GSE’s Not Having a Whole Lot of Fund Out There
From HOUSINGFINANCE.COM, By Jerry Ascierto: Distinguishing one government sponsored enterprise from another these days is getting more difficult. They’re both in government conservatorship; both still hemorrhaging money; and both still trying to offset mountains of bad investments with some good ones.
Housingfinance.com senior editor Jerry Ascierto tackles the issue of GSE parity on rates, and what it might ultimately mean for those who’re trying to get access to their capital for affordable housing community projects in a credit-crunched environment.
Immediate funding deals for tax credit properties were quoting in the mid- to upper 6 percent range in late February.
But rates on forward commitments from the government-sponsored enterprises remain high. Interest rates for funded forward commitments are in the high 7 percent range, and prices are above 8 percent for unfunded forward commitments.
“They’re pricing in a significant amount of risk premium into forward pricing at the moment,” said Phil Melton, senior vice president of Grandbridge Real Estate Capital. “That’s driven by the fact that there is a significant amount of forwards that are not converting at the time that they’re supposed to.”
Forward commitments are loans on 9 percent tax credit deals undergoing new construction or substantial rehabilitation. In a funded forward, Fannie Mae agrees to purchase the permanent loan and also provides funds to the deal’s construction lender; an unfunded forward commitment provides a rate-lock and commitment to fund the permanent mortgage once construction is complete.
Meanwhile, ahem, we call them results these days because there are so few earnings, and here’s what they amounted to in Fannie’s latest financial period, thanks mostly in part to a 3-year insanity spree into risky home mortgages. The Wall Street Journal reports:
Graphic: Courtesy of the Wall Street Journal
The deepening financial problems at the companies set up some tough choices for the Obama administration, which will have to decide whether to continue pumping taxpayer money into the firms to keep them operating or break them into pieces and strip them of their government support. Another unsettled question is how long to retain as their regulator Mr. Lockhart, a friend of former President George W. Bush since their high school days.
Fannie and Freddie were battered by the worst wave of mortgage defaults since the 1930s and recorded combined losses of nearly $60 billion for the first three quarters of 2008. The government seized management control in September under a legal process known as conservatorship, and has since agreed to make as much as $400 billion of capital available to them. Under conservatorship, the regulator is charged with “conserving” the companies’ operations and nursing them back to financial health.
The conservatorship hasn’t produced all the results the government sought. Thus far, the two companies have rewritten just a tiny fraction of the 31 million mortgages they own or guarantee.
Multifamily is where the GSEs actually still have viability, but that scarcely appears to matter, since they’re on a different performance scorecard.
In an interview [with the WSJ's James B. Hagerty and Damian Paletta], Fannie’s government-appointed CEO, Herbert Allison, said: “It’s not about maximizing returns on equity or profits. It’s really about being of use to the country during this very difficult period.”
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