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US ends goverment foray into Wall Street's rental home bonds
[NEW YORK] The Federal Housing Finance Agency said on Tuesday that Fannie Mae and Freddie Mac will no longer provide financing guarantees to Wall Street firms' single-family rental home bonds.
In the last two years, Fannie and Freddie began participating in the single-family rental home market, in part by guaranteeing financing. Ending the experiment means large investors will no longer be able to tap the government-sponsored enterprises for financing.
"What we have learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the Enterprises," the regulator's director, Melvin Watt, said in a news release.
The FHFA's announcement follows criticism of these securitisations. Some critics say that to provide payments to investors, the Wall Street firms must minimise maintenance costs and maximise rents and fees.
A recent Reuters special report detailed tenant complaints about private-equity-backed Invitation Homes, now the largest US single-family rental home landlord.
Invitation tenants said their landlord charged excessive fees and skimped on upkeep of homes.
After the 2008 economic crisis, private equity firms bought thousands of homes financed with billions of dollars in bonds - the rental-market equivalent of the mortgage-backed securities that led to the housing market collapse.
In September 2017, criticism of such deals intensified when Fannie Mae guaranteed the refinancing on a US$1 billion Invitation Homes rental-backed bond.
Affordable housing advocates and realtor groups complained to the FHFA that the deal strayed from Fannie's stated mission of supporting affordable home ownership. The deal, they said, risked pushing up rents and reducing the inventory of affordable homes.
In response to Tuesday's news, an Invitation Homes spokesman said by email: "Single-family rental is an important and affordable option for many families seeking high-quality homes in communities with good schools and good jobs, and we're pleased to have partnered with Fannie Mae on this transaction."
In its announcement, the FHFA said, "It is premature to allow the Enterprises to enter this portion of the single-family rental market because the effects of their partcipation on rent growth, long term affordability, for-sale assets and homeownership is insufficently understood without significantly more extensive research and analysis."
Though it is ending its relationship with large investors, the FHFA added that Fannie Mae and Freddie Mac will "continue to support the single-family rental market through their existing indvidual investor programs."