Other lenders might finally have a chance to compete with Fannie Mae and Freddie Mac’s loan programs in 2013—now that the federal government has ordered the government-sponsored enterprises and Freddie to scale back on providing permanent loans to multifamily properties.

That means that that borrowers looking to buy or refinance apartment properties will find lenders offering Fannie Mae and Freddie Mac loan programs being less aggressive, creating room in the market for competitors.

In March federal regulators released their goals for Fannie and Freddie in 2013, including a goal to cut their volume of new multifamily lending by 10 percent.

“We expect that this reduction will be achieved through some combination of increased pricing, more limited product offerings and tighter overall underwriting standards,” said Edward J. DeMarco, acting director of the Federal Housing Finance Agency (FHFA) in March 4 remarks to the National Association for Business Economics.

In a way, this is part of a natural progression. During the financial crisis, Fannie and Freddie program lenders originated up to 85 percent of multifamily financing.

Today capital markets have largely recovered and Fannie and Freddie’s market share has shrunk to about 45 percent. “They doing are about half of what they were doing,” says David Cardwell, vice president of capital markets for the National MultiHousing Council. “They did what they are supposed to do: Step in and provide liquidity.”

Even the reduced market share for Fannie Mae and Freddie Mac in 2012 was still a huge volume of lending, because multifamily lending activity overall has sharply recovered since the financial crisis. Fannie Mae provided $33.8 billion in financing to the multifamily market in 2012—making it the third biggest year in its history. “The company remained the largest source of multifamily financing in 2012, working with lender partners to finance nearly 560,000 units of multifamily housing,” according to a statement from Fannie Mae.

However, the federal government’s conservator is directing Fannie and Freddie to stop having historic years. “It was a pretty direct statement to the market that they did too much volume,” says David Cardwell. Over the last year, some banks have complained that they have had to be more aggressive to compete with the enterprises, according to Cardwell.

Demand in 2013

The decline in lending from Fannie and Freddie might also smoothly fit into the outlook for 2013. Experts including the Mortgage Bankers Association predict that the demand for multifamily financing will stay about the same or drop in 2013 as fewer multifamily loans hit maturity and need to be refinanced.

So it makes sense that the FHFA would direct Fannie and Freddie to scale back their volume, to keep from flooding the market as demand drops. “There is not going to be as much business,” says Cardwell.

Fannie and Freddie should also continue to provide loans to the same set of markets and product types, even as their volume drops.

“We are going to serve the same market that we served last year,” says Michele Evans, senior vice president and multifamily chief operating officer for Fannie Mae. “We have historically been one of the leading forces in rental housing finance and we feel the need to be consistently out there providing a wide array of options.”