Multi-Family Real Estate: Fannie and Freddie's Next Headache?

by: Judy Weil

Three weeks ago, we asked whether multi-family REITs will continue to do well relative to the beaten down REIT sector, or join other REITs in the dumps? What will happen to Fannie Mae (FNM) and Freddie Mac (FRE) if there is major deterioration in this market? The GSEs are among the main sources of liquidity for multi-family real estate. From Investors Real Estate Trust's FQ209 conference call: (NASDAQ:IRET)

In the coming 12 months, the majority of maturing debt is secured by multi-family assets. Our multi-family markets are performing as well as at any point in the last decade. Additionally, the multi-family loan market is still functioning with numerous lenders and, of course, the recently nationalized lenders, Freddie Mac and Fannie Mae.

IRET has completed loan agreements with Freddie Mac covering three apartment complexes in Topeka, Kansas, as well as one project in Billings, Montana, Castle Rock Apartment.

From mortgage industry trade magazine Originator Times, Dec. 10:

Mortgage Bankers Association: "Commercial/Multifamily mortgages have not seen the same kind of deterioration in performance witnessed among other real estate loans, and at the end of the third quarter, delinquency rates for every investor group remained at the lower end of their historical ranges. That being said, delinquency rates for nearly every investor group did see increases during the third quarter, and economic and credit market stress is likely to continue that trend.”

Between the first and second quarters... the 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.05 percentage points to 0.16%. The 60+ day delinquency rate on multifamily loans held or insured by Freddie Mac fell 0.02 percentage points to 0.01%. The 90+day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.29 percentage points to 1.47%.

The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80% of commercial/multifamily mortgage debt outstanding.

To put these numbers in context, of 35,135 commercial/multifamily loans in life company portfolios, with a total unpaid principal balance of $253 billion, only 36 loans with an aggregate UPB of less than $144 million were 60+ days delinquent at the end of the quarter. Of $1.2 trillion of commercial/multifamily mortgages at FDIC-insured banks and thrifts, only $18 billion was 90+ days delinquent.