%1

Swelling supplies of apartment units are prompting big banks to pull back from new projects, forcing developers to scramble for capital, in a sign that the U.S. apartment industry headed for a downturn, the Wall Street Journal reported today. The apartment sector, which contributes some $284 billion to the economy annually, has been a winning bet for investors since the housing crash, as the economy recovered and more renters sought out units. Since 2010, average U.S. apartment rents have increased by 26 percent, according to data tracker MPF Research, a division of RealPage. But fresh supply is beginning to overwhelm demand. More than 378,000 new apartments are expected to be completed in 2017, a 30-year high, according to real estate researcher Axiometrics Inc. In the fourth quarter of last year, 88,000 units were completed but only 50,000 of those were rented by tenants, according to MPF.

Judge Nancy G. Edmunds of Federal District Court in Detroit has ruled that one of the nation’s largest providers of seller-financed homes must comply with a demand for documents and other information from the Consumer Financial Protection Bureau (CFPB), the <em>New York Times</em> reported today. The CFPB has been looking into whether the terms of some of these sales violated federal truth-in-lending laws. The agency filed a lawsuit in November after one such provider, Harbour Portfolio Advisors of Dallas, refused to comply with an administrative subpoena. Harbour Portfolio had argued that the agency had no authority to investigate its sale of formerly foreclosed homes to poor people through high-interest installment payment contracts — often referred to as contracts for deed.

In September 2008 during the height of the financial crisis, the government put the Fannie Mae and Freddie Mac into receivership and provided a $187.5 billion bailout. Fast-forward almost nine years, and the unfortunate reality is that the government-sponsored entities (GSEs) are still the largest suppliers of mortgages today, according to a New York Times DealBook commentary yesterday. In 2016, Fannie and Freddie issued mortgage-backed securities worth $974 billion, up 18 percent from 2015. Fannie Mae recently guaranteed $1 billion of debt backed by Invitation Homes, the single-family rental business owned by the giant private equity firm Blackstone. In making the guarantee, Fannie is taking a big leap into the growing home rental market, in which Blackstone is the biggest player. The guarantee was disclosed with Blackstone’s sale of 25 percent of Invitation Homes in an initial public offering last week. Fannie is making the guarantee on collateral of about 50,000 rented single-family homes that Blackstone bought in foreclosure in the last few years. Never mind that the deal is a big subsidy for Blackstone and Invitation Homes. The downside — the government being liable for at least part $1 billion if there is a default — is real, according to the commentary.

Despite Fitch Ratings’ analysts suggesting recently that reforming Fannie Mae and Freddie Mac may be slowed by the Trump administration’s other legislative efforts, one of President Trump’s top economic advisors said on Friday that Fannie and Freddie reform will be high on Steve Mnuchin’s agenda once he is confirmed as Secretary of the Department of the Treasury, HousingWire.com reported. Gary Cohn, the White House National Economic Council Director and a former top executive at Goldman Sachs, said that government-sponsored enterprise reform is “definitely on our agenda.” According to Cohn, while Mnuchin awaits confirmation amid a fight in the Senate, he has been focusing on GSE reform. Cohn said that the Trump administration “definitely” has plans to work on GSE reform, adding that he hopes Mnuchin is approved by the Senate as soon as possible.

A powerful housing trade group is wasting no time in pushing the Trump administration and Republican-led Congress to address one of the last unresolved issues from the financial crisis, outlining a proposal yesterday to overhaul mortgage-finance giants Fannie Mae and Freddie Mac, Bloomberg News reported. The Mortgage Bankers Association plan would make Fannie and Freddie privately-owned utilities and cap their returns on capital. It would also turn the government’s implicit backstop of the companies into an explicit guarantee of the mortgage-backed securities they sell to investors.