Fannie, Freddie Woes Hurt Apartments

The Wall Street Journal reports:

The deteriorating commercial real-estate market is hitting Fannie Mae and Freddie Mac, the housing-finance giants that were taken over by the government last year after billions of dollars in losses on residential real estate.

The firms, which together have taken more than $110 billion in capital infusions from the Treasury, stepped up their lending for apartment buildings as the commercial real-estate market peaked, and they are now facing rapidly rising loan losses.

Fannie, which has been more active than Freddie, faces the biggest problems. Its serious delinquency rate, or loans that were 60 days or more past due, stood at 0.62% at the end of September, up from 0.16% a year ago. One troubling sign: one-quarter of the $180 billion of apartment-building loans on Fannie’s books were originated near the top of the market in 2007 and those loans account for nearly half of all its commercial-loan delinquencies.

Fannie increased to $1.2 billion its reserves for losses on multifamily loans at the end of September, up from $104 million at the end of 2008. In a statement, Fannie Mae said market fundamentals “will remain under pressure in the near term” and that the company is taking steps “to mitigate risks associated with weak rental demand.”

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. But the bigger impact could be on the market for apartment buildings. The firms were responsible for 84% of all multifamily lending last year, up from 34% of the market in 2006, according to the Federal Housing Finance Agency.

A rather interesting article from the Journal.