Trouble Brewing At Fannie Mae (FNM) And Freddie Mac (FRE)

US housing finance giants Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are facing the heat again as commercial real estate market deteriorates. Both these firms had stepped up their lending after having taken more than $110 billion in capital infusions from the Treasury.

The losses from Fannie’s and Freddie’s $300 billion in apartment-building loans will be a fraction of their losses on single-family homes, where the two firms back $5 trillion of loans. Both these firms were responsible for 84% of all multifamily lending last year according to the Federal Housing Finance Agency.

Both Fannie and Freddie deny criticism on them being aggressive in lending money and point out that falling market will have a negative impact on all firms in some form or the other.

Most of Fannie’s and Freddie’s multifamily loans won’t mature for several years allowing time for rents and vacancies to recover before owners have to refinance. However these looming maturities only add to the uncertainty about whether Fannie or Freddie will stay active in the multifamily space over the medium to long term.

Various proposals on how to revamp Fannie and Freddie haven’t paid much attention to multifamily lending, but industry leaders say they aren’t concerned. Also the government is not expected to come up with something negative in the near term.