President Bush was expected to sign into law by early August a controversial bill to rescue government-sponsored enterprises Fannie Mae and Freddie Mac. The bill would allow the Treasury Department to extend unlimited credit to the mortgage firms. The Senate overwhelmingly approved the measure in a 72-13 vote on July 26.

The multifamily industry has voiced concern for weeks about the troubled agencies' lending plans. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corp. (Freddie Mac) hold or guarantee more than $5 trillion in mortgages, mainly for single-family residences.

The agencies, with the Government National Mortgage Association (Ginnie Mae), held $157 billion in multifamily debt in their portfolios at the end of the first quarter and had issued nearly $143 billion in mortgage-backed securities, notes Jamie Woodwell, vice president of commercial/multifamily research at the Washington, D.C.-based Mortgage Bankers Association.

“Everybody knows Freddie and Fannie are too big to fail,” says Robert White, president of New York-based research firm Real Capital Analytics. The housing sector is so critical to the economy that it's logical the government would protect it, he says.

Strong grip on mortgage debt

Freddie and Fannie's role in the multifamily market is pivotal. They hold more than a third — 35% — of the nation's multifamily mortgage debt and 9% of the commercial and multifamily mortgage debt outstanding.

Chief executives of multifamily lending institutions and financial intermediary firms say Fannie Mae and Freddie Mac have bolstered the apartment sector at a time when the office and retail sectors have faltered, and when the residential market has been severely damaged by the subprime crisis and a wave of home foreclosures.

The housing bill would raise the nation's legal debt limit by $800 billion to $10.6 trillion to allow for a flow of funds to the agencies. It would also authorize a strong federal regulator to oversee Freddie and Fannie, including top executives' salaries, which in some cases exceed $1 million and have run as high as $20 million.

High price for rescue

The rescue could cost taxpayers $25 billion, analysts say, with some estimates reaching $100 billion. The measure is intended to bolster worldwide confidence in the U.S. mortgage system and to rescue up to 400,000 homeowners at risk of foreclosure.

Multifamily investors should be reassured by the sector's strong fundamentals, White says. At the end of the first quarter, the delinquency rate on Fannie Mae's multifamily mortgages was just 0.09% and on Freddie Mac multifamily mortgages, 0.04%, MBA reports.

A Freddie Mac spokeswoman says the agency will continue to support the apartment industry. “We're committed to the multifamily market,” says Patricia Boerger. “We're doing deals. Our volume in the first half of this year is larger than it was in the first half of last year. Freddie Mac plans to continue investing and growing in the multifamily mortgage market.”

Christopher Finlay, managing principal of Oakton, Va.-based Mission Residential LLC, which holds a $1 billion portfolio of properties, is encouraged. “We've received nothing but assurances from Fannie Mae and Freddie Mac of their financial health,” he says.

But some believe it's time to cut the federal ties. Cliff Mendelson, senior managing director of Bethesda, Md.-based Transwestern's structured finance group, which helped land $325 million in financing for Solaris Residences, a condo project in Vail, Colo., believes the companies should stop receiving government support.

“I don't think they should be government-sponsored enterprises anymore. I think they should be private,” he says.

That may not occur anytime soon, observes Woodwell of the MBA. “You've had government-sponsored enterprises as an important part of the multifamily market and I would expect them to continue to be.”