Panchuk.