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June 9, 2020

Single Family Forbearance and Multifamily Lending


David Brickman
David Brickman | CEO, Freddie Mac

David Brickman delivers analysis on the state of US single family housing, multi-family housing, and GSEs (Government Sponsored Enterprises). Brickman points out that while the economic contraction has been dramatic since the onset of COVID-19, the data suggests that the economy is recovering with the help of Federal intervention. Richard Green brings up questions regarding the difference in urban vs suburban markets, underwriting loans, and what rent strikes might mean for borrowers.

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Please note this automated transcription may contain errors.

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Richard Green: A very pleasant, good afternoon to everyone. Welcome to today's edition of luck perspectives. My name is Richard Green I'm director of the USC Lusk center for real estate.

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Richard Green: Just one major ground rule, which is if you want to ask questions of our guests, please type them into the Q AMP a box.

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Richard Green: And I will do my best to curate the questions after David Brickman has spoken to us. So again, if you have questions, please kindly type them into the Q AMP a box and I will do my best to get to everybody's question before the end of the hour today.

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Richard Green: It is my great pleasure to welcome David brickman less perspectives today David is the CEO of Freddie Mac.

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Richard Green: Though well known and rather large

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Richard Green: Secondary mortgage market.

00:03:22.830 --> 00:03:31.890
Richard Green: Company that buys lots of both single family and multi family mortgages packages them and tells them to investors.

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Richard Green: It's particularly delightful to invite David because he is a CEO who also and I hope you don't mind me saying this David is a geek like me the first time I became aware of David. He was working on the actuarial study of the FHA program.

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Richard Green: Back in the 1990s, wrote a terrific paper with one of my frequent co authors Patrick hendershot on the actuarial soundness of the business.

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Richard Green: And has since gone on to run of the multifamily business at Freddie and from there the entire company David recommend, welcome. Thank you for being with us today.

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David Brickman: Thank you Richard real pleasure to be with you just wish I could be there in person and just knowing some of the

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David Brickman: Trials and tribulations. We all go and promote world as want to check for a moment that you can all hear me.

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Richard Green: I'm hearing you just fine. If anyone

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Richard Green: Is having difficulty, please raise your hand, you can you can virtually, raise your hand.

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David Brickman: No terrific then

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David Brickman: I will go ahead and proceed. Um, and Richard. Great to see you. And thanks for inviting me.

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David Brickman: delighted to be with you this afternoon. I'm going to share a few

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David Brickman: Am I on

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Richard Green: Your on

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David Brickman: I'm so sorry.

00:17:56.790 --> 00:17:59.790
David Brickman: I I'm not quite sure what happened there, but

00:18:01.260 --> 00:18:03.570
Richard Green: I tapped dance while we were waiting for you to come back.

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David Brickman: Thank you for that Richard I owe you want and again migrate apology for keep

00:18:07.920 --> 00:18:11.430
David Brickman: Everybody waiting. I will just join where I was, I think,

00:18:11.790 --> 00:18:14.550
Richard Green: Okay, so I'm going to share my screen and share your slides, David.

00:18:15.270 --> 00:18:20.880
David Brickman: Please do. And you know move quickly to try to make up for some of the last time.

00:18:23.040 --> 00:18:39.990
David Brickman: So what I want to talk today a little bit about the state of US housing market kind of where we were pre Coby crisis where we are today state of multifamily and how it's changed and where the GCS are and if we just jump to page three.

00:18:41.040 --> 00:18:53.790
David Brickman: You know, just to cover cut some of the key themes and Richard, you may have touched on some of this. I'm not here to offer any deep economic views that you all don't already know and Richard you know better than I do right economy is in the midst of a deep contraction.

00:18:54.810 --> 00:19:01.590
David Brickman: The housing market is interesting in terms of how it's responded. And obviously, that's what we'll talk about

00:19:02.730 --> 00:19:03.570
David Brickman: Momentarily

00:19:05.010 --> 00:19:19.140
David Brickman: And as for the GST themselves. We're in an environment where we look very different than we did in the Great Recession. We are a source of strength as opposed to being potentially one of the causes of the crisis.

00:19:19.530 --> 00:19:24.780
David Brickman: And I think that portends well for what our future might look like. So why don't we jump forward.

00:19:26.220 --> 00:19:35.790
David Brickman: Go to page five talk about that that really the state of the housing market and leading into the crisis, the housing market was very healthy.

00:19:36.720 --> 00:19:45.930
David Brickman: In most regards in terms of fundamentals, things look pretty good. There was one way in which it didn't look very good. You talk a little bit more in depth about and that's in terms of affordability.

00:19:46.680 --> 00:19:58.590
David Brickman: Supply had not been keeping pace and that was creating additional pressure is in terms of affordability a growing problem that unfortunately now is likely to get get get be greater. Once we come out of this.

00:19:59.370 --> 00:20:04.230
David Brickman: But then of course coven hit. We've seen sharp declines in terms of

00:20:05.040 --> 00:20:10.980
David Brickman: Mate measures of housing performance construction in particular, interesting, house prices are holding up

00:20:11.250 --> 00:20:17.850
David Brickman: But the big question is really where is the government, government intervention going to go because that's largely what's keeping the housing market stable.

00:20:18.510 --> 00:20:26.850
David Brickman: So figure. My intent here was to tell you a story. Do it with the help of some pictures to dwell too much on them. But if you go to page six,

00:20:29.160 --> 00:20:40.050
David Brickman: Start with the notion. Some of the health of the housing market leading up to the last recession both obviously we had over leveraged in the financial system we another other problems, but

00:20:41.040 --> 00:20:51.510
David Brickman: We also to some extent had had oversupply of housing, not the issue here. If anything, you look at where supply has been posts great financial crisis, we have

00:20:51.840 --> 00:21:00.780
David Brickman: Barely gotten back to what we view as a steady state level and you really just getting there 19 go to the next page. One of my favorite slides.

00:21:01.560 --> 00:21:12.450
David Brickman: shoko really illustrate where we have where we are now and have been in terms of housing supply and how that driven a lot of the housing market dynamics recently.

00:21:12.900 --> 00:21:21.690
David Brickman: Is shown here. The green is total supply and what you can see obviously we've kind of just like the other chart, we haven't really even got back to the regular level the steady state.

00:21:21.990 --> 00:21:25.260
David Brickman: What activity average historical level, to be precise.

00:21:25.680 --> 00:21:35.850
David Brickman: But more importantly, we look at historical supply of course the population has been growing this entire time, really, really normalized where housing is today in terms of new construction.

00:21:36.180 --> 00:21:43.080
David Brickman: Relative to the population number of households, we are well below where we've been historically as that blue line tells you

00:21:43.470 --> 00:21:49.380
David Brickman: Were barely we were barely at 1% of total households and

00:21:49.680 --> 00:21:58.170
David Brickman: If we just take it as a general rule of thumb households grow 1% per year and last few years. It's probably been a little bit slower than that but also we need to replace up

00:21:58.350 --> 00:22:13.860
David Brickman: units that are being removed from the stock. We really need to be a one to one and a half percent per year in terms of new supply. So one to one and a half new housing units per hundred households. We are barely at that level. And now we see things taking an abrupt change.

