Scotsman Guide 3/15/17 – Trade Group Questions Fannie’s Blackstone Deal

Mar 15, 2017   13:00 ET
Trade group questions Fannie’s Blackstone deal

A non-bank trade association has expressed concerns to a federal regulator about Fannie Mae’s plans to lend the giant private equity firm Blackstone Group $1 billion to refinance thousands of single-family homes.

The Community Home Lenders Association (CHLA) is questioning whether it is appropriate for the government-sponsored enterprise to loan money to one of America’s largest landlords. Blackstone scooped up tens of thousands of distressed residential properties at a discount after the last housing crash and then converted them into rentals.

In a letter to the Federal Housing Finance Agency on Wednesday, CHLA said, “This transaction appears to take Fannie Mae into another line of business.”

“It is not clear what the terms are, and so it seems like a pretty big departure in terms of [their normal course of business],” CHLA Executive Director Scott Olson told Scotsman Guide News.

“Number two, there is a concern that this is sort of a diversion from the mission, which is to do bread-and-butter, single-family loan purchases and multifamily project purchases,” he continued. “The other thing is, what is the mission? These people already have financing.”

Last month, several news outlets reported that Fannie Mae and Wells Fargo had agreed to loan the money to Blackstone’s subsidiary Invitation Homes Inc. The loan will be funded through the issuance of securities that will carry Fannie’s guarantee and be backed by a pool of rental properties owned by Blackstone affiliate Invitation Homes.

CHLA’s letter said the Fannie should focus on its core business of purchasing single-family home loans and supporting affordable multifamily rental properties. CHLA also is concerned that a large number of homes would be permanently taken off the market and turned into rentals in metros with tight supplies of homes for sale. CHLA also said it was unclear if the rentals being financed were affordable for low to moderate-income people. The trade group also is concerned that the American taxpayer-backed Fannie may be exposed to extra risk because the loan is with a single borrower.

Invitation Homes will use the proceeds from the Fannie loan to pay down current debt, according to Moody’s Investors Service. This is part of larger strategy to raise capital that includes an initial public offering and a $2.5 billion credit facility from several lenders.

Fannie Mae has never before done a deal of this size with a large private equity firm involved in the business of single-family homes and one that includes collateral involving thousands of properties. Previously, Fannie Mae’s deals with investors have only involved up to 10 properties. In a statement last month, Fannie noted that the single-family rental market accounted for roughly half of all rentals and it was an opportunity to test the market.

Although Moody’s and the Urban Institute wrote favorably of the transaction when the deal first became public in late January, it also has drawn criticism from the National Association of Realtors, housing advocates and some Democrats in Congress.


CHLA in the News