Are taxpayers subsidizing Fannie Mae, Freddie Mac’s commercial mortgage biz?

It’s a question other lenders are asking more and more as they find themselves being beat by either Fannie or Freddie.

The reason the two loan agencies are outperforming institutional lenders is thanks to government insurance that allows them to charge lower rates than others, explains Real Capital Analytics’ Jim Costello in The Financial Times.

Since the crash, in addition to providing traditional loans for homeowner’s mortgages, both agencies have been increasingly financing rental housing, taking on the risk for loans underwritten by commercial mortgage companies. Last year alone, they financed about 1.6 million rental units in the U.S. (In the fall, The Real Deal reported that Freddie was dominating multifamily lending in the New York area.)

Of these “commercial mortgages,” the government-backed lenders’ combined interests clocked in at a total of about $500 billion in 2017, compared to $200 billion ten years ago. The Times reports that Freddie and Fannie’s main borrowers include Blackstone Group, Starwood Capital and Singapore’s sovereign wealth fund GIC among others.

“They play a critically important role in the underserved, affordable segment,” said New York University economist Sam Chandan to the Times. “But do they compete in the segments of the market where we see robust competition? I think those are legitimate concerns.”

According to Fannie and Freddie, about four in five rental units have monthly rents below 30 percent of their income.

With local government, like in New York, offering developers incentives to have affordable housing included within a high-end building, as well as many lenders hesitation following the crash, Fannie and Freddie say it was just the hand they got dealt.

“It’s not because we’re trying to do more high end or more expensive properties,” Fannie’s multifamily chief credit officer Manuel Menendez told the Times. [FT] — Erin Hudson