Multifamily may be only 5% of Fannie and Freddie's total lending volume, but the asset class refuses to be the collateral damage of post-housing crisis government reforms.

This week the National Multi Housing Council and National Apartment Association testified before the Senate Committee on Banking, Housing, and Urban Affairs, highlighting the importance of access to capital through agency lending in the $862B multifamily debt market, NMHC president Doug Bibby tells us. "Our industry didn't have any hand in this downturn," he says (citing delinquency rates below 30 bps), "and we want to make sure any reform of the system treats us differently from single family." (To quote the great philosopher Donny Osmond: "One bad apple don't spoil the whole bunch, girl.") Both associations say the answer lies in multiple layers of private capital risk taking before the government would be called on, putting the taxpayer at risk. This reduced government footprint in housing also means a haircut for Fannie and Freddie, like the 10% reduction in lending volume this year.

What does this really mean for multifamily owners? This year, principal sources of capital other than GSEs have been banks and life companies, Doug says, which tend to invest in Class-A markets and trophy assets. For life companies, once they hit their allocation for real estate, they'll go into hibernation until next year (they're getting their caves ready), he adds, meaning institutional capital is not flowing healthily into secondary and tertiary markets. (Think Topeka, Birmingham, Boise.) With the banks, there's a mismatch in loan terms—typical multifamily borrowers look for 10 years, but small market banks lend with 5 to 7-year terms. So if Fannie and Freddie continue to be reined in while multifamily demand surges, the inherent incompatibility with other sources of capital could affect an increasing number of markets, Doug says.