Treasury Plans To Restrict Multifamily Lending In Areas With Rent Control
The U.S. Treasury Department's plan to make Fannie Mae and Freddie Mac private again also included a proposal that would make it more difficult to get GSE financing in markets that enact rent control legislation.
The proposal, which was inserted in the middle of the 53-page document released Sept. 8, calls for the Federal Housing Finance Agency to "revisit the underwriting criteria" Fannie and Freddie use to acquire multifamily loans in cities and states with rent control policies, HousingWire reports. Treasury labeled the proposed change as an "administrative action," meaning it would not require an act of Congress.
Treasury said rent control restricts housing availability and quality, and it labeled rent regulations as "undue impediments to housing development," HousingWire reports. The controversial rent control law in New York and Oregon's statewide law were both on the books months before the document was released, and the California legislature passed a similar bill days after the proposal was released.
The new laws have been byproducts of a more widespread call for rent control in cities, where a global shortage of affordable housing is felt more acutely. Raymond James public policy analyst Ed Mills told HousingWire that with California and New York's frequent position as left-leaning foils to President Donald Trump, the new move is likely a way of withholding federal funds from political opponents.
“This is the Trump administration against the blue states,” Mills told HousingWire. “This matches their philosophy, but it has the added benefit of Trump, using administrative actions, being able to influence policies in states run with Democratic majorities.”
Fannie Mae and Freddie Mac, officially categorized as Government Sponsored Entities, provide a backbone for much of the country's residential and multifamily financing markets by purchasing mortgage-backed securities. Together, the two GSEs combine to purchase 95% of such securities in the U.S., and the FHFA announced on Friday that it will raise their funding caps for multifamily lending by $100M, HousingWire reports.
If such massive financing sources were to abandon California and New York, it would likely add further stress to markets that are already losing value in the eyes of private investors and lenders.
FHFA Director Mark Calabria didn't address the rent control proposal in Friday's announcement, which also introduced the rollback of an Obama-era "green loan" policy, HousingWire reports. Under the policy, Fannie and Freddie had purchased loans given for renovations to make older buildings more environmentally sustainable.