DeWitt testified in March on behalf of the National Multi Housing Council (NMHC) and the National Apartment Association (NAA) before the U.S. House of Representatives’ Financial Services Committee during a hearing on housing finance reform He warned lawmakers to be careful not to create a capital shortage for the lower-profile, yet vital apartment sector as they design solutions to fix the single-family finance problems.
He explained that the apartment industry relies heavily on the liquidity provided by Fannie Mae and Freddie Mac to develop and maintain affordable housing in good markets and bad. As a result of that federal backstop, he said the apartment industry has produced more than 10 million apartments affordable to working families since 1996.
Importantly, those apartments were produced at virtually no risk to the taxpayer, he added. Multifamily delinquency and default rates for Fannie Mae and Freddie Mac remain under one half of one percent — one-tenth the size of the delinquency/ default rates plaguing single family.
Without a fully functioning secondary mortgage market, the apartment industry cannot meet the nation’s current or future housing needs — or refinance the $100-$200 billion in mortgage debt coming due over the next two years. Without that federal support, debt costs will go up, rents will rise and the supply of affordable housing will decrease because other capital sources cannot and will not fill the gap.
This is important, he noted, because the nation is increasingly relying on apartments as fundamental changes in our society are changing the types of housing we need to build. Housing expert Professor Arthur Nelson of the University of Utah projects that half of all housing built over the next 10 years will need to be rental housing to meet the dramatically changing landscape of demand.
DeWitt urged Congress to retain the successful elements of the current system in any new housing finance structure and he outlined the key principles that should guide reform efforts. They include:
1. The public mission of the federally supported secondary market needs to be clearly defined and should be focused primarily on using a government guarantee to provide a steady source of liquidity to the multifamily mortgage market.
2. Any new or revised secondary market system must explicitly recognize the capital needs of the apartment sector.
3. Lawmakers should not create a new federal secondary market entity or entities, but should instead use government support to leverage private capital.
4. Any new system should provide access to explicit federal guarantees for multifamily mortgage securities and loans, and apartment companies should pay a fee to support this backstop.
5. Since multifamily loans are larger and not as easily commoditized as single-family loans, any new system should allow for some portion of multifamily loans to be held in portfolio instead of being securitized.
6. During transition years, it is critical to retain the resources and capacity of the existing Government-Sponsored Enterprises.