Fannie-Freddie Overseer Scraps Program for Rental-Home Investors

(Bloomberg) -- The U.S. regulator for Fannie Mae and Freddie Mac is shutting down a controversial program that subsidizes loans for firms investing in single-family rental homes, saying the market can function well without the support.

The Federal Housing Finance Agency said Tuesday that the two mortgage giants will dial back their participation after a two-year “test and learn” pilot program designed to gather information on the market and best practices. The agency said in a statement that it also sought industry feedback on market challenges and opportunities, and conducted its own impact analysis during the pilot period.

“What we learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the enterprises,” FHFA Director Mel Watt said in a statement.

FHFA said that Fannie and Freddie will continue participating in the single-family rental market through previously existing programs, and that Tuesday’s announcement doesn’t preclude changes to those programs or new proposals designed to help renters become homeowners.

Long the domain of small, local landlords, single-family rentals started attracting large investment funds in the aftermath of the U.S. foreclosure crisis, when firms like Blackstone Group LP snapped up houses cheaply at bank auctions.

Fannie and Freddie’s foray into single-family rental financing has been controversial since it began, starting with a $1 billion loan guarantee for Blackstone’s Invitation Homes that was criticized by lawmakers and advocacy groups.

Arguments in favor of the financing focused on the idea that it could help alleviate the shortage of rental housing in the U.S. But consumer advocates and some lawmakers countered that making deals with Wall Street giants did little to advance affordable homeownership.

The FHFA’s announcement came at a curious time, as Freddie has completed its own deals, as recently as this past week. Front Yard Residential Corp. acquired property manager HavenBrook Partners LLC this month and a portfolio of 3,200 rental homes, both majority-owned by a Pacific Investment Management Co. fund. The purchase, facilitated by a $509 million loan, marked the biggest deal Freddie has done in its single-family-rental program.

The Fannie-Freddie programs “provided the space with legitimacy by showing that there is a very large market for rental home finance,” said Ryan McBride, chief operating officer at CoreVest Finance, which recently announced that it had originated its first loan through the Freddie program. “It brought a lot of groups into the financing market that were using less attractive forms of debt to finance their portfolios.”

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