While both Fannie Mae and Freddie Mac are still the big dogs in multifamily lending, their biggest competitors have begun doing what they must to win over new market share–and with everyone from the House of Representatives to the President of the United States looking to phase out Fannie and Freddie all together, it looks like the competition is heating up as the local banks have begun chomping at old Fannie and Freddie’s heels. 

After the market crashed, accessing capital via traditional lenders and banks was nearly impossible and Fannie Mae and Freddie Mac were there to lend for multifamily.

Unfortunately, in recent years, the amount of multifamily financing available has been stretched thin because of the increase in competition.

How is the impact is being felt?

In 2014, Fannie Mae’s overall multifamily lending business has totaled a mere $6 billion or less than half the $13.6 billion in multifamily loans they did during this same time last year.

Aside from lowering interest rates, this drop-off in volume has had a surprising side effect in that there are fewer loans to turn into bonds. Which translates into potential bond investors being forced to compete for a limited supply of bonds, paying more, and reducing their overall yields by more than 20 basis points just in the last eight months.

Is phasing out Fannie and Freddie the solution?

As a result of the collapse of the mortgage market, many feel that replacing Fannie Mae and Freddie Mac is a necessity, but, according to an article recently published in Forbes, phasing out Fannie and Freddie as a consequence to the mortgage meltdown is like “pulling over when the check engine light comes on and changing a tire, the fix has nothing to do with the problem.”

Even with regulators ordering Fannie and Freddie to limit their overall volume of lending to multifamily by 10% in 2013, this year a more relaxed attitude has both Fannie Mae and Freddie Mac lenders offering lower interest rates and the promise to have delegated underwriting service programs in place, plus “soft quote” capabilities available to allow for faster turnarounds.

How do you see this competition affecting the multifamily market? Do you see the fact that banks can offer lower rates and quicker service as a real threat to Fannie Mae and Freddie Mac? We’d love to hear your comments in the section below.