Letter to FHFA Director Watt 3/15/17 – Expresses Concerns re:Fannie Mae $1 Billion Blackstone Invitation Homes Deal

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2101 Wilson Boulevard, Suite 610
Arlington, VA 22201
(571) 527-2601

March 15, 2017

Hon. Mel Watt
Federal Housing Finance Agency
400 7th Street SW
Washington DC 20024
Dear Director Watt:

The Community Home Lenders Association (CHLA) writes to express our concerns about reports that Fannie Mae is providing $1 billion in financing to Invitation Homes, a unit of the Blackstone Group. Specifically, we write to ask a series of questions about this transaction regarding its consistency with mission, its risk, its impact on communities and consumers, and its lack of transparency.

Reports are that Fannie Mae is providing $1 billion in financing to Invitation Homes, a unit of the investment firm, the Blackstone Group, in order to help Invitation Homes refinance a portfolio of $1 billion of single family homes that are held as investor-owned units currently being rented out. CHLA has a number of concerns related to this transaction.

Mission. While Fannie Mae has traditionally purchased investor-owned single family units held for rental, our understanding is that loan availability is capped at 10 units per investor. This transaction appears to take Fannie Mae into another line of business, i.e. refinancing a very large portfolio investment in scattered site single family homes being held for rental. Instead, CHLA believes that Fannie Mae should continue to focus on its core mission – creating a secondary market for affordable single family mortgages and for rental housing projects that are affordable to low- and moderate income families.

Risk. This transaction concentrates $1 billion in counterparty exposure to a single borrower, taking on more of the aspects of a portfolio or commercial business loan than a simple investor loan. The transaction also entails new types of risks that Fannie Mae may not be that experienced in – including the challenges of maintenance of scattered site homes nationwide and unwinding such a large transaction if there are financial problems. These risks occur at a time when, as you noted just a year ago, the GSEs’ lack of capital is “their most serious risk” because of the one-sided Sweep Agreement.

Impact on Consumers and Communities. We are concerned that a major impact of large scale financing of scattered site homes for rental might be to reduce home purchase opportunities and increase housing prices in some already strong markets by taking these homes off the market. We are also concerned about whether there are provisions to ensure that the units being financed for rental are affordable.

Therefore, we would ask the FHFA to fully scrutinize this deal, and we inquire about the following:

          (1) Consistency with Mission. Has the FHFA fully evaluated this $1 billion transaction to determine whether what appears to be essentially a business portfolio loan refinancing to one borrower for the purpose of renting scattered site homes, is consistent with the GSEs’ mission and Fannie Mae’s Scorecard?

          (2) Risk. Has FHFA evaluated the risk of this transaction, including the counter-party risk of a $1 billion loan to a single borrower, the nature and adequacy of the collateral, and the challenges of foreclosure and management of large numbers of scattered site homes? This deal takes place at a time when the net worth of both Fannie and Freddie are soon moving to zero because of the contrived Sweep Agreement – with the risk of a Treasury Advance, and attendant negative investor and political consequences in the event of such an Advance.

          (3) Impact on Communities and Consumers. Has this transaction been evaluated to determine the impact on communities and consumers? More specifically, are the homes being financed predominately in areas still experiencing a housing glut and thereby stabilizing prices and communities – or is the main impact more to reduce home purchase opportunities and contribute to price increases by taking homes off the sales market?

Additionally, what provisions are in place on this transaction with respect to tenant income, rent affordability, or tenant protection requirements? And, are there any requirements on how long these units are to be held as rental housing or on the income of homebuyers when tenants leave and the units are re-sold?

          (4) Availability to Other Investors. Does this transaction signify a move away from single family rental unit loans to small investors towards lending to large scale investors? To what extent are pricing, terms, and conditions different in this transaction than for traditional small investor loans? CHLA has applauded the FHFA for significantly closing, if not eliminating, the G Fee pricing gap between large and small loan originators in recent years. If Fannie Mae is going to enter into the business of funding larger purchases of single family homes for rental, this principle of fair and equal treatment should equally apply.

          (5) Transparency. What levels of disclosure exist for this transaction, so that stakeholders and Congress can evaluate and monitor this deal?

We appreciate your response to this inquiry

Sincerely Yours,