Developing a Secondary Market for Affordable Rental Housing: Lessons from the Limac/Freddie Mac and Emi/Fannie Mae Programs

Abstract

An active secondary mortgage market requires underwriting and mortgage contract standards as well as mortgage performance information for potential investors to assess. These standards and information have been developed in the single-family mortgage market, but not in the secondary market for rental housing mortgages, which is still in the early stages of development. The advances made in the single-family market were largely due to the leadership provided by Fannie Mae and Freddie Mac, both government-sponsored enterprises (GSEs). This article explores the potential role of Fannie Mae and Freddie Mac in the further development of the secondary multifamily mortgage market by examining the LIMAC/Freddie Mac and EMI/Fannie Mae pilot programs. These programs illustrate the challenge of creating industry standards and building an information base and demonstrate that GSEs' participation in this market has been relatively small. Given the public mandate that comes with government sponsorship, we argue that GSEs should take an active leadership role in the development of the multifamily market.

JEL Classification: G2, G1, H5, D6