00:22:14.910 --> 00:22:25.080
David Brickman: As we'll see in a few slides will go to the next page. Not surprisingly, if we have supply kind of running low demand is also you momentarily. Running Strong

00:22:25.650 --> 00:22:38.670
David Brickman: It's really materialized in a significant burden in terms of households and the affordability of housing and we see that in kind of the difference between kind of where real rents and real incomes are going to be in the growing gap.

00:22:39.720 --> 00:22:52.140
David Brickman: If we go back to 2000 between the two of them and I this really understates, to a large extent, even the dimension of the problem, because even this degree of affordability in terms of rents where we see rents go

00:22:52.590 --> 00:23:05.490
David Brickman: Is is an average of the subsidized and assistance stock and the non subsidized stocks, if you're fortunate enough to have been in a housing unit that's received some type of government support or assistance tax credit property.

00:23:06.180 --> 00:23:24.360
David Brickman: You have not experienced quite as much growth, which means obviously the offset of that is the market rate. The what we have come to call the national excuse me naturally occurring affordable housing privately owned market affordable housing the gap has grown even more than this and

00:23:25.410 --> 00:23:30.270
David Brickman: Getting pre pre crisis, we saw that just went to the next page and very briefly.

00:23:31.440 --> 00:23:42.120
David Brickman: Not surprisingly, where we've seen the greatest stress and we're seeing the greatest loss of supply isn't the fastest growing markets. That's where really supply has been least able to stay pace with where

00:23:43.890 --> 00:23:56.070
David Brickman: We we're growth has occurred. So, all that kind of gives us a picture where we were pre crisis. I didn't do a slide on house prices, house prices, while they were D accelerating continue to stay reasonably strong. In fact, we, we

00:23:56.490 --> 00:24:02.550
David Brickman: Had been projecting them to stabilize potential even go up because of some of the same fundamentals limited supply

00:24:03.600 --> 00:24:12.210
David Brickman: But then covert hits and we see a dramatic change in the trajectory of the housing market page 10 sort of illustrates this.

00:24:13.230 --> 00:24:21.720
David Brickman: And here, looking at the single family housing market. We see this remarkable drop in home sales in the for sale inventory

00:24:23.190 --> 00:24:29.670
David Brickman: In the list price. I will caution you on putting it there too so show that kind of the acceleration

00:24:30.390 --> 00:24:39.210
David Brickman: You'll notice it's still positive. And in fact, I think that's going to have a slightly different story. As we continue here, certainly kind of moving, moving in a direction so

00:24:39.750 --> 00:24:47.400
David Brickman: We see much as the rest of the economy, we see the housing market housing transactions housing activities slowing down and

00:24:47.910 --> 00:25:00.990
David Brickman: If you go to the next page. I think you see that in the construction activity even more dramatically. I mean, that sort of the inverse of what the unemployment slides tend to look like in terms of if you're looking at the unemployment rate this this

00:25:03.720 --> 00:25:11.850
David Brickman: I don't know what five sigma type of event in terms of what what the change was in terms of a single period.

00:25:14.340 --> 00:25:24.750
David Brickman: That's going to take some time to come back and again I point out we were just beginning to get to an equilibrium level of housing supply being delivered

00:25:25.890 --> 00:25:32.310
David Brickman: That's really a little more on the single family side. And when I mentioned, house prices before obviously

00:25:32.910 --> 00:25:45.840
David Brickman: That's the own side, I want to talk for a moment at the rental side, go to the next page and how how that's fairing through this crisis and I didn't want to start by saying the degree to which

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David Brickman: The the

00:25:50.130 --> 00:25:53.460
David Brickman: The renter has been affected by

00:25:56.220 --> 00:26:04.890
David Brickman: By this crisis is greater than what we expect owners and we just look at renters have on average, half the income that owners do

00:26:06.000 --> 00:26:15.090
David Brickman: They are more concentrated in the industries. As you can see kind of construction entertainment retail and most affected by an appointment.

00:26:15.480 --> 00:26:23.520
David Brickman: And one of the questions is really going to be what's going to happen as we see this whole crisis unfold for some period of time.

00:26:24.210 --> 00:26:28.710
David Brickman: To the rental population and and it hasn't really manifest itself yet.

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David Brickman: Primarily because we've got this unprecedented level of government support that's really keeping things going. If we go to the next page.

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David Brickman: I think you really good illustration of how that is the level of unemployment benefits, combined with a supplemental support and even the

00:26:45.180 --> 00:26:55.500
David Brickman: Stimulus checks as made it so. Most households are maintaining in some cases even increasing their income here, admittedly, does the chart showing Georgia.

00:26:56.310 --> 00:27:09.690
David Brickman: One income level it's 21,000 you can actually see it going up. Obviously if you close your 40 50,000 and be more stable, but the majority of households actually maintaining or coming within a reasonable band of their income levels pre

00:27:10.830 --> 00:27:20.730
David Brickman: Pre crisis, but you can see what happens. Starting in August, just based on the existing rules. And the big question we we talked a lot about trying to forecast what's

00:27:21.240 --> 00:27:28.470
David Brickman: Obviously in our two plus trillion dollar mortgage book, what's going to happen. The big question. Well, what's going to happen, not just in terms of the economy.

00:27:28.800 --> 00:27:40.260
David Brickman: But in terms of government policy and what type of support might be provided and what's going to happen to the millions of households. I mean like this, these folks who in Georgia and every other state.

00:27:40.830 --> 00:27:46.560
David Brickman: might hit July and then have reduced level of benefits. And that's where I think there's almost a little bit of

00:27:47.820 --> 00:27:51.210
David Brickman: false confidence in some of the numbers we see in terms of both

00:27:52.770 --> 00:28:09.090
David Brickman: Get to it kind of delinquency rates forbearance rates, even an indication of the rental market kind of levels of people paying rent. But so far, the, the, generally, we're seeing continued health, but I think the shoe has yet to drop in terms of what's going on.

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I'm in

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Richard Green: A moment.

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Richard Green: David, could I just, I think.

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David Brickman: It's providing some healthy stability to the market through this has been some of the policies we Fannie Mae. Others have rolled out in terms of this page 14

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David Brickman: Thank you.

00:28:30.810 --> 00:28:43.620
David Brickman: In terms of our forbearance and those who aren't familiar forbearance. It isn't forgiveness. It is suspending payments for a period of time spending principal and interest payments for household

00:28:44.970 --> 00:28:57.840
David Brickman: As you know, the care is accurate, perhaps know they care is provided for for barracks for single family owners for up to one year number of households many millions of households have opted to take forbearance.

00:28:59.010 --> 00:29:03.720
David Brickman: It, it does need to be repaid. And the big question ultimately is going to be

00:29:05.250 --> 00:29:20.220
David Brickman: How households ultimately choose to repay, we're just now coming to the beginning of the end of the first four Barrett's that was rolled out first for various plans ledger rolled out and in March, early April, so

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David Brickman: Come, come, July. We'll see if some of those get resolved the good news here is primarily that we see.

