CNU and NTBA's Proposed Reform of Fannie Mae, Freddie Mac and related housing programs

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In the last two years Fannie Mae and Freddie Mac, the two large federally chartered secondary mortgage agencies, have received, fairly or unfairly, blame for overheating the housing market and for helping spur the Great Recession. Whether Fannie and Freddie should be blamed for the recession, there is little question that Federal mortgage agencies hold great influence over the housing market. On the positive side Fannie and Freddie are often credited with creating and popularizing the low interest long-term mortgage. This helped many middle class Americans become homeowners. However, from the outset, these agencies restricted government backed mortgage market activity to housing built in noncommercial areas. Fannie Mae prohibits eligibility for any project that is more than 20% non residential. Freddie allows up to 25% non residential. HUD's capital program for multifamily housing, 221 d (4), also restricts non residential to 20% of imputed rent. This has had a distorting effect on building types and development patterns. Low- to mid-rise buildings with retail on the first floor and apartments or condominiums above are disadvantaged under the Fannie, Freddie and 221 d (4) limits. Before these regulations, low-mid rise mixed use buildings were common. In fact, you can see them across America on Main Streets in older towns and suburbs. These places remain popular, holding strong real estate value. Yet, largely because of the distorting effect of Fannie/Freddie limits on mixed-use residential, development and redevelopment is substantially excluded from housing finance markets which are dominated by Fannie/Freddie.

The Congress for the New Urbanism and the National Town Builders Association propose that current restrictions on mixed-use buildings be eliminated, or raised to allow at least 50% of a project to be non-residential and still allow the residential portion of the project to be eligible for the Fannie/Freddie secondary mortgage market or the 221 d (4) capital program. This change would allow market forces to better determine characteristics of development rather than federal mandates. It would allow the market to respond to recent consumer preferences for mixed use neighborhoods, as most recently reported in the Urban Land Institute/Pricewaterhouse Coopers Emerging Trends in Real Estate 2011. Government generated regulations that suppress development that responds to consumer demand can negatively effect growth and recovery. CNU and NTBA's proposal is to remove or substantially ease these restrictions.