Government-controlled Fannie Mae has been trying to “bail out” owners of commercial properties by taking over loans on multifamily housing. However, while the market for such housing is indisputably in recovery mode, the GSE is struggling to make its “investments” in the market, many of which are now entering foreclosure, make dollars and cents. In 2007 when many multifamily owners were converting their rentals to for-sale condominiums, the GSE loaned millions on such properties. However, when the market crashed, the borrowers stopped making payments. “It made no business sense,” explained one firm’s chief executive. This left Fannie Mae stuck with the properties, which were the source of more than a third of all of the GSE’s loan losses last year.
Experts blame both GSE’s “ramping up” of their purchases of apartment building loans in 2007 and 2008 when other private lenders were backing off for the problems that Fannie Mae is facing now. Interestingly, Freddie Mac is seeing “significantly stronger performance from its multifamily book,” with only 14 properties in foreclosure at the end of 2010. As the multifamily market improves, Fannie Mae hopes to sell some of its foreclosed apartment buildings while keeping stakes in future repossessions. Given that this is all being funded by taxpayer money, do you think that the GSEs should continue to gamble in multifamily or just cut their losses and get out?
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