00:29:29.340 --> 00:29:44.640
David Brickman: We see the forbearance Platt towing in terms of the take up rates, you see that the Fannie, Freddie number is in green. The, the FHA number much higher. That is a tends to be a lower income.

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David Brickman: Population and not. So not surprisingly, and also higher higher leverage

00:29:52.260 --> 00:30:06.810
David Brickman: So higher forebears take upstream rates. In fact, in the last couple weeks and interesting phenomena has been we've actually seen the forbearance rates go down, you've actually seen households withdraw their forbearance.

00:30:08.520 --> 00:30:18.570
David Brickman: As well as another interesting thing we see in the forbearance policies, we have a large number of households continuing to make mortgage payments, despite having received forbearance.

00:30:19.080 --> 00:30:26.850
David Brickman: Clearly, number of households sort of taking the option, not knowing entirely what their household, the fortunes might might might hold

00:30:27.840 --> 00:30:34.620
David Brickman: And and taking it just as a precaution, the question here much kind of tying it back to that earlier slide in terms of government.

00:30:35.160 --> 00:30:40.680
David Brickman: Intervention is what's, what's going to happen when some of the support wears off.

00:30:41.640 --> 00:30:50.550
David Brickman: That's that's on the single family said much bigger population to reform forbearance. He also are seeing significant multifamily forbearance money to me forbearance is handled a little differently.

00:30:50.910 --> 00:30:59.460
David Brickman: In the single family world. It is primarily just someone needs to request forbearance. There is not a screening process. There is no

00:31:00.510 --> 00:31:04.410
David Brickman: Requirement that are approved in multifamily, we do have a

00:31:05.850 --> 00:31:15.480
David Brickman: More, More requirements in terms of demonstrating need and certainly I will note also Freddie Mac has granted seemingly more forbearance say that

00:31:15.900 --> 00:31:27.240
David Brickman: Fannie Mae, I believe they have more stricter standards. There are some some measures they put in place if you request forbearance. Here we see it's only about 2.1% as opposed to the six and a half percent in single family.

00:31:27.750 --> 00:31:32.640
David Brickman: I wouldn't know if we did it by unit or by loan. It's actually a bigger percentage

00:31:34.320 --> 00:31:39.720
David Brickman: So actually smaller units more affordable units, probably more likely to be taking forbearance and certainly in our observation.

00:31:40.440 --> 00:31:54.150
David Brickman: Where we're seeing, most of the forbearance requests in our multifamily portfolio had been on what we characterize as our smaller balanced portfolio properties that have 50 or fewer units tends to have less institutional ownership and where there's a

00:31:55.260 --> 00:32:07.170
David Brickman: Kind of fit or operating margins and also probably a lower income tendency that it's probably more get impacted by some of the things we've seen, but never go to the next page.

00:32:08.190 --> 00:32:16.410
David Brickman: I still point out that the the surprising thing and it's good news, just hope it holds out is that the data collected by

00:32:18.510 --> 00:32:20.370
David Brickman: National Academy housing Council, I believe.

00:32:21.720 --> 00:32:35.370
David Brickman: In their rent tracker over 11 million units shows that we really haven't seen a significant dip in terms of the levels of collections. When you think about the magnitude of unemployment that we have the slack and the economy.

00:32:35.640 --> 00:32:41.310
David Brickman: To only see these collections go down effectively three percentage points, since a year ago.

00:32:41.550 --> 00:32:41.970
David Brickman: Is I think

00:32:42.240 --> 00:32:46.110
David Brickman: heartening. But again, we don't know how this is all going to play out.

00:32:48.120 --> 00:32:53.040
David Brickman: Let's go to the next page. I kind of hinted at this before. Interesting thing so so

00:32:53.370 --> 00:33:05.640
David Brickman: coven hits, we see a significant drop off in terms of construction activity. Interestingly, most pronounced in multifamily you see that 59% drop in terms of the annualized housing starts less than single family.

00:33:06.780 --> 00:33:14.610
David Brickman: As a contrast to that very interesting in terms of purchase activity in the single family market is what we've seen is that

00:33:15.210 --> 00:33:21.480
David Brickman: Applications for purchases have actually moved up recently and that

00:33:22.200 --> 00:33:34.320
David Brickman: Actually relative to the average we saw in 2017 to 19 we're actually now running above that pace. So the effect of lower interest rates, I think also the effect of some of the technology that we rolled out that others.

00:33:35.010 --> 00:33:51.330
David Brickman: Have provided on the front end of the business. I mean all a lot of the firm's online platforms. People like Zillow and others who are really making it possible to do more in terms of buying a house looking at homes, doing things more virtually I think

00:33:52.410 --> 00:33:52.980
David Brickman: Has a

00:33:54.270 --> 00:34:04.470
David Brickman: Brought some life back to the purchase siding and we see that in terms of our overall applications, which I think bodes well for warehouse prices will will likely

00:34:05.190 --> 00:34:18.240
David Brickman: Remain through this crisis with a big caveat is that we don't know how bad it gets if we get something I don't suspect a V. But if we do get something that continues to look like constant continuous recovery.

00:34:18.870 --> 00:34:29.070
David Brickman: If we don't see distressed selling and I think forbearance really does provide us that as far as provides that bridge to hopefully some degree of recovery.

00:34:29.490 --> 00:34:42.840
David Brickman: Then I think the housing market will really experienced relatively modest reductions in terms of our overall prices we ourselves are putting it at 2% down for the rest of the year. I know some other

00:34:44.010 --> 00:34:56.730
David Brickman: Firms are in a similar neighborhood. Some even thinking that we may not even go negative. What we see resumption of growth next year again with a big caveat. Don't know what you know if there's a another wave of the virus. If

00:34:57.270 --> 00:35:09.840
David Brickman: If we have diminished government support if any number of things go sideways here with diminished confidence and just simply the impediments to to getting back to

00:35:10.830 --> 00:35:25.710
David Brickman: Normal are significant. Maybe, maybe it's worse. But right now we're we're feeling very cautiously optimistic. This will be nothing like the last crisis in terms of warehouse prices go a big part of that being

00:35:26.160 --> 00:35:31.410
David Brickman: The healthy supply demand balance, I should say unhealthy only in that supply. There was not sufficient supply

00:35:31.770 --> 00:35:39.750
David Brickman: Is this the last time around, and the modest leverage levels. I didn't put a chart in here to show leverage, but we're dealing with significantly lower leverage

00:35:40.110 --> 00:35:54.120
David Brickman: Not just in housing, but in the economy relative to the great financial crisis and so not likely to see that sort of vicious cycle of distressed sales pushing down prices. The getting kind of more more stress in the in the housing market.

00:35:54.780 --> 00:36:03.150
David Brickman: So why don't we move move forward. Let's talk a little bit about multifamily and even go to the next page just to observations.

