A privatized multifamily financing market
Beginning with GSE reorganization without guarantees

Article Highlights

  • Providing extensive government guarantees for multifamily lending is corporate welfare and crony capitalism and should be rejected as government policy.

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  • The presence of a government guarantee preserves one of the GSEs’ worst features—hybrids that are neither pure government nor pure private.

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We begin with a simple concept -- the American taxpayer should not be on the hook for the losses incurred by privately owned and operated businesses.

Multifamily housing—rental housing for five or more families-- is a business that has historically provided substantial profits. No one should object to wealth honestly earned through free enterprise and risk-taking. Providing extensive government guarantees for multifamily lending is another matter. It is corporate welfare and crony capitalism—where profits are privatized but the losses are taken by the taxpayers—and should be rejected as government policy.

In preparing this brief, we reviewed the recent papers from Fannie and Freddie (the GSEs) regarding the potential viability of their multifamily business units without federal guarantees. Both papers lend substantial support to our general conclusions:

1. We have said that it was plausible though not certain that the multifamily business units could be viable without federal guaranties. Freddie Mac said “absent access to a government guarantee, the [multifamily] business would be economically viable” while Fannie Mae saw the risks looming larger than the opportunities.
2. That the GSEs multifamily business units have good viability prospects confirms our view that the private market will respond to the opportunities multifamily lending presents. Whether the two GSE multifamily business units have a role in that response, and if so what that role might be, is secondary to whether a government guarantee for multifamily is good policy.
3. The presence of a government guarantee provides a small downward movement in multifamily interest rates, in the general range we have estimated;
4. This results in increases to both property values and debt levels;
5. There is little if any connection between multifamily interest rates and rents paid by tenants.
6. The government subsidy is captured by the owners of larger, higher-end properties in the form of higher property values and larger mortgages and by the GSEs themselves in the form of duopsony profits.
7. Political pressure to subsidize ‘affordable’ loans is present, is increasing, and can be expected to increase further if  the federal guaranty is continued.
8. The presence of a government guarantee preserves one of the GSEs’ worst features—hybrids that are neither pure government nor pure private.

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About the Author


Charles S.
  • American Enterprise Institute (AEI) adjunct scholar Charles Wilkins is an affordable housing expert. As a principal of the Compass Group LLC, he advises governmental and private clients in rental housing policy, including rental housing finance and project and loan performance. At AEI, his work focuses on multifamily housing policy and finance.

    Earlier, Wilkins worked for the National Housing Partnership. He is the author or coauthor of four books that were published or co-published by the Compass Group LLC: “Managing Occupancy: A Companion Guide to HUD’s Occupancy Handbook” (2004), “Fair Housing: A Guidebook for Owners and Managers of Apartments” (2000), “Shelter From The Storm: Successful Market Conversions of Regulated Housing” (1998), and “Managing Housing Credit Apartments: A Question & Answer Handbook for Property Owners and Managers” (1998).

    Wilkins has a B.A. from the University of North Carolina at Chapel Hill.

  • Phone: 703.217.8394
    Email: cwilkins@compassgroup.net
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: Emily.Rapp@aei.org


Thomas W.
  • Tom White is an adjunct fellow at the American Enterprise Institute (AEI). An expert in housing policy, White has public service and technical experience in the financing, building, and managing of multifamily and single family housing. At AEI, he continues his work in housing policy, including housing finance and affordable housing.

    Early in his career, White served as a Michigan State legislator (11th District). He went on to work for the Michigan State Housing Agency where he oversaw the development (construction lending) and financing of single-family and multifamily housing. Later, at the US Department of Housing and Urban Development, he was in charge of bond finance and state agency programs for housing policy. White has also worked in senior positions at the National Council of State Housing Agencies, at Bear Stearns Investment Bank, and at Fannie Mae until his retirement in 2001. Since then, he has been a trustee of Center Line Capital, which specializes in multifamily finance and equity investments.

    White has a B.A. in history from Wayne State University. He has also done postgraduate work in sociology.

  • Email: twhite518@gmail.com
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: Emily.Rapp@aei.org

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