Return of the Mac: This Iteration of a Downturn Has Shined New Light on the GSEs

Rather than shouldering blame for contributing to a crisis, Freddie Mac and Fannie Mae have been called upon as saviors of the housing finance market.


The COVID-19 pandemic has pushed many real estate financiers to the sidelines and is sure to thin the lending herd. But Freddie Mac (FMCC) and Fannie Mae (FNMA) have been shoved into the spotlight as they were in 2008’s economic crisis.

This time, however, the story is very different.

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Freddie Mac, the country’s largest capital provider for the multifamily sector, and Fannie Mae — the two separate government-sponsored enterprises (GSEs) that insure hundreds of billions of dollars worth of single family and multifamily mortgages across the country — are acting as buffers amid a pandemic that has sent apartment owners, borrowers and renters reeling.

Debby Jenkins, Freddie Mac’s head of multifamily, marked her 12th year at the firm this past March, when COVID-19 rocked the U.S. and spurred the federal government into quick and decisive action to support the economy. She joined the company in March 2008 to help establish the due diligence platform for its “K-Deals” agency CMBS product. 

Since the pandemic set in, she’s been at the forefront of managing organizational and operational shifts and administering federal policies designed to help stabilize the residential debt markets, such as the first three-month forbearance for borrowers of agency-backed debt  enacted via the CARES Act; it was set to expire on July 25 until the Federal Housing Finance Agency (FHFA) extended it last week for another three months. 

Over the last two years, the GSEs have set records and both entered 2020 primed for another breakout year. Last fall, the FHFA, an independent regulatory body that oversees the two entities, set loan purchasing caps of $100 billion for each company for the five quarter period starting in the fourth quarter of 2019, with a mandate that each deploy about 37.5 percent of their respective totals into “mission-driven” affordable housing. 

And as far as Freddie, despite the challenges presented by the pandemic, it hasn’t missed a beat in executing on its pipeline of originations, according to Jenkins. 

While the lending sphere is still somewhat collecting itself, the GSE’s continue to hum along in a multifamily market where 94.2 percent of renters paid rent in June, which was just about 100 basis points higher than May and about 50 basis points lower on the year, according to information from the National Multifamily Housing Council (NMHC) from June 27.

Jenkins has experienced Freddie’s growth over the last decade since the company — and its counterpart, Fannie Mae — were moved into federal conservatorship in September 2008. Just last month, Freddie and Fannie announced that they had respectively hired J.P. Morgan Chase and Morgan Stanley as financial advisors to help inch them ever closer to privatization — pursuant to certain liquidity benchmarks — something the FHFA hopes to have accomplished in the next few 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’m a native Detroiter — born and raised there — and the majority of mine 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 had been in commercial real estate really since, call it, 1991 and worked at various banking institutions, the latest of which was Wells Fargo, where I came from within the commercial real estate, CMBS and securitization side of things. 

What drove you to Freddie Mac at that time?

As you can imagine in 2008, in the heart of the crisis, I would argue there’s no city that was hit much harder than Detroit — and no state, frankly, that was hit much harder by the recession, from an economic perspective. It was a really, really dire situation in Detroit and this opportunity with Freddie just sort of came up; I wasn’t really looking. I was curious. I joined Freddie right as we were sort of 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 the K-Deals. So, I was basically started as a senior director in March of 2008 to create those processes. At that point in time, David Brickman was running multifamily capital markets, so we’ve worked really closely together. Now he’s the CEO, and I run multifamily, so I don’t think that’s a coincidence given the success of the platform. 

That was an interesting time to have joined Freddie, just prior the economic fall out and its move to federal conservatorship. Its reputation, within the sector, and politically, had taken a hit.

I went from Wells Fargo at that point in time, which was a AAA-rated bank. And quickly — six months into Freddie — moved the family down to the D.C.-area, and six months later, we were in conservatorship. That was a pretty big shock. A lot of my Detroit family was asking what I had done. 

How would you compare this crisis with what you experienced then?

Contrasting the last crisis with this one is an interesting thing from a GSE perspective, because you remember, we were known as the mortgage giants and we were blamed for a lot of the issues that had occurred, and the housing industry was in a very negative spot. Here, with COVID-19, it’s a completely different situation, right? We are being called upon [for] the relief programs, and for the first time ever, there’s been legislation on the multifamily side affecting our borrowers and renters and the treatment and things of that nature; that’s just unprecedented. We’re being called upon to do more and more, which I embrace. I think part of our job is a little bit of the compassionate side that goes along with our three-pronged mission. It’s basically helping homeowners and renters in this country. Everyone’s got to live somewhere, and it’s our job to keep those platforms stable. We welcome the challenge and the opportunity to participate in ways that we hadn’t done before on the multifamily side.  

With how quickly this disruption developed, what were the first steps that were taken internally to prepare for what was ahead? 

Keep in mind as a backdrop: on March 13th, which was a Friday, we were all still in the office, making plans for what phasing folks out [would look like] if the pandemic got worse, and by Monday the 16th we were all home. Talk about rapid. And at that point in time in mid-March, we had our highest inflows — rates were low and liquidity flows in the market were really strong. So during this time period, we’re all trying to adjust to working from home while basically running the rental housing finance industry between ourselves and Fannie [Mae, which] had such a big part of this, with high volumes and untested technology. 