00:36:04.050 --> 00:36:19.800
David Brickman: You know, multi family has been on a tear since 2008 I and others and really scalding sort of a golden age for multifamily, I think there's a lot of things kind of lot of there's a confluence of a lot of factors that fueled that it wasn't simply just the

00:36:20.820 --> 00:36:25.860
David Brickman: The reaction the aftermath of the crisis and, sort of, you know, households just being

00:36:27.600 --> 00:36:28.890
David Brickman: Turned off homeownership

00:36:30.000 --> 00:36:44.400
David Brickman: I think that's actually the most minor of the effects certainly credit and limited credit availability played a role there for a while, but actually the bigger driver. It is economic but it's actually affordability is what's driven more bigger affordability.

00:36:45.930 --> 00:36:54.690
David Brickman: A choice of location, some degree in urban as a movement towards urbanization, we have to ask is that going to continue is that point of change.

00:36:55.770 --> 00:37:00.810
David Brickman: As well as continuing demographic changes a continuous

00:37:01.380 --> 00:37:14.160
David Brickman: gradual shift upwards in terms of the agent which households are forming families having trouble getting married, having children. They all of that is contributed to this broad growth in terms of multifamily multi family.

00:37:14.610 --> 00:37:22.110
David Brickman: Being correlated, but not quite synonymous with rental housing, I may tend to use them interchangeably. They are different only in that weekend, of course, have

00:37:22.320 --> 00:37:30.390
David Brickman: Some multi family that's not rental in some rental. It's not multi family. In fact, a big part of the rental story is the single family rental market that

00:37:30.990 --> 00:37:37.020
David Brickman: I don't know about time to talk about anything is very interesting kind of evolution. The growth of that space.

00:37:37.560 --> 00:37:46.050
David Brickman: Particularly in terms of the institutional single family rental market. Let me show you a few slides and multi family to help help make the case we go. Thank you. I'm

00:37:47.040 --> 00:37:54.330
David Brickman: Really significant growth is the debt market, of course, something near and dear to our heart and you can see sort of from the peak in 2007

00:37:54.630 --> 00:38:01.080
David Brickman: In terms of annual originations of multifamily mortgages that 150 billion now 374 billion.

00:38:01.500 --> 00:38:10.710
David Brickman: I would have said, but for the coven crisis, we would have passed 400 billion in 2020 pretty pretty confident with a pace to have done that.

00:38:11.610 --> 00:38:17.130
David Brickman: And broad expansion of all different different investment types and to the extent that that

00:38:18.090 --> 00:38:25.410
David Brickman: It's not as clear how dramatic. This is if we go to the next page a little contrast in terms of debt growth here in the multifamily space relative

00:38:25.770 --> 00:38:34.020
David Brickman: To the single families face. This is mortgage debt outstanding. And what you can see in single family, the light blue bar in the middle.

00:38:34.740 --> 00:38:51.960
David Brickman: It's index barely moving. We are just now roughly back to the 11.2 trillion that's around where we were back in 2007 it hasn't moved much the scale and the graph kind of distorts it a little bit. It did go down a little more

00:38:53.490 --> 00:39:06.030
David Brickman: Than sort of meets the eye. Again, back to where it was before the green line. As you can see, moving pretty significantly up. So this growth of multifamily a bigger part of the housing landscape.

00:39:06.720 --> 00:39:16.740
David Brickman: Since since the last crisis and and of course that's that's mortgage debt mortgage debt is largely tracking with the total level of

00:39:17.370 --> 00:39:26.580
David Brickman: capital stock which is both if we have a total capital stock and multi family which we now think it's over $4 trillion for the combination of the number of units.

00:39:27.060 --> 00:39:42.870
David Brickman: And we saw the supply a little earlier and the value per viewed it and i i haven't shown that, but significant value appreciation in terms of the multifamily space, of course, all that we go to the next page simply driven by demand is that we do. We have had. Excuse me.

00:39:44.220 --> 00:39:50.850
David Brickman: I do have supply here on the supply side first. So I've seen this before. Much of the growth in supply

00:39:51.360 --> 00:40:00.990
David Brickman: That got us back to the steady state level before was multifamily supply increasing relative to single family. So if you even go back to the earlier conversation.

00:40:01.980 --> 00:40:17.970
David Brickman: And the top comments I made earlier about just barely getting to steady state supply of a little over 1 million units per year. It was really multifamily contributing more than its historically proportionate share to that that level of supply growth.

00:40:19.200 --> 00:40:22.020
David Brickman: Now we go to the next page. See demand.

00:40:23.520 --> 00:40:34.050
David Brickman: That this being fueled by growth in render households slowed recently. But certainly, again, if you look at those green bars from the 2008 period forward.

00:40:34.800 --> 00:40:42.780
David Brickman: faster growth in terms of renter households their own household. The homeownership rate kind of

00:40:43.560 --> 00:40:59.520
David Brickman: Bobbing between 64 and 65 and we actually updated this for the most recent data like closer to 65 but so not back to the 69% somebody opening question. I personally don't think we're going to be getting much much beyond the 65%. So we've got that shift.

00:41:01.470 --> 00:41:04.530
David Brickman: Shift in terms of the homeownership

00:41:06.240 --> 00:41:18.360
David Brickman: The comp the composition rental versus owner in the housing market and I want to go back to something I mentioned before, I think part of that is just demographics. We talked a lot about preferences and I have a

00:41:20.040 --> 00:41:29.070
David Brickman: Chart on preferences. But indeed, if you just simplify the whole thing and say what the average household would have been would have rented till they were 30

00:41:29.430 --> 00:41:39.600
David Brickman: And then owned from 30 to 75 and then perhaps gone into say seniors housing respond to at and then maybe not even gotten to seniors housing.

00:41:40.380 --> 00:41:44.100
David Brickman: If now instead of going as homeownership at 30 they're going at 35

00:41:44.970 --> 00:41:55.590
David Brickman: And if it's 75 now some percentage are going into seniors housing just break up the population for those two shifts and that largely explains what we what we see here.

00:41:56.190 --> 00:42:07.920
David Brickman: But there is some change beyond just the demographics that we go to the next page. And I mentioned affordability and economic the economics of affording housing before

00:42:08.670 --> 00:42:18.630
David Brickman: There's no question. If you ask American households, do you aspire to own a home, you will get an overwhelming. Yes, that still remains the American dream.

00:42:18.840 --> 00:42:25.440
David Brickman: That's what households aspire to. The question is can they afford to buy the house they want and that's been what's really changed.

00:42:25.860 --> 00:42:33.330
David Brickman: Is with the affordability I showed earlier with the growth adjusted for incomes or inflation.

00:42:33.600 --> 00:42:47.610
David Brickman: Of rents and house prices. It's just become less affordable. So the average household for what they want to occupy where they want to occupy if they want to be a little closer in simply can't afford as easily. The

00:42:49.020 --> 00:42:58.440
David Brickman: The housing that they want and the owned market and we can think of that in terms of saving up for a down payment, we can think about that in terms of monthly payments.

