1

Fannie & Freddie

What Next for Multifamily

Setting the Stage

Good time to be an apartment owner or investor

• Rebalancing of housing

• Solid fundamentals

• Strong demographic outlook

2

3

Apartment Recovery:

• Occupancy anticipated to remain strong

• Rent Growth to buck trend and maintain/slight increase

85%

90%

95%

100%

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

Occu

panc

y

-5%

0%

5%

10%

Year

-Yea

r Effe

ctive

Ren

t Gro

wth

Occupancy Occupancy Forecast Rent Growth Rent Growth Forecast

Slower (still above trend) rent growth in 2013, then upward

Copyright 2013, Witten Advisors LLC

Dallas, Texas

4

Apartment Recovery:

• No indication of national apartment development bubble –

New supply still 750,000 below trend

• Strong Delivery Numbers in 2013, 2014, 2015

Permits Issued 5+ Units

0

200

400

600

2000 2003 2006 2009 2012

4

20 20 21 22 22 21 20 20 21 23 2220

1713

9 7 6 60

10

20

30

<5 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 >85mill

ions

of p

eopl

e

The Generations by Age Group

Baby Boomers Eisenhower GenGen XGen Y (Echo Boomers)Gen Z

(800)

1,200

1,900

2,300

(400)

(2,000)

(1,700)

1,800

3,400

5,000

4,900

2,300

500

700

20 - 24

25 - 29

30 - 34

35 - 39

40 - 44

45 - 49

50 - 54

55 - 59

60 - 64

65 - 69

70 - 74

75 - 79

80 - 84

85+

Population Growth by Age Group (000s), 2012E-2020E

Senior Housing will also benefit

Gen Y drives demand for apartments, entry-level

homes

Boomers downsize, drive demand for lifestyle

product

Smaller Gen X base replaces Boomers, limiting demand for move-up/luxury housing

23%

23%

29%

38%

64%

0% 50%

> 65

55-64

45-54

35-44

< 35

Propensity to Rent by Age

Group

Favorable Demographic Outlook For Apartments

5

6

Commercial/Multifamily Loan Originations – 2012 MBA Estimate

Lending is returning to normal flow levels

• Note the correlation between government credit and private label CMBS

• CMBS data includes limited multifamily mortgage-backed assets.

6

7

Multifamily Housing Finance/GSE Reform

Liquidity

Products

Pricing

Credit Backstop

CMBS

Banks

7

8

Housing Finance/GSE ReformMore than Bad JuJu

8

• GSE model has flaws (single-family)

• Prevent future bailout/losses

• Home mortgage finance system flawed

• Ned to get the private markets reengaged

• General agreement that duopoly needs to be replaced or significantly changed

9

9

Multifamily GSE Reform: A solution in search of a problem

What is the Issue We Are Trying To Address?

• Government Credit Risk

• Create More Profits for Private Debt Providers

• Reducing/Eliminating Government Footprint in Housing

• GSEs are just “Bad JuJu” - So Multifamily Must Go

10

Accept Reality

10

Need to Address The Status Quo

• Need to phase out the GSE participation in the market

• We only need a catastrophic risk backstop

• Government should not be exposed to real estate credit risk

11

Realty Check

11

Are the multifamily programs a liability or an asset?

• Very low default rate for 23 years (handful of defaults)

• Apartment sector is not as subject to overbuilding

• They have been a market leader and complement private debt

12

Affordable Housing

12

The GSEs Contribute

• 16% of their MF volume in 2012 or $10 B was for targeted AH

• Exceeded goals of 80% of AMI by 150%

• TE bond CE and LIHTC financing

13

13

Can they contribute more?

• $3-$4 Billion in NET revenues in 2012 – share the wealth

• MF low-income housing trust fund?????

• Set in motion moral hazard with a twist??

Affordable Housing

14

14

• Federal credit for MF but only for security investors

• Expanded credit envelop – G-fee, RBC and insurance fund

• Risk retention

• Public purpose activities

Growing Policy Consensus

15

What will they do?

15

16

16

Congress - Senate

Senate Banking

• First hearing on March 19th

• Warner and Crapo want Congress to Lead

• Bi-partisan opportunity has a chance

• Chairman Johnson is retiring but may be motivated

17

17

Financial Services Committee

• First Hearing March 19th

• Chairman Hensarling wants a bill that puts in place as much of a GSE wind-down a as he can get

• Working his caucus – not as unified on his position

• House leadership want a bi-partisan bill

Congress - House

18

Preservation of the liquidity currently provided by Fannie Mae and Freddie Mac in all markets during all economic cycles is critical. This can be achieved either through:

(1) the preservation of current multifamily activities under conservatorship; or

(2) should reform become inevitable, the reform should preserve the high quality and value of the current multifamily secondary mortgage market activities.

NMHC/NAA Advocacy: What we want. . .

18

GSE Reform: Why It Matters

19

Commercial/MF Loan Orginations

Questions?

dcardwell@nmhc.org202.974.2336