Freddie Mac is considering backing loans that finance single-family rental homes for the first time, mirroring a controversial transaction that Fannie Mae disclosed in January, according to people with knowledge of the matter.
The company’s regulator is looking to allow Fannie Mae and Freddie Mac to experiment with a limited number of transactions, to better understand if the U.S.-backed housing finance companies should be allowed to do more, according to one of the people, who asked not to be identified because the matter is not public. A spokesman for Freddie Mac declined to comment, as did a spokesman for their regulator at the Federal Housing Finance Agency.
Lawmakers and community groups criticized a Fannie Mae deal announced in January that guaranteed a $1 billion loan to Blackstone Group-backed Invitation Homes, saying that the transaction does little to advance the Fannie’s mission to promote affordable homeownership. Ten Democratic members of Congress wrote the FHFA last month questioning the transaction.
Financing residential rental homes could help alleviate the affordable housing shortage that the U.S. faces, according to a February report from researchers at the Urban Institute, a think tank focusing economic and social policy issues. The FHFA should create a regulatory framework that helps ensure that these sorts of transactions increase the availability of affordable housing, and that other players, including small investors, can compete effectively against firms that have government-backed financing, the report said.
Freddie Mac executives pushed to finance single-family rentals as early as 2012 but were stopped by FHFA officials who worried Freddie and Fannie would stifle bank participation in the market. Instead, the companies typically made loans for only a handful of rentals per borrower, which made cheap financing available to individual landlords but wasn’t designed for institutional investors that were building portfolios of thousands of homes.
Fannie Mae has defended its deal, and has said that its arrangement falls in line with its mission to support affordable housing. It’s also said that contrary to the arguments of community groups, the deal is not a “subsidy” for private equity.
There’s almost $20 billion of bonds outstanding backed by single-family rental properties, some of which currently qualify to be refinanced into a government-backed loan, Bank of America Corp. analysts wrote in a report in January.