WASHINGTON — The mortgage industry is cautiously examining a plan by the Federal Housing Finance Agency to require Fannie Mae and Freddie Mac to boost their purchases of small multifamily loans in rural areas.
A proposal issued two weeks ago by the agency calls on the two government-sponsored enterprises to identify opportunities to increase their purchases of small multifamily properties — between 5 to 50 units — that provide housing for very low, low-or-moderate income rural families.
Some industry representatives worry that could be challenging for the GSEs since it can be difficult to get rural banks and other lenders to sell multifamily loans to Fannie and Freddie.
"In small towns, there are only so many opportunities to lend money and to make money," said Ron Haynie, a senior vice president at the Independent Community Bankers of America.
Local banks "won't be anxious to unload them," he said.
Still, both he and other representatives said they were in favor of the goal.
"Anything that creates liquidity is good," Haynie said.
Joseph Pigg, senior vice president of mortgage finance at the American Bankers Association, said it is a "goal that we encourage."
"But we will need to study the rule and get banker feedback before we know if the proposal is workable," he added.
Fannie is already active in the rural multifamily market and has a "long history of financing small multifamily properties in rural communities," said Bob Simpson, Fannie's multifamily vice president, in an email in response to questions last week. "We recognize that rural areas face unique challenges — such as scale — when it comes to providing secondary market solutions."
Simpson said he was confident Fannie's dedicated multifamily lender partners can "provide small community banks a more efficient path to the secondary market."
A Freddie spokesman said the GSE is "committed to meeting the needs of underserved borrowers and making housing more affordable for families across America. We look forward to working with the FHFA to do so."
But Haynie pointed to some potential challenges. Multifamily loans made by rural banks "tend to be more customized" than standard GSE loans when it comes to debt-service ratios, cash flows and reserves, he said. The multifamily owners generally are small investors and it's difficult to document their financials. Appraisals are also an issue in small towns where there are few comparable rental properties.
"Local banks can modify the loan terms to make them fit the borrower's situation as opposed to a standardized program where everyone has to fit into the same box," Haynie said.
Consumer groups, meanwhile, are strongly supporting the plan, arguing it is workable.
NeighborWorks America, which works with 240 nonprofits dedicated to affordable housing and community development, "recognizes the complexity of the situation," said Douglas Robinson, a spokesman for NeighborWorks.
These small-balance loans "require different types of underwriting, and are often held on the balance sheets of community banks as a high-performing asset."
However, the GSEs can provide a lower cost capital option for lenders who are willing to sell, which can "help improve overall affordability in rural markets," he said.