00:42:58.920 --> 00:43:01.170
David Brickman: But clearly perception amongst

00:43:02.040 --> 00:43:08.940
David Brickman: renters is renting is the more affordable option. I'm interesting, obviously, you asked owners, which is more affordable, you tend to get a different answer.

00:43:09.210 --> 00:43:21.210
David Brickman: But when you have to recognize as they perhaps bought their house. Three years ago, five years ago, eight years ago. What's really relevant is a decision today, not for those have already kind of purchase their purchase their home so

00:43:22.290 --> 00:43:22.620
David Brickman: What

00:43:23.880 --> 00:43:34.590
David Brickman: What this increased affordability rentals shouldn't blur, though, is while renting is more affordable to owning for the average house on if you go to the next page.

00:43:35.520 --> 00:43:46.530
David Brickman: Renting is itself becoming less and less affordable and I alluded to this before. We've seen this gradual reduction in the availability of affordable stock and while there's been

00:43:46.830 --> 00:43:53.640
David Brickman: significant growth in the stock. It doesn't quite come across as significant here just in the 2012 to 17 period.

00:43:54.390 --> 00:44:08.430
David Brickman: If we went a little longer period to that 10 to 20 she see show a little bit more dramatic where you can see on the far left that's it's called a discretionary here. Think of that as a class real estate. That's a higher end

00:44:10.320 --> 00:44:27.510
David Brickman: If you go to the right. That's workforce housing. You can see effectively as characterize this is a qualitative construction in terms of the category of the housing of the rental units, but you've actually seen as we've got a zero, you know, effectively flat growth in that segment.

00:44:28.920 --> 00:44:37.080
David Brickman: All the growth has really been in the top end in what's being created characters, the high mid range in this discretionary perhaps some I called luxury.

00:44:37.710 --> 00:44:53.460
David Brickman: Part of the market. So we've got it. We had to sing significant pivot towards multifamily multifamily benefited from that growth. The effect of that has been some diminished affordability and the question is kind of where do we go from here and

00:44:54.930 --> 00:45:03.750
David Brickman: I will only offer the view. I think it continues, is that the affordability pressures will continue to grow, given what we saw earlier in terms of supply.

00:45:04.170 --> 00:45:16.350
David Brickman: The reduced supply of single family and multi family combined with what appears to be continued strong demand is likely to continue to fuel, house prices to get if not this year, next year and beyond.

00:45:17.280 --> 00:45:36.300
David Brickman: So the affordability pressures will continue stock will not necessarily keep pace that that additional pressure will put put additional burden additional demand into multifamily, which in turn will put additional pressure in terms of the affordable stock. So let me shift gears.

00:45:38.100 --> 00:45:39.750
David Brickman: I think I go to the next page.

00:45:41.580 --> 00:45:47.580
David Brickman: And do just a little bit of shameless self promotion about Freddie Mac and our role in multi family.

00:45:48.480 --> 00:45:54.690
David Brickman: While I don't think we, we, per se, contributed to the growth and multi family. I think we've certainly been

00:45:55.440 --> 00:46:09.450
David Brickman: Been a catalyst for some of the growth and part of that is because we have a we have a unique business model that really does represent we think the future of what the GIC involvement in the market. Those of you who are GC government sponsored enterprise.

00:46:10.770 --> 00:46:18.750
David Brickman: Freddie Mac and Fannie Mae. Our, our charter our mission requires for liquidity stability and affordability to the housing market which we

00:46:19.830 --> 00:46:24.090
David Brickman: We think we do every day on. But what we really view ourselves as trying to do.

00:46:24.600 --> 00:46:37.020
David Brickman: Is to be able to provide liquidity without taking significant creditors. We learned that lesson in the great in the crisis, although I should note them will be family business never lost any money never had a quarter in which we had an operating loss.

00:46:37.410 --> 00:46:42.150
David Brickman: But we still think the best business models. One is where we distribute the risk that we take on

00:46:42.600 --> 00:46:53.520
David Brickman: So that we're not really distorting the market in the same way. And indeed, providing significant opportunities for private capital to invest and we do that through our K deal structures, don't walk through

00:46:53.880 --> 00:47:05.310
David Brickman: Which effectively lets us provide liquidity to the senior most bonds that we create out of us securitization so that they can trade like treasury bonds, not quite.

00:47:06.210 --> 00:47:14.910
David Brickman: As well as they do but so the large banks sovereigns other global institutional investments to really treat them.

00:47:15.480 --> 00:47:25.530
David Brickman: In in in terms of being a liquid asset, while the bottom of the capital structure the mezzanine bonds 45 represent concentrated multifamily credit risk.

00:47:25.860 --> 00:47:34.170
David Brickman: Which is a very attractive investment for those who otherwise invest in multifamily and indeed one of the benefits and business model has been the

00:47:34.620 --> 00:47:40.320
David Brickman: The involvement of multifamily operators investors participants that market in this part of the capital structure.

00:47:41.220 --> 00:47:50.340
David Brickman: So me I wrap it up on page 28 and hope I haven't gotten kind of too long. Let's talk about the state of the GIC as you may have read some things, where are we today.

00:47:51.180 --> 00:48:01.560
David Brickman: So as I started off by saying very proud of the fact that through this crisis. We've really been a source of stability and liquidity in in the housing market. We have not been

00:48:01.920 --> 00:48:11.010
David Brickman: The cause of any crisis and, indeed, the fact that we are providing constant liquidity even using our technology, our ability to automate automatic to use

00:48:11.280 --> 00:48:19.590
David Brickman: Automated valuation technology automated technology to confirm income employment verification verification even allowing us to close mortgages.

00:48:19.890 --> 00:48:25.650
David Brickman: With really sort of no touch Virtual. Virtual closings I think it's really enabled the market to

00:48:26.580 --> 00:48:34.650
David Brickman: Continue without experiencing significant disruption. This time through. We're also able to provide the support to our forbearance programs.

00:48:35.010 --> 00:48:48.840
David Brickman: That I think we can't change the ultimate trajectory of the economy, but we can do is to the extent that we're going to see the V shape we can provide that bridge so that we don't have the again the

00:48:49.920 --> 00:48:53.880
David Brickman: The dominoes of stress sales distressed sales.

00:48:54.450 --> 00:49:08.160
David Brickman: Creating a greater price pressure and then in multifamily when I'm only disappointed is we can't provide direct support to renters. It's one of the missing gaps, our ability to provide forbearance and single family is a direct benefit to a household

00:49:08.490 --> 00:49:14.400
David Brickman: They were able to conserve their, their income for some period of times if they're experiencing some degree of hardship.

00:49:14.700 --> 00:49:27.210
David Brickman: And this all feels consistent with kind of broader we broadly want to have in fiscal policy multifamily we only touched the owner. We do not have a relationship with the renter, and so it's not as direct the mechanism.

00:49:28.560 --> 00:49:34.800
David Brickman: Instead, we can have an eviction moratorium at is, I think this slightly less effective. And I personally think

00:49:36.180 --> 00:49:42.240
David Brickman: We really do need more direct support for renters through this crisis, particularly if we see

00:49:43.320 --> 00:49:50.670
David Brickman: We see continued stress as I alluded to before. And then part of part of the underlying story is we have very little capital.

