Fannie Mae and Freddie Mac’s market share of multifamily loan originations has dipped below “normal” levels after peaking during the financial crisis.
As the commercial real estate markets continued to rebound and private capital rushed back into the multifamily sector, total multifamily origination volume peaked around $185bn in 2014, according to data from Freddie Mac.
But the government-sponsored enterprises (GSEs) financed just 30% of that in 2014 compared with approximately 70% of the total in 2008 and 2009, research from the Urban Institute shows.
“GSE market share has been shrinking since the recession and private capital has been more than happy to serve a larger role,” Karan Kaul, a researcher with the Washington, DC-based think tank, told Real Estate Capital.
The current market share is below the 35% the GSEs commanded during the early 2000s, “a period of relatively stable housing markets,” according to a report from Kaul.
The decline has impacted lower-income and “underserved” segments of the market the most: small loans, subsidized affordable housing, and manufactured housing community loans, Kaul highlights in the report.
In 2013 FHFA required each GSE to reduce multifamily volume by 10 percent over the prior year, resulting in a 13% decline; but the three underserved segments were cut by 24%. The FHFA reacted by exempting those segments from restrictions in 2014, but financing was still slashed by an additional 15%.
Those segments are also less appealing — and less profitable — for private lenders.
“It’s good that private capital has come back, but… pure private capital, currently the predominant source of multifamily financing, tends to focus on the more profitable mid- to high-end market,” Kaul said. “Without more support those at the lower-end could be forced to live in inadequate housing.”