Fed's Rosengren Warns GSE Reform Could Threaten Property Market

  • Says GSEs hold or guarantee 44 percent of multifamily loans
  • Reducing GSE holdings could leave ‘significant imprint’

Schroder Investment's de Mello Says Fed Is in Good Place

Plans by Republican lawmakers and the Trump administration to reform government-backed mortgage companies could lead to a “significant shock” to the market for multi-family commercial real estate, said Federal Reserve Bank of Boston President Eric Rosengren.

“Policy makers looking to reform the GSEs might look at the GSEs’ large and growing footprint in the market and ask whether this level of government-sponsored exposure is safe, and whether that level of government support is appropriate,” Rosengren told a conference Tuesday at New York University’s Stern School of Business, referring to government-sponsored enterprises, which include Fannie Mae and Freddie Mac.

“A potential and significant shock to this sector of the commercial real estate market could occur if proposals require the GSEs to reduce their holdings of multifamily loans,” he said, according to the text of his prepared remarks.

The U.S. government took over the companies during the 2008 financial crisis in a $187.5 billion bailout that has since turned profitable. Treasury Secretary Steven Mnuchin has said Fannie and Freddie should be removed from government control.

In his speech outlining multiple risks for commercial real estate, Rosengren presented data showing GSEs, including their securitized vehicles, hold or guarantee about 44 percent of outstanding multifamily loans, more than all banking organizations combined.

The Boston Fed has for decades made the real estate market and mortgage lending one of the focuses of its economic research department.

— With assistance by Joe Light

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