The conference yesterday at the Treasury in Washington was structured to herald in a new era of transparency
in the mortgage finance markets. In this sense, it served as a decent starting point, though constant references to ancient Rome were of some concern (one panelist went so far as to compare himself to Marc Antony against, presumably, Tim Geithner's Caesar.)
The solution we are all waiting for, however, never really surfaced. But hints of what is coming were dropped fairly heavily.
One telling point occurred when Ellen Seidman, a mission strategist for ShoreBank
, said that in most urban areas, where activities of Fannie Mae
and Freddie Mac
are concentrated, a married couple both earning minimum wage cannot afford the typical rent on two-bedroom accommodations.
Judging both anecdotally and empirically, Americans in droves are dumping their love affair with homeownership. In a session I attended on funding mortgages and the role of securitization, no real mention of maintaining an ideological standard toward owning a home, as opposed to renting, was made except for a question posed by Chris Russell, a staffer from Rep. Scott Garrett's (R-NJ) office. (In 1999, elected officials mandated Fannie and Freddie to grow homeownership by making more aggressive loans to low-income households, as noted by John Burns in an email yesterday.)
There was, however, mention that multi-family GSE CMBS outperform the private sector. Alan Boyce the CEO of Absalon
, the Soros venture, extolled the values of the Danish mortgage market. There is no doubt that this market is home to perhaps the most-successful residential mortgage-backed securitization platforms.
On top of that, it's also fair to say, that in Denmark there are a disproportionate amount of socially-assisted renters and a comparatively onerous tax regime.
So with no one to buy GSE REOs and a demand surge for affordable rentals -- against the backdrop of market commentary from invitation-only speakers such as Seidman and Boyce -- it is clear exactly where Fannie and Freddie are heading…. And it's not for the door.
Sources I spoke to on the evening before the conference basically confirm that the GSEs are planning a widespread push into the rental space. In fact, it felt that a solution has already been basically settled on, especially as no representative from either GSE spoke at the Treasury conference. This, despite representing 95% of a $4.5trn mortgage funding market, along with Ginnie Mae, as HousingWire
publisher Paul Jackson told BBC Radio One
in the run up to the conference on Monday.
Interestingly enough, Boyce called for an accounting switch over from the US Financial Accounting Standards Board (FASB) to the International Accounting Standards Board (IASB). Yesterday FASB and IASB issued a joint release calling for public comment on how to improve the financial reporting of lease contracts.
Obviously a stronger national groundwork for lease reporting needs to be established in order to convince investors to continue investing, even if the GSE collateral is not owner occupied.
The idea here, the statement reads, is that, "this approach would result in the liability for payments arising under the lease contract and the right to use the underlying asset being included in the lessee’s statement of financial position, thus providing more complete and useful information to investors and other users of financial statements."
As Burns mentioned above, maybe it is time to turn back the clock. Indeed he has many suggestions on how to make the GSEs work as landlords, including the creation of an apartment REIT, providing loans to the on-the-ground landlords, etc.
But as Lewis Ranieri, of investment advisory firm Ranieri & Co
pointed out yesterday, the GSEs already have a successful track record in this space, such as with the Fifth Ward program in Houston years back where millions of vacant units were converted to rent-to-own status.
For investors, Ranieri said it was a "once in a lifetime opportunity."
Yet with all the evidence leading us down a certain road, and the GSEs set for a rebirth, Ranieri may yet get a second shot.
Write to Jacob Gaffney