This Iteration of a Downturn Has Shined New Light on the GSEs – Commercial Observer – Get your quote in 5 minutes

The COVID-19 pandemic has pushed many real estate financiers to the margins and is sure to thin the herd of loans. But Freddie Mac and Fannie Mae were brought into the spotlight as they were in the 2008 economic crisis.
This time, however, the story is very different.
Freddie Mac, the country's largest capital provider for the household sector, and Fannie Mae – the two separate government-sponsored enterprises (GSEs) that provide hundreds of billions of dollars worth of single and multi-family mortgages across the country – act as reserves a pandemic that has caused apartment owners, borrowers and renters to falter.
Debby Jenkins, Freddie Mac's multi-family manager, celebrated his twelfth year in the company last March, when COVID-19 rocked the United States and prompted the federal government to take swift and decisive action to support the # 39; economy. She joined the company in March 2008 to help establish the due diligence platform for her CMBS product from the "K-Deals" agency.
Since the start of the pandemic, she has been at the forefront of managing organizational and operational shifts and administering federal policies designed to help stabilize residential debt markets, as the first three-month tolerance for borrowers the debt guaranteed by the agencies issued through the CARES law; it was due to expire on July 25 until the Federal Housing Finance Agency (FHFA) extended it for another three months last week.
Over the past two years, GSEs have set records and both entered 2020 for another year of breakout. Last fall, FHFA, an independent regulatory body overseeing the two entities, set loan purchase limits of $ 100 billion for each company for the five-quarter period starting in the fourth quarter of 2019, with a mandate that each employs approximately 37.5 percent of their respective totals in affordable "mission-driven" housing.
And as for Freddie, despite the challenges posed by the pandemic, he hasn't missed a beat in running on his origins pipeline, according to Jenkins.
While the credit sphere is still gathering, GSEs continue to hum in a multifamily market where 94.2 percent of renters paid their rent in June, which was around 100 basis points more than in May. and about 50 basis points less during the year, according to information from the National Multifamily Housing Council (NMHC) from June 27.
Jenkins has experienced Freddie's growth over the past decade since the company – and its counterpart, Fannie Mae – were transferred to the federal conservatory in September 2008. Just last month, Freddie and Fannie announced that they had hired respectively. JP Morgan Chase and Morgan Stanley as financial advisors to help them move closer to privatization – based on certain liquidity parameters – something that the FHFA hopes to have achieved in the coming years. If so, the duo would become two of the largest and most well-capitalized financial institutions on the planet.
Commercial observer: where are you from?
Debby Jenkins: I am a native Detroiter – born and raised there – and most of my and my wife's families are still in the Detroit area. I literally spent the first 40 years of my life there and left in early 2008 to come to Freddie Mac, of all things.
Where were you before Freddie?
I have been in the commercial real estate sector since then, in 1991, and have worked in various banking institutions, the last of which was Wells Fargo, from which I came from within the commercial real estate sector, CMBS and securitization.
What drove you to Freddie Mac at the time?
As you can imagine in 2008, at the heart of the crisis, I would say that there is no city hit much harder than Detroit – and no state, frankly, hit much harder by the recession, from an economic point of view. It was a really terrible situation in Detroit and this opportunity with Freddie presented itself in a way; I wasn't really looking. I was courious. I joined Freddie just as we were kicking off the K-Deal platform as a pilot, and I joined to basically create the underwriting platform, the asset-level due diligence platform for K-Deals. So in March 2008, I was basically started as a senior director to create those processes. At that point, David Brickman ran multi-family capital markets, so we worked closely together. He is now the CEO and I run with multiple families, so I don't think it's a coincidence given the success of the platform.
It was an interesting time to join Freddie shortly before the economic downfall and his move to the federal conservatory. His reputation, within the industry and politically, had taken a hit.
At that moment, I went to Wells Fargo, which was an AAA-rated bank. And quickly – six months in Freddie – he moved the family to the D.C. area, and six months later, we were at the conservatory. It was quite a shock. Much of my Detroit family was asking what I had done.
How would you compare this crisis with what you experienced then?
Tackling the latest crisis with this is an interesting thing from the GSE perspective, because remember, we were known as the mortgage giants and we were blamed for many of the problems that had occurred and the real estate sector was in a position very negative locate. Here, with COVID-19, it's a completely different situation, right? We are called (for) relief programs, and for the first time ever, there has been legislation on the multi-family side that affects our borrowers and renters and the treatment and things of that nature; it is simply unprecedented. We are called to do more and more, which I embrace. I think part of our job is a bit of the compassionate side that accompanies our mission on three fronts. Basically it helps homeowners and renters in this country. Everyone has to live somewhere and it's our job to keep these platforms stable. We welcome the challenge and opportunity to participate in ways we had never done before on the family side.
With the rapidity with which this disturbance developed, what were the first steps that were taken internally to prepare for what was ahead?