How did you adapt? 

[Using] property inspections [as an example], between ourselves and our lenders, we see the property before we make a commitment to buy the loan. This is something that’s key to our due diligence process. We went from, ‘What do we do if we can’t get into all of the units that we’re typically used to seeing?’ to everyone was home [throughout] the entire country. So using technology was huge. We started doing digital inspections. And we have a platform that we had been using but not to [this] extent, digitizing documents, signatures, electronic signatures and things of that nature, where if you couldn’t get full due diligence that you normally would, what were those items and how do you cover the risk? One of the key things we did right away was instituted the debt service reserve requirements. 

What’s your outlook for existing loans and multifamily finance overall? 

It’s a very challenging thing to predict. [The overall] multifamily market has been in a very strong situation with rent growth, low vacancies, demographic trends, the lack of supply in both single family and multifamily rental housing over the course of the last [six to eight] years. Obviously, COVID-19 makes this very interesting, but it’s also interesting in a lot of other sectors, including retail, office and hospitality. There’s a lot of impact in performance of those asset classes. But for multifamily, folks aren’t moving, so even if rents are at a point where they’re staying a little more flat, you still have a really good cushion between the cash flow at the property, the required debt service payments and a lot of equity to protect. No one can really predict what happens over the next few months, [but I would make the case that this] is a shorter-term phenomenon as opposed to longer term. There’s an even deeper lack of supply happening now — both in single family and in multifamily — so as households continue to form, people will need to live somewhere. If you’re going to invest in commercial real estate, multifamily has been the most favored sector; it even was the most favored sector, looking back to the last crisis. A similar sort of thing occurred and it created more demand for rental housing at that point in time.

Freddie was sitting on a little over $82 billion in loan purchasing power coming into 2020, not including the previous quarter, and you’ve said publicly that it’s beneficial because you have the ability to map out your pipeline throughout the course of the year. Has this been upended, reshaping the way you’re looking at 2020?

We manage this on a weekly basis, so we always have a really good handle of what our pipeline looks like. And the fact that a multifamily mortgage is basically a 90-day process, from beginning to closing, you really have a good handle, even going out a few months, on what your pipeline looks like. With the COVID-19 situation, we had a really strong pipeline and a lot of activity through March and the beginning of April and then things slowed down in the acquisition market, as you can imagine, given the volatility, and so did our pipelines. But I can tell you, through the course of the last four weeks straight, we’ve had in excess of $5 billion in new quote requests. The pace that we are on in terms of new loans under application, if we continue on the exact same pace that we are on through the balance of the year, we will be right on top of the $100 billion dollar cap, which is actually a good thing. If you look at the last crisis, we and Fannie’s multifamily platforms, instead of being about 20 percent each of the overall multifamily origination market, we made up about 70 percent. As other lenders move to the sidelines — debt funds really took a step back and a lot of others did [as well, like] CMBS, which had been struggling — we become just a larger percentage of the market naturally, and that’s what we’re supposed to do in times of crisis and in times of volatility. That’s when the need for not just liquidity and stability but affordability comes in, because we’re incentivized to perform that mission and to really care deeply about affordability and the workforce housing. I think the story really resonates. 

What is your take on Freddie’s place in the market now, given that it has become increasingly more difficult for other multifamily lenders to compete with what you offer in today’s environment?

We’re just getting to a settling point in the market, where we’ve had positive execution in capital markets and spreads are tightening and things of that nature while still maintaining a low Treasury level, although it’s jumped around 30 basis points up and down over the course of the last several weeks. And, I think that life insurance companies, banks and others are competing just as much as they normally would, and we aren’t really doing anything to crowd the market out by any means. The loans that we’re making at a loan level have good profitability in them, we’re not chasing spreads down or any sort of activities of that nature and we’re not widening a credit box. If anything, we’ve tightened things a little bit during COVID-19. Going forward through the balance of the year, assuming that the market stays fairly stable, you’ll see all of those other players come back into the way that they had been pre-COVID-19. 

Talk about the recent FHFA action to extend forbearance another three months for Freddie and Fannie borrowers. What kind of impact will this have in ensuring borrowers take advantage of it and thus, renters remain protected? 

When a borrower extends an existing forbearance period, they are also agreeing to not evict tenants solely for non-payment of rent during that period. The added flexibility will absolutely provide more breathing room for borrowers and renters who need it. It’s also important to remember that all borrowers who participated in the forbearance program have to extend flexibility to their renters during the repayment period. That means past-due rent isn’t due in a lump sum and there aren’t any penalties or fees for late payments or non-payment of rent.  Once a borrower is permitted to evict tenants for non-payment of rent, the borrower must provide a minimum of 30 days’ notice for the tenant to vacate.

So far, there has not been a flood of evictions. The [National Multifamily Housing Council] rent payment tracker is reporting that more than 94 percent of rent payments were made for the month of June. That’s right in line with where things were last year, pre-COVID-19. All that said, there is no doubt that renters have been uniquely affected by the pandemic and many are facing great hardship. Going forward, so much depends on our success in dealing with the virus, how the economy fares as a result and how policymakers respond to these challenges.