Congressional Impasse Causes Concern about Default
On Thursday October 10, Treasury Secretary Jack Lew appeared before the Senate Finance Committee to discuss the consequences of failure by the U.S. Government to raise the debt ceiling. There has been growing concern that similar brinkmanship shown in the days since the government shutdown could prevent the government from raising the federal debt ceiling, which would cause the United States to default on its debt. Secretary Lew stated that the uncertainty around raising the debt limit is beginning to stress financial markets at a time when America is slowly recovering from the 2008 market collapse. He said the uncertainty is made worse by the continued stalemate on reopening the government.
Some legislators have questioned the notion that default would be cataclysmic, suggesting that the government could prioritize payments on interest. Jake Lew countered “If Congress fails to meet its responsibility, it could deeply damage financial markets, the ongoing economic recovery, and the jobs and savings of millions of Americans.” Furthermore, the Treasury’s automatic payment system is not capable of selecting to pay interest only as is suggested by some lawmakers.
The Treasury continues to project that the “extraordinary measures” implemented will be exhausted no later than October 17, 2013, at which point the federal government will have run out of borrowing authority. At that point, the U.S. will be left to meet the country’s commitments with only cash on hand and any incoming revenues. It would be impossible for the United States of America to meet all of its obligations with current cash on hand (which is approximately $30 billion) including Social Security and Medicare benefits, payments to military and veterans and private contractors. This would be the first default in American history.
Congressional leaders and President Obama are talking about possible negotiations. Members from both parties are meeting with the President this weekend, and the Speaker of the House, John Boehner, has offered a six week extension of the nation’s borrowing authority. Congress and the president will have to finalize negotiations soon before the October 17 deadline. Secretary Lew was critical of these “manufactured political crises.”
To view Secretary Lew’s Testimony, please follow
this link.
Senate Banking Committee Examines Multifamily Housing Finance System
On Wednesday September 9th, the Senate Committee on Banking, Housing and Urban Affairs conducted a hearing on housing finance reform entitled: “Essential Elements of the Multifamily Housing Finance System.” This hearing is one of many that have focused on the government’s role in the housing finance market, specifically with the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. The four witnesses at this hearing are experts from the Multifamily Housing Finance industry:
- Thomas Bozzuto – Representing the National Multi Housing Council and National Apartment Association
- E. J. Burke – Key Bank Real Estate Capital, speaking for the Mortgage Bankers Association
- Shekar Narasimhan – Managing Partner, Beekman Advisors
- Terri Ludwig – President and CEO, Enterprise Community Partners, Inc.
Ranking Member Mike Crapo (R-ID) began the session by praising the Multifamily market for its well managed financing, highlighting that there was only a one percent delinquency rate on multifamily loans during the 2008 housing crisis. Yet he and other members of the committee remain focused on reducing the federal government’s role in all areas of the housing finance market, including multifamily.
Some witnesses agreed with this objective to have private lenders as the primary source of capital, but there was unanimous agreement that the GSEs provided essential financing in the multifamily market. Thomas Bozzuto’s testimony acknowledged that historically, private capital has been either unwilling or unable to meet the full range of the multifamily industry’s capital needs, even during healthy economic times. While he was not supporting the total retention of the GSEs in their current form, he did note the importance of a federal government backstop.
E.J. Burke suggested that a wholly-owned government corporation should function as a catastrophic guarantor, administrator of a risk insurance fund, and regulator of secondary market entities. He stated that the corporation would not be subject to the federal appropriations process, but be funded by guarantee fees paid by issuers. Furthermore, he said secondary market entities should consider the affordable elements of multifamily housing, but regulations (if any) should be reasonable and flexible, as well as balanced with regard to the need to attract private capital.
Terri Ludwig was more supportive of the GSEs than were other witnesses and committee members. She praised their strong underwriting, which mitigates systemic risk in the rental market, and their promotion of stability and broad access to credit through flexible products such as longer-terms and more fixed-rate loans than banks offer. She said that Fannie’s and Freddie’s ability to play this important role in the market is due to their access to an explicit guarantee from the federal government. As E.J. Burke noted, an explicit limited guarantee on multifamily mortgages should be included in housing finance reform. Enterprise Community Partners suggests the government should spin off Fannie’s and Freddie’s multifamily businesses into two self-contained subsidiaries. These new entities would maintain the current multifamily products (such as the Fannie Mae DUS Program and the Freddie Mac CME Program K-Series) and contract with Fannie and Freddie to manage the existing multifamily assets. Shekar Narasimhan agreed with this. Over time, Terri suggested, the new entities would be required to raise private capital with the option of buying out the government’s interest.
The testimony documents provided by each witness all acknowledged the need and demand for affordable multifamily housing. Thomas Bozzuto’s testimony highlighted that an estimated 300,000 to 400,000 units a year must be built to meet expected demand, and that apartments and the people who live in them contribute, on average, more than $3 billion a day to the economy. Shekar Narasimhan’s testimony provided that multifamily renter occupied units increased by 5% from 15.2 million in 2005 to 16.0 million in 2011, and that 27% of renters pay more than half their income on housing. Senator Robert Menenedez (D-NJ) remarked that this presents a great challenge, especially in a time when many individuals and families are beginning to recover from the economic crisis.
Kansas Senator Jerry Moran (R) questioned the panel about the differences between financing multifamily properties in metropolitan areas versus rural areas. E.J. Burke responded that loan sizes in smaller communities created greater risk. Moran asked if regulation could serve to counteract this or if some states were achieving better lending in smaller markets. Witnesses could not pinpoint an exact example but Terri Ludwig stated that this shows the need for more testing on multifamily products in rural and small markets.
To view witness testimony and to watch an archived video of this hearing, please follow
this link.
Government Shutdown Continues
As of October 11, 2013, the Federal Government entered its 11th day of a shutdown. While talks between the White House and Congressional leaders are advancing, there is still no clear timeline for a reopening of the Federal Government. Since the shutdown began on October 1st, HUD and Rural Development offices have been closed, federal employees have been furloughed and all work and progress on current projects has been halted.
NAHMA is now asking its members to contact their Senators and district Representatives to urge them to end the federal government shutdown. An impasse such as this hurts the operation of affordable housing properties nationwide, and the essential services provided to low-income Americans through housing programs are severely threatened. We would like members to share the impacts that they have experienced under the shutdown, and what consequences await if it continues. Your experiences can help by inform lawmakers of the impacts on affordable housing properties in their state.
Again we encourage all NAHMA members to call their state Senators and district Representative and urge them to end the government shutdown. You can use
NAHMA Maps to help find your Senators and Representative and their office phone number. Due to staff furloughs, some office may not answer your call. NAHMA Maps will also provide you with the appropriate email address that you may use to get in touch. The legislator’s district office is also a great place to call.