Bear in mind as a backdrop: on March 13, which was a Friday, we were all still in the office, making plans on how to gradually eliminate people (it would seem) if the pandemic worsened, and on Monday 16 we were all home. Talk about rapid. And at that point in mid-March, we had our biggest inflows: rates were low and liquidity flows on the market were really strong. So, during this period of time, we are all trying to adapt to work from home, while basically managing the financial sector of the rental houses between us and Fannie (Mae, who) has had such a large part of this, with high volumes and untested technology.
How did you adapt?
(Using) property inspections (as an example), between us and our lenders, we see the property before committing to purchase the loan. This is something that is the key to our due diligence process. We went from "What do we do if we can't get into all the units we're used to seeing?" Everyone was at home (in all) the whole country. So the use of technology has been enormous. We started doing digital inspections. And we have a platform that we were using but not (to this extent), digitizing documents, signatures, electronic signatures and things like that, where if you couldn't get the full diligence that you would normally do, what those elements were and how you cover the risk? One of the key things we did right away was the debt service reserve.
What is your prospect for existing loans and multi-family financing as a whole?
It is a very esteemed thing to predict. The multi-family market (overall) has been in a very strong situation with growth in rents, low vacancies, demographic trends, lack of supply in single-family houses and multi-family rentals over the past (six to eight) years. Obviously, COVID-19 makes it very interesting, but it is also interesting in many other areas, including retail, office and hospitality. There is a big impact on the performance of these asset classes. But for the multifamily, people don't move, so even if the rents are somewhere flat, you still have a good pillow between the property's cash flow, the payments required for the debt service and a lot of equity to protect. Nobody can really predict what will happen in the coming months (but I would say this) is a short-term phenomenon rather than a long-term one. There is an even deeper lack of supply going on now – both in the single family and in the multi-family family – so as families continue to form, people will have to live somewhere. If you intend to invest in commercial real estate, the multifamily has been the most favored sector; it was even the most favored sector, looking back on the latest crisis. A similar thing occurred and created a greater demand for rental housing at the time.
Freddie was sitting on just over $ 82 billion of purchasing power of loans coming in 2020, excluding the previous quarter, and you said publicly that it's beneficial because you have the ability to map your pipeline over the course of the ;year. Has this been reversed, reshaping the way you are looking at 2020?
We manage it on a weekly basis, so we always have a good idea of ​​what our pipeline looks like. And the fact that a multi-family mortgage is basically a 90-day process, from start to close, you really have a good command, even going out a few months, on how your pipeline looks. With the COVID-19 situation, we had a really strong pipeline and a lot of activity until March and early April and then things slowed down the acquisition market, as you can imagine, given the volatility, and so they did also our pipelines. But I can tell you that, over the past four consecutive weeks, we've received over $ 5 billion in new quote requests. The pace we are following in terms of new loans being applied, if we continue at the same pace that we are following for the rest of the year, we will be right above the $ 100 billion limit, which is actually a good thing. If you look at the latest crisis, we and Fannie's multi-family platforms, instead of being about 20 percent each of the overall market of multi-family origin, have made up about 70 percent. As other lenders move to the sidelines: debt funds have really taken a step back and many others have done (as well) CMBS, which has been struggling – of course we only become a larger percentage of the market, and that's what it should do in times of crisis and in periods of volatility. It is at that point that not only liquidity and stability, but also economic accessibility, comes into play, because we are incentivized to carry out that mission and to truly worry deeply about economic accessibility and housing of the workforce. I think the story really resonates.
What is your opinion on Freddie's role in the market now, as it has become increasingly difficult for other multi-family lenders to compete with what you offer in today's environment?
We are only reaching a settlement point in the market, where we have had a positive run in the capital markets and spreads are narrowing and things like that while maintaining a low Treasury level, although it has jumped by about 30 basis points up and down over the past few weeks. And I think life insurance companies, banks and others are competing just like they normally would, and we're not really doing anything to crowd the market by any means. The loans that we are lending at the loan level have good profitability, we are not chasing spreads or any type of activity of this nature and we are not widening a credit box. If anything, we narrowed things down a bit during COVID-19. Moving forward for the rest of the year, assuming the market remains fairly stable, you will see all those other players return to the way they were pre-COVID-19.
Talk about FHFA's recent action to extend the tolerance of another three months for Freddie and Fannie borrowers. What kind of impact will this have in ensuring that borrowers benefit from it and therefore renters remain protected?
When a borrower extends an existing grace period, he also agrees not to evict tenants solely for non-payment of the rent during that period. The increased flexibility will offer absolutely more breathing space to borrowers and renters who need it. It is also important to remember that all borrowers who participated in the tolerance program must extend flexibility to their renters during the repayment period. This means that the overdue rent is not due in a lump sum and there are no penalties or fees for late payments or non-payment of the rent. Once a borrower is allowed to evict tenants for non-payment of the rent, the borrower must provide at least 30 days' notice for the tenant to release.
So far, there hasn't been a flood of evictions. The National Multifamily Housing Council, the rental payments tracker, reports that over 94 percent of rental payments were made for the month of June. It is exactly in line with the things of last year, pre-COVID-19. Having said that, there is no doubt that renters have been uniquely affected by the pandemic and many are facing great difficulties. For the future, much depends on our success in managing the virus, on how the economy behaves accordingly and on how politicians respond to these challenges.