00:49:51.360 --> 00:50:04.320
David Brickman: We have very little capital because we've been dividend doing it to US Treasury for the last 12 years. We do have night we have $9.5 billion of net worth of capital. Today it is technically the treasuries money.

00:50:05.580 --> 00:50:14.220
David Brickman: But interestingly, even in the last quarter we put up significant reserves. We did not take a walks. We, in terms of our comprehensive income.

00:50:14.700 --> 00:50:21.180
David Brickman: And that just such a such a night and day from what it was like in the crisis and a big part of that is

00:50:21.450 --> 00:50:28.440
David Brickman: Our having undertaken these credit risk transfers the fact that we don't hold all the risk that we take on rather

00:50:28.680 --> 00:50:37.920
David Brickman: We use a variety of structures to sell risk into the capital markets so that we are not some just model line highly concentrated

00:50:38.190 --> 00:50:55.440
David Brickman: holder of a mortgage credit has been now able to better distribute that systemic risk around the economy. And that's why, with only nine and a half billion dollars we continue to believe we will not be at risk of failure. This time around, and anything can happen. It could get a lot worse.

00:50:57.120 --> 00:51:03.930
David Brickman: But based on what we see in front of us again we're looking like we're going to hold strong so last page on page 29

00:51:04.740 --> 00:51:15.720
David Brickman: So we think we're providing tremendous value to the market, we're able to help owners. Again, not as directly but renters as well continue providing liquidity to the market.

00:51:16.470 --> 00:51:26.250
David Brickman: There's now a new conversation taking place in Washington. And is that what's next for the GMO seeds, as many of you probably know we have been in conservatorship since 2008

00:51:26.760 --> 00:51:35.010
David Brickman: That means we have effectively been under government control we have been profitable for last several years ago, even in the last quarter.

00:51:36.150 --> 00:51:46.800
David Brickman: And there's a lot of talk in Washington about potentially having us exit conservatorship having returning us to private status raising capital.

00:51:47.160 --> 00:51:54.690
David Brickman: And we are in the process director Calabria has announced his intention to do that. The prospect of an exit in 2021 or 2022

00:51:55.620 --> 00:52:05.190
David Brickman: We, we just have a new capital rule proposed rule out of the FHA that we would capitalize against that is now receiving comments.

00:52:05.730 --> 00:52:11.730
David Brickman: We're in the process of retaining financial advisors and it'll be very interesting how this process evolved.

00:52:11.970 --> 00:52:27.060
David Brickman: Is ultimately as it stands now, would not be a legislative process Congress can ultimately get involved if they choose to. But what's really been pencil that is really more of an administrative process whereby the Treasury and the FHA chart a new course forward for us.

00:52:28.080 --> 00:52:39.330
David Brickman: Which would be within the existing construct it would Fannie Mae, Freddie Mac are let me let me end there. My sincere apologies to the technological issues at the beginning.

00:52:40.170 --> 00:52:48.030
David Brickman: Are really regret that and appreciate your patience with me and Richard happy to take any questions if anybody has any.

00:52:48.840 --> 00:52:49.830
Richard Green: Let me, let me

00:52:51.060 --> 00:52:59.490
Richard Green: And David. Thank you very much. And by the way, when I introduced you I forgot to mention the most important thing about you, which is you have a daughter who was a student here at USC.

00:53:00.030 --> 00:53:01.050
David Brickman: Thank you for giving me

00:53:01.080 --> 00:53:07.680
Richard Green: Yes. And of course, our favorite people on Earth are wishing pain parents. So thank you very much for that David

00:53:11.490 --> 00:53:21.060
Richard Green: So I am going to turn to the audience for questions in a second. And again, if you have questions, feel free to type them into the Q AMP a box, but I do want to follow up on a couple of things.

00:53:21.660 --> 00:53:32.130
Richard Green: That you mentioned early on, you were talking about the cliff that's going to happen after July in terms of people's income if they're unemployed and that's something I think it turns all of us.

00:53:32.820 --> 00:53:42.030
Richard Green: But I'm wondering if there's a little bit of good news in the following sense that what we're also seeing the savings rate in this country is drunk to like 30%

00:53:42.900 --> 00:53:54.240
Richard Green: And I imagine that those folks in Georgia, who are making. I'm trying to remember the numbers on your chart. Now say 17 1800 a month we're now making 3000 a month. They're not changing their spending a lot

00:53:54.930 --> 00:54:00.570
Richard Green: Because they can you know people aren't great sometimes of looking at years but they're pretty good at looking at months.

00:54:01.320 --> 00:54:15.570
Richard Green: And so, you know, they actually may have some savings that they can use to push this a little forward. I mean, have you guys thought about that at all. Is there any evidence that that's true or is the savings coming from a completely different set of people

00:54:15.630 --> 00:54:24.900
David Brickman: Are wondering if we have any proprietary data on it, but we have we have seen the same thing. I know we have seen the savings right at least of our economics, he was telling me.

00:54:25.350 --> 00:54:29.370
David Brickman: So we have been looking at that and wondering what that effect will be now.

00:54:30.120 --> 00:54:39.960
David Brickman: I go a little to the negative side of that, if that's going to really reduce consumer spending and make it more difficult for the economy to get going and puts pressure on jobs.

00:54:40.590 --> 00:54:44.400
David Brickman: That's the downside of that. So I agree with you that that

00:54:44.970 --> 00:54:58.290
David Brickman: Savings should be a positive, at least in terms of certainly houses being withstand a little bit more stress, even if you go back to my conference and comments about being able to invest in housing so probably actually net good in terms of house prices.

00:54:59.160 --> 00:55:07.200
David Brickman: But I do worry about if we are. If we stay at this level of savings. Do we have a much prolonged recovery, because we just don't see the return

00:55:07.590 --> 00:55:20.400
David Brickman: Of retail and hospitality and some other SEC how much, how much does the automobile industry suffer because nobody buys a car for a couple years, because they're saving too much, does that. What are the knock on effects of that.

00:55:21.480 --> 00:55:29.250
Richard Green: So, um, let me. I'm going to ask us somewhat geeky question before I turn it over to the audience, but on your last slide. I can't help but ask a

00:55:29.730 --> 00:55:38.730
Richard Green: capital rules that have been proposed and basically say, Fannie, Freddie have to raise somewhere in the neighborhood of 250 billion dollars of capital.

00:55:39.360 --> 00:55:49.410
Richard Green: To be released and so presumably you would go like doing an IPO or or issue more stock or I didn't. I don't even

00:55:49.920 --> 00:56:07.770
Richard Green: pretend to know how the current preferred preferred shareholders would be treated under these scenarios, but that seems like a really heavy lift to me to get out of concerts, your ship by wind director Calabria expects you to get out it. Am I doing my math wrong or

00:56:08.220 --> 00:56:17.460
David Brickman: No you're not. It's absolutely a very heavy lift. So let me just acknowledge that and it would be as, as currently penciled out, it would be 100 billion dollars for Freddie Mac.

