Fannie Mae’s $1 billion Blackstone deal draws fire

A $1 billion deal between Fannie Mae and Blackstone Group is drawing fire from the housing industry and consumer advocates as the investment firm prepares to sell its housing unit in an initial public offering.

The National Association of Realtors Tuesday accused Fannie Mae of subsidizing big investors at the expense of ordinary homebuyers and asked the company’s regulator to lower mortgage costs for rank-and-file borrowers. The National Community Stabilization Trust, a nonprofit that rehabilitates vacant properties, criticized Fannie for giving a lift to a company on the verge of going public and an industry with an imperfect record of tenant relations.

Fannie’s loan guarantee, which ultimately is backed by taxpayers, will lower borrowing costs for Blackstone’s Invitation Homes unit, allowing the company to add to the 50,000 single-family rentals it already owns, many acquired at rock-bottom prices during the housing collapse.

Invitation Homes disclosed the Fannie deal last week in a SEC filing announcing its public offering. It comes as rising mortgage rates, high prices and a tight supply of houses and condos for sale make homeowership challenging for first-time and lower-income buyers.

“Rather than focusing on allowing well-qualified Americans to build wealth through affordable mortgages options, Fannie Mae is actively financing large institutions to compete with them,” NAR President William Brown wrote in a Jan. 31 letter to Fannie regulator Mel Watt, director of the Federal Housing Finance Agency. “These investors do not expand the affordable housing stock. Rather, in this limited market they drive up the price of rents and remove affordable inventory from the hands of American homeowners.”
Fannie Mae and its smaller cousin, Freddie Mac, are government-sponsored entities, or GSEs, that buy, bundle and sell mortgages, packaging them with a taxpayer-backed guarantee that investors will collect loan payments even if a borrower defaults. The companies have long guaranteed loans on houses, condominiums and apartment buildings, but the Blackstone deal is the first involving a cluster of single-family rentals.

Hedge funds and other investment companies bought up cheap foreclosures by the tens of thousands after the 2008 crash, converting them to rental homes. Now they are some of America’s biggest landlords and some have come under fire for their eviction practices.

Invitation Homes spokeswoman Claire Parker declined comment, citing a quiet period before the initial public offering.

An FHFA spokesman said the agency would monitor the Fannie deal before approving more like it.

“Given the growth in the single-family rental market, FHFA considered this transaction one that would enable us to explore alternative options to serve those families who choose to live in single-family rental properties,” an FHFA spokesman wrote. “Fannie Mae will be receiving regular reports from Invitation Homes that will inform FHFA about existing challenges as well as strategies regarding single-family rentals. Based on this and other information, FHFA will then decide if this type of financing should continue and, if so, under what conditions.”

Fannie and Freddie charge lenders a fee for their guarantees, a cost that’s passed on to home buyers and renters. The program has proven lucrative as fewer borrowers default. For the three months that ended Sept. 30, Fannie reported a $3.2 billion profit, up from about $2 billion a year earlier.
NAR, whose members earn money from commissions made by buying and selling houses, asked FHFA to lower fees paid by homeowners, something that could boost home sales.

“Charging individual borrowers substantially higher fees than the actual risk they present, while at the same time subsidizing investors able to raise billions of dollars on their own, undermines the GSEs’ public mission,” NAR’s Brown wrote. “Our nation needs the GSEs to bolster homeownership opportunities for millions of responsible, middle class American families, not funding special interest deals with Wall Street financial firms.”

Advocates for low-income housing said the Fannie deal deploys resources where they’re least needed.

“These investors so far have had no trouble financing the purchase of tens of thousands of homes without government support,” said Robert Grossinger, president of the National Community Stabilization Trust.

“At the very least, the arrangement with Invitation Homes should contain provisions that strengthen protections for tenants living in these homes, support affordability, and prohibit the predatory rent-to-own and installment contract arrangements that are becoming increasingly common in the single-family rental market,” Grossinger said.

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