Multifamily Financing Market in Limbo Amid Fannie, Freddie Privatization Unknowns

As multifamily investors await news of a possible privatization of Fannie Mae and Freddie Mac this year, the devil will be in the details as to whether changes to the government-sponsored enterprises (GSEs) will materially affect deal flow.

The Trump administration set the ball in motion for an initial public offering of the GSEs in August when meetings were held with the six largest banks and plans were formulated to sell up to $30 billion in preferred shares of Fannie and Freddie on the open market. The timing and specifics remain unknown of when privatization could take effect  — nearly two decades after the mortgage giants were placed in conservatorship following the 2008 Global Financial Crisis — leaving the multifamily market in limbo as the new year begins.

“If the rules are going to change for our industry, they just need to tell us what they are so that everyone can then adjust,” said Dwight Dunton, founder and CEO of Bonaventure, a multifamily investor that owns 4,447 units, of the potential overhaul of Fannie and Freddie. “I think where it will cause dislocation and impact availability of housing the most is if the rules change suddenly or if they change repeatedly.”

Under the current system, Fannie and Freddie are controlled by the Federal Housing Finance Agency (FHFA) that was established in July 2008 following congressional approval of the  Housing and Economic Recovery Act. The agencies currently have loan portfolios estimated at around $7.5 trillion.

As uncertainty surrounds the future of the GSEs, the timing of the Trump administration ending government control of them may take longer than Trump hoped due to complications of revising capital requirements and deploying $355 billion to the U.S. Treasury for the 2008 bailout, according to a December Bloomberg report. The analysis estimated a roughly 33 percent chance that privatization would not be completed by time President Trump’s term expires in January 2029. 

“It would take time to actually work through the process to get everything approved,” said Ricky Carruth, chief housing analyst for RLTYco. “I think that anyone saying that we’re going to go IPO next year, in my opinion they’re out in left field thinking that.”

A public offering of Fannie and Freddie could net $382 billion and be among the largest IPOs ever, Santander strategist Steven Abrahams estimated in a Bloomberg story in May.

Toby Cobb, co-founder and managing partner of 3650 Capital, noted that the multifamily sector contains a small percentage of Fannie and Freddie’s outstanding loans compared to residential at around 10 percent. Cobb said one possibility would be for the Trump administration to spin off the multifamily division of the GSEs and leave the residential side intact.

“That would be less controversial because the principal borrowers are owners of apartment buildings, and an owner of an apartment building feels a whole lot less like they need a government-sponsored entity to support the financing needs of their $100 million to $200 million apartment building,” said Cobb, who in the mid-2000s ran Berkshire Mortgage for Deutsche Bank, the largest originator in the GSE space at the time. “The answer for fixing or taking that subsidized product away from the borrower in multifamily would be very different than it would be in residential.” 

Pershing Square Capital Management CEO Bill Ackman, who bought 10 percent of the GSEs in 2008, suggested in December 2024 soon after Trump’s election win that the federal government could fetch more than $300 billion from an IPO of the entities. Ackman said in a November presentation, though, that it would take “significant time” to execute an IPO and suggested steps that could expedite the process, which would include re-listing Fannie and Freddie on the New York Stock Exchange. 

Dunton said the biggest issue he and others in the multifamily industry are tracking closely is whether the government guarantee of securities issued by the GSEs will remain in place or be limited. He also stressed that the decision to end privatization nearly two decades ago was driven by issues in the single-family market, and that conservatorship for multifamily has been positive with more focus on affordable housing.

“To the extent that the rules did change or evolve, we’ve been playing this game a long time as an industry, so the industry has learned to adapt to whatever changes our two largest credit providers have brought,” Dunton said. “Where it will cause dislocation and impact availability of housing the most is if the rules change suddenly or if they change repeatedly.”

Carruth said there are many different scenarios that could play out with Fannie and Freddie with privatization plans and will likely result in some form of government oversight in a hybrid model. He said a full-scale privatization would be a big risk to the rental housing market, with a more profit-driven plan resulting in a spike in mortgage rates and more strict underwriting for multifamily loans along with higher loan-to-value ratios. 

“A private company is going to be more about chasing profits and looking for margins, and I would imagine they’re going to be more interested in these 100-plus-unit developments, and they’re going to be less interested in these higher-risk smaller properties and smaller investors,” Carruth said. “I imagine that they are going to do everything they can do to create a soft landing, whichever way they go with it, so that it doesn’t just create a complete catastrophic catastrophe for commercial and residential.”

While far smaller than the residential side, Cobb noted that multifamily divisions of the GSEs would still generate billions, with firms like Blackstone, Brookfield, Alliance Bernstein and Ares Management likely lining up to buy the business from the agencies due to strong credit conditions underlying the debt. Cobb said Fannie and Freddie have been successful in adding liquidity to the multifamily market, but stressed that U.S. taxpayers should not be “burdened” by these loans.

Cobb, who serves on the boards of the Real Estate Roundtable and Commercial Real Estate Finance Council, both of which are engaged on the GSEs privatization issue, said a likelier scenario may be a small public offering of the entire GSE portfolio where only 5 percent of the stock is sold. He said it is unlikely there will be total privatization or the removal of the implied guarantees of the U.S. government stepping in to rescue the agencies should another GFC-like scenario occur.

The U.S. Department of Housing and Urban Development (HUD) is the more conducive agency to carry out the mission of more affordable housing in the multifamily sector, according to Cobb, since HUD finances most Section 8 subsidized housing. He said the infrastructure is in place for multifamily loans to be absorbed by the private sector with little to negative impact for renters. 

“You could sell it to Blackstone or Brookfield and they would buy the entire business and they can provide the guarantees, or they would just be commercial deals and they would issue senior securities just like the rest of the CMBS market,” Cobb said. “The big losers would be the loan originators that are making money off making Fannie and Freddie loans that have those licenses.”

Andrew Coen can be reached at acoen@commercialobserver.com.