00:56:18.240 --> 00:56:29.400
David Brickman: And it would take several years it would likely take several different types of capital raises. So you're asking it, you know, not sure we're type in my answer is all of the above.

00:56:31.590 --> 00:56:42.720
David Brickman: And preferred and common and subordinated debt and and you know, probably a whole hodgepodge of different instruments and as well as US retaining earnings, which is just a little bit of good news. I mean,

00:56:43.140 --> 00:56:50.370
David Brickman: If we go back to last year. I mean, we have the capacity to earn approximately $8 billion per year.

00:56:51.150 --> 00:57:04.200
David Brickman: Now the scenario we like best, but if we did nothing but just retain our earnings for 12 years and actually given growth. The probably, you know, more like 10 years and we would achieve that level of capitalization. Um, but there are a lot of

00:57:05.340 --> 00:57:13.050
David Brickman: interested stakeholders. There are a lot of different parties. This is definitely a big issue in terms of coordination.

00:57:13.620 --> 00:57:24.630
David Brickman: There are existing interests mentioned these junior preferred holders. Thankfully, we have no relationship to them that is something that's really US Treasuries kind of

00:57:25.380 --> 00:57:32.490
David Brickman: per view as to how they want to handle them. And as you probably know, there is litigation, both from the videographers and common shareholders.

00:57:33.000 --> 00:57:41.010
David Brickman: You know, some of that is going to need to get resolved in some way or another treasure. You will need to figure out and effectively our shareholder is Treasury. So they're the ones

00:57:41.460 --> 00:57:49.230
David Brickman: Who stand to financially benefit if they monetize for any back in some way. They've got to ultimately decide how to resolve those issues.

00:57:49.500 --> 00:57:57.240
David Brickman: We intend to come to the table with our financial advisors with areas proposals how to do that do it, but it is no understatement. It is a very heavy lift.

00:57:58.260 --> 00:58:06.600
David Brickman: The largest IPO was Aramco recently at approximately 30 billion Ali Baba before that it's something like 25 billion.

00:58:07.800 --> 00:58:22.920
David Brickman: I'll just put out there, even if we're doing a mix of capital. I said a moment ago 100 billion dollars is what we need. If we're not the largest IPO obviously sandy might be larger than we would be I will be up there with those two certainly in in what we would do. Yeah.

00:58:23.190 --> 00:58:32.910
Richard Green: So the 215 was what I saw, Fannie and Freddie combined in the know. And now he's I've seen in the roles. Now the leverage ratio is more important than the risk based capital ratio.

00:58:33.390 --> 00:58:41.670
Richard Green: And there's a top up provision that I actually gave it don't begin to understand the need to figure it out cuz I don't know where that number is coming from.

00:58:42.810 --> 00:58:51.540
Richard Green: A question from Damien Goodman and to what degree is funny. Oh, and I should say we're coming up to the top of the hour, David, can you stay with us for another 10 minutes

00:58:51.540 --> 00:58:54.090
David Brickman: Absolutely. You know my boundaries for forcing it

00:58:54.690 --> 00:59:01.590
Richard Green: And and for our audience, you know, apologies that we're going to run over about 10 minutes, but I think I would like to get a couple of these questions out there.

00:59:01.920 --> 00:59:08.700
Richard Green: So David, to what degree is pending repaired and prevent what occurred during immediately after the Great Recession for closers tsunami and increase

00:59:08.940 --> 00:59:19.140
Richard Green: In institutional investors scooping up distressed properties by providing favorable terms quitting. And I'm assuming that fence and he should say he says fan of I'm sure he actually means Freddie

00:59:19.740 --> 00:59:29.940
Richard Green: I'm by providing providing favorable terms to affordable housing operators community land trust to pick up distressed properties to maintain them is naturally occurring affordable housing.

00:59:30.810 --> 00:59:44.220
Richard Green: So I think the idea is there is there a way you can come in and allow sort of the affordable housing providers to get a crack at purchasing ahead of sort of Wall Street opportunistic industry so

00:59:44.550 --> 00:59:58.530
David Brickman: The, the, the second part of the question, is there a way we can do that. Absolutely. And we work very closely in our affordable housing areas, both on the multifamily and single finally side in terms of trying to promote.

00:59:59.490 --> 01:00:10.800
David Brickman: Sustainable affordable housing have looked at any number of models, including working with non for profits. You mentioned community land trust. I mean, there is a there is an economic reality that

01:00:12.900 --> 01:00:17.100
David Brickman: We don't view it as our role to provide

01:00:18.810 --> 01:00:20.430
David Brickman: Grants, if you will.

01:00:21.540 --> 01:00:31.710
David Brickman: But rather to lean in, in terms of our financing in terms of are willing to accept lower economics. I want to be clear, we will accept lower lower prices.

01:00:32.340 --> 01:00:36.510
David Brickman: Work, more, more closely with with not for profits to try to preserve something

01:00:37.470 --> 01:00:47.700
David Brickman: And certainly we do that on the front end as well, in some ways, really, the bad news answer to the question is where we stand today. We don't actually expect a lot of distressed real estate.

01:00:48.510 --> 01:01:00.240
David Brickman: We're not seeing a scenario that looks like what we saw in 2008. And in fact, our primary belief is that, and we've really developed the toolkit to deal with the stress in such a way

01:01:00.630 --> 01:01:05.970
David Brickman: That there are probably many fewer foreclosures even coming out of what lower stress we have

01:01:06.750 --> 01:01:11.850
David Brickman: Meaning, much of the stress probably gets resolved through various loan modifications to try to keep

01:01:12.330 --> 01:01:21.960
David Brickman: A household in its house by by modifying mortgage payments. So again, we are very focused on trying to work with a broad range of socially.

01:01:22.350 --> 01:01:30.090
David Brickman: Motivated investors in terms of how they can preserve the affordability. The bad news is I don't know that we're going to have that much housing stock to work with.

01:01:31.020 --> 01:01:34.980
Richard Green: Well, I mean, there is a good news aspect of that, obviously, is it's

01:01:35.040 --> 01:01:50.220
Richard Green: Avoiding district course play better than not. Let me get it from Marc Jacobs. Can we get your thoughts around urban versus suburban market said, Does he see a difference in defaults forbearance across those types of markets in the portfolio today.

01:01:50.220 --> 01:01:53.550
David Brickman: As well. Hi, Mark, how are you good to hear from you on

01:01:55.170 --> 01:01:56.100
David Brickman: The answer

01:01:57.660 --> 01:02:08.070
David Brickman: On the residential side. I don't know that we are seeing anything yet. I think it's a great question. I'm going to look into that. On the multifamily side.

01:02:08.790 --> 01:02:30.300
David Brickman: It's a little more geographically concentrated in terms of around the New York area, probably not surprising kind of stands out other sort of in LA other urban clusters. And again, I'm going to go back to it's very concentrated in the smaller lower rent.

01:02:32.790 --> 01:02:44.070
David Brickman: Less institutionally owned real estate is really more in class season Class D or class a really dramatic skew and that that regard, we see really very few

01:02:46.710 --> 01:02:49.890
David Brickman: Operators taking taking forbearance in

01:02:51.450 --> 01:02:59.070
David Brickman: In terms of institutional class B, class a multi family away from some, some students and seniors where we do see some

01:03:00.090 --> 01:03:09.420
David Brickman: So, so, probably not. Not really. Yet enough evidence to suggest that see but again it's focused on the dense urban areas broadly and smaller properties.

01:03:10.710 --> 01:03:21.660
Richard Green: Have a question from the shelf and Johnny are all new Freddie loan structured with interest preserves, if so, what is the structure and how long do you foresee the structure being prevalent in Italy originated lungs.

01:03:22.800 --> 01:03:25.410
David Brickman: Um, I will attempt to give an answer and then

01:03:27.150 --> 01:03:31.470
David Brickman: Qualify that anything I say is subjective direction by my

01:03:32.970 --> 01:03:43.440
David Brickman: My friends, running the multifamily business these days. Um, I believe we are acquiring a year, a year and a half of debt reserves. These days, given the uncertainty going forward.

01:03:44.670 --> 01:03:56.220
David Brickman: That may differ depending on the deal and the market and and the leverage, but we are, we typically don't require that type of reserve in normal, normal times

01:03:56.730 --> 01:04:10.230
David Brickman: We simply can't we we would rather be in the market providing the terms that we normally do. But recognizing, we could see some softness and reduction in income here in the near term.

01:04:11.820 --> 01:04:20.520
David Brickman: And so we think the debt reserve is the right way to do that. Obviously, we can release the debt reserve when it if we think it's no longer necessary.

01:04:22.470 --> 01:04:29.460
Richard Green: From James Camus's I'm very pandemic related question several weeks ago there was a push for rent strikes.

01:04:30.060 --> 01:04:44.430
Richard Green: For both the market and affordable multifamily rental communities. If residents successfully set rent it strikes. How will they keep asking about Fannie and Freddie. I know. You, you, you're not decided enough. But how, how might Freddie help borrowers if they're impacted by rent strikes.

01:04:46.020 --> 01:04:50.550
David Brickman: Ah, it's a good question. I think it's too. There's too many unknowns and the question.

01:04:52.500 --> 01:04:56.880
David Brickman: I probably won't surprise anybody by saying I mean I think when strikes are unfortunate.

01:04:58.410 --> 01:04:59.520
David Brickman: It's not the right

01:05:00.840 --> 01:05:06.960
David Brickman: Vehicle for which I I think government, government support for renters appropriate

01:05:08.250 --> 01:05:17.010
David Brickman: Asking that's come out of the pocket of the owner and holding them responsible for the economic conditions is the wrong the wrong avenue for

01:05:17.760 --> 01:05:28.050
David Brickman: For seeking for some type of change. I think we'd have to evaluate on a case by case basis. You know, I have to acknowledge. I mean, if it's a red stripe because of some deficiency in terms of management of the property that

01:05:28.350 --> 01:05:33.240
David Brickman: You that very differently if we're talking about. It's really a political statement if it's widespread.

01:05:33.780 --> 01:05:42.000
David Brickman: My guess is, we would look at it in much the context of forbearance is if we see the need and we see the hardship that would be something we'd certainly take into consideration in terms of

01:05:43.290 --> 01:05:48.750
David Brickman: Potentially granting forbearance and put it in that that category and likely to be sympathetic

01:05:50.010 --> 01:06:02.010
Richard Green: I i'm going to combine a couple of questions from Terry shoe and Jenna, same sort of do you see underwriting changing permanently in some ways as a result of this, are you rethinking

01:06:02.550 --> 01:06:11.820
Richard Green: Altogether, how underwriting is done, or are you just sort of changing ratios for a while and expect to go back to where they were when things. Calm down.

01:06:12.930 --> 01:06:19.860
David Brickman: That, that's it. That's an easy answer. And I like the answer I can give them that one. No, we are not thinking about permanent changes we think where we've been.

01:06:20.310 --> 01:06:34.350
David Brickman: And as important to sort of ratios is really the discipline that we bring to the underwriting our credit losses and courage able to go to the Freddie Mac com and look at them remarkably low and they have been low a low through the last crisis.

01:06:36.000 --> 01:06:45.750
David Brickman: Obviously this is not yet run its course. We think what we're doing now as a temporary adjustment for market uncertainty. Oh, we're really saying is you say you have $100 in income.

01:06:46.140 --> 01:06:54.870
David Brickman: By the time we get to the end of the year, and maybe $95. We don't know. We don't have a perfect crystal ball. And so we're just, we're just underwriting to that.

01:06:55.830 --> 01:07:06.300
David Brickman: Relatively short term uncertainty. We are continue to be bullish about the multifamily sector, we think our prudent underwriting where we don't just look at ratios, you look at sponsorship. We look at

01:07:07.440 --> 01:07:15.660
David Brickman: The quality of the management. We look at the property has served as well and I go back to something I mentioned about our business model.

01:07:16.170 --> 01:07:20.670
David Brickman: We don't hold all the risk we actually hold relatively little we make all the decisions.

01:07:21.180 --> 01:07:36.990
David Brickman: But the success we've had in distributing our risk in selling it to very sophisticated multifamily investors tells us we are making prudent investments with our loans at prudent ratios. And so again, other than the temporary

01:07:37.500 --> 01:07:44.880
David Brickman: elevated level of uncertainty were experiencing, we're not thinking there's any need to change. Change our change our parameters and change everyone or business.

01:07:46.080 --> 01:07:54.930
Richard Green: So I'm going to take the moderators privilege and ask the last question, and it's it's going to go to the single family side. And it's sort of a big picture question.

01:07:56.520 --> 01:08:05.070
Richard Green: Because it will loan level price adjustments. There's a pretty clear cut off between when a borrower wants an FHA loan and when they want a GIC

01:08:05.760 --> 01:08:23.190
Richard Green: Loan and you know six at clearly if you're below 60 on your five go the FHA is just a better loan for you. It's maybe have crept up even more like 720. What do you see as the roles of role of FHA visa V, the GS seeds or vice versa.

01:08:25.380 --> 01:08:37.050
David Brickman: I'm going to give you an opinion but emphasize, I am not ultimately I am not a policy maker and and that that we are, we will execute against the policy that's held up for us, um,

01:08:37.530 --> 01:08:48.960
David Brickman: There is certainly a lot of conversation. Where is the appropriate kind of dividing line in terms of where, where should the GIC is playing the FHA recognize these are different models. If we were

01:08:50.250 --> 01:08:59.280
David Brickman: And yet, our model still somewhat unresolved, but we are intended to run as if even if we're not today fully a private company.

01:09:00.210 --> 01:09:14.880
David Brickman: FHA is a government subsidy program a credit subsidy program. And so there is a point at which where there is a need for greater subsidy of the credit that's more of an FHA program. If we can certainly target.

