Fannie and Freddie End Funding of Single-Family Rentals

Fannie and Freddie End Funding of Single-Family Rentals

Bajak and Associates

The Federal Housing Finance Agency (FHFA) has pulled the plug on pilot programs run by both Fannie Mae and Freddie Mac (the GSEs) to finance institutional investment in single-family home rentals.  The programs began in February 2017 with a $1 billion loan from Fannie Mae to the Blackstone Group. The loan was originated by Wells Fargo with a Fannie Mae guarantee and secured by some of the 48,000 single-family homes Blackstone's Invitation Homes subsidiary had purchased during the recession, often from portfolios of lender-owned real estate, and turned into rentals.

At the time, the Urban Institute wrote that the transaction "marks the first time a government-sponsored enterprise has facilitated financing for a large institutional operator of single-family rental properties," and Fannie Mae pronounced the transaction the first in a pilot program.

In ending the program FHFA said, "In the last two years, both Enterprises have participated in the single-family rental market on a larger scale than previously through pilots designed to 'test and learn' more about the market and best practices.  In June 2017 FHFA convened a Single-Family Rental Workshop to solicit feedback, identify market challenges and opportunities, and gain perspective on the overall market.  It also conducted an impact analysis and reached out to a wide array of industry stakeholders.    

When the pilot began it provoked immediate blowback, especially from the National Association of Realtors® (NAR).  NAR's president at the time, William E. Brown, wrote a letter to FHFA director Mel Watt which said in part, "Rather than focusing on allowing well-qualified Americans to build wealth through affordable mortgage options, Fannie Mae is actively financing large institutions to compete with them. These investors do not expand the affordable housing stock. Rather, in this limited market they drive up the price of rents and remove affordable inventory from the hands of American homeowners."

The National Community Stabilization Trust (NCST) also denounced the program saying it would lower borrowing costs to the institutions, allowing them to buy up more housing stock. NCST president Robert Grossinger said, "I am perplexed to see Fannie Mae place a taxpayer guarantee behind the same private interests whose risky practices led to the millions of foreclosed homes they are now buying up. These investors so far have had no trouble financing the purchase of tens of thousands of homes without government support."

With this week's announcement FHFA appears to agree with Grossinger.  Watt said, "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."

This will mark the end, FHFA said of the GSE's participation in the single-family rental market except through their previously existing investor programs. The GSEs are not precluded however from proposing changes to their existing programs to meet the needs of the single-family rental market. They are also free to develop proposals calculated to utilize single-family rentals as a pathway to homeownership.

Not surprisingly NAR applauded FHFA's decision. NAR president, Elizabeth Mendenhall, issued a statement that said in part, "With inventory shortages facing housing markets across the country, the National Association of Realtors® has long advocated for the Federal Housing Finance Agency 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. 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.

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Article Source: Jann Swanson, Mortgage News Daily

US Existing Home Sales Fall for Second Straight Month

US existing home sales fall 

for second straight month

Bajak and Associates

·         Existing home sales fell in May.

·         The number of transactions was expected to increase.

·         This is the second straight month of declines.

U.S. home sales unexpectedly fell in May as an acute shortage of properties on the market pushed house prices to a record high.

The National Association of Realtors said on Wednesday that existing home sales slipped 0.4 percent to a seasonally adjusted annual rate of 5.43 million units last month. It was the second straight monthly decline in sales.

April's sales pace was revised down to 5.45 million units from the previously reported 5.46 million units.

Economists polled by Reuters had forecast existing home sales rising 1.5 percent to a rate of 5.52 million units in May. Sales rose in the Northeast, which accounts for a small fraction of the market. They fell in the West, South and Midwest.

Existing home sales, which make up about 90 percent of U.S. home sales, dropped 3.0 percent on a year-on-year basis in May. They have declined on that basis for three straight months.

Home sales have largely treaded water this year as strong demand depletes the supply of properties on the market, causing house prices to rise faster than wages.

Supply has been especially tight at the lower end of the market, which accounts for a large portion of the housing market. With mortgage rates rising back to seven-year highs, purchasing a home could become even more expensive for first-time buyers. Housing demand is being driven by the lowest unemployment rate in 18 years.

The 30-year fixed mortgage rate rose eight basis points to an average of 4.62 percent last week, according to mortgage finance agency Freddie Mac. Mortgage rates are likely to rise further after the Federal Reserve increased interest rates last week for a second time this year and forecast two more rate hikes before the end of 2018.

There were 1.85 million previously-owned homes on the market in May. While that was up 2.8 percent from April, housing inventory was down 6.1 percent from a year ago. Supply has declined for 36 straight months on a year-on-year basis.

At May's sales pace, it would take 4.1 months to exhaust the current inventory, up from 4.0 months in April. A six-to-seven-month supply is viewed as a healthy balance between supply and demand. The median house price increased 4.9 percent from a year ago to an all-time high of $264,800 in May. That was the 75th consecutive month of year-on-year price gains.

U.S. financial markets were little moved by the data. U.S. Treasury yields rose after Fed Chairman Jerome Powell said the U.S. central bank should continue with a gradual pace of rate increases.

Stocks on Wall Street were trading mostly higher while the dollar was almost flat against a basket of currencies.

US Existing Home Sales

Supply likely to improve

Builders have struggled to plug the inventory gap, citing higher prices for lumber as well shortages of land and labor. The NAR is, however, optimistic the inventory situation will improve later this year.

The Commerce Department reported on Tuesday that housing starts increased 5.0 percent to a rate of 1.350 million units in May. Housing completions increased 1.9 percent to a rate of 1.291 million units last month.

Still, both starts and completions remain below the range of 1.5 million to 1.6 million units that realtors and economists said is needed to ease the supply squeeze.

According to the NAR, sales of homes priced below $100,000 plunged about 18 percent in May from a year ago. Houses for sale typically stayed on the market for 26 days in May, matching April's seven-year low and slightly down from 27 days a year ago. Fifty-eight percent of homes sold in May were on the market for less than a month.

First-time buyers accounted for 31 percent of transactions in May, down from 33 percent in both April and May 2017. Economists and realtors say a 40 percent share of first-time buyers is needed for a robust housing market.

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Source: CNBC Wed. 20 June 2018