Great News! U.S. government to stop backing institutional single-family landlord loans

This certainly was a coincidence as  I just reported on this yesterday… This story came out this morning. This is great news for the small investor and prospective home buyer, as it raises the institutional investor’s cost of capital. We should be happy with any victory at this point. These types of changes will help to make housing more affordable in the areas of the U.S. that had large concentrations of institutional single-family landlord activity.

Institutional investors don’t need a taxpayer guarantee on top of rental revenues

Fannie Mae and Freddie Mac, the government-sponsored enterprises that help lubricate the U.S. mortgage market, will stop backing loans for single-family investment homes in a nod to the growing controversies surrounding that marketplace.

The Federal Housing Finance Agency (FHFA), regulator of Fannie Mae and Freddie Mac, announced yesterday that both companies would end the two-year pilot programs which were intended to “test and learn” best practices in a market that’s exploded in the aftermath of the financial crisis.

“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,” FHFA Director Melvin Watt said in a statement. – Fannie, Freddie will stop backing single-family rentals (August 23, 2018)

Keep in mind that Mr. Watt has been serving in his capacity since 2014 and is a President Obama appointee. Although Mr. Watt’s input was instrumental in beginning this subsidy back in 2016, he was also the force behind concluding the program.

Only institutional landlords advocated this subsidy

“I was glad to see this decision, I think it was a responsible decision and I’m looking forward to continued engagement with (Fannie and Freddie) over ways in which they might modernize traditional investor financing,” said Julia Gordon, executive director of the National Community Stabilization Trust. – Fannie, Freddie will stop backing single-family rentals (August 23, 2018)

Gordon and other housing observers have criticized the enterprises’ decision to get involved in a market in which investors don’t seem to have much trouble raising funds from traditional capital markets sources. The first such step was in 2017, when Fannie guaranteed a $1 billion deal for Invitation Homes, which was then controlled by Blackstone, even as the giant asset manager was preparing an initial public offering.

The National Association of Realtors on Tuesday issued a statement commending the FHFA’s decision. “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 home buyers across the country,” the industry group said. “NAR applauds today’s FHFA decision, and we look forward to continue working with Fannie Mae and Freddie Mac to help more Americans achieve home ownership going forward.”