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 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 4

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 Reform More 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 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 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 Congress - Senate Senate Banking First hearing on March 19 th Warner and Crapo want Congress to Lead Bi-partisan opportunity has a chance Chairman Johnson is retiring but may be motivated

17 Financial Services Committee First Hearing March 19 th 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 in all markets during all economic cycles 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: preservation of current multifamily activities under conservatorship (1)the preservation of current multifamily activities under conservatorship; or preserve the high quality and value of the current multifamily secondary mortgage market activities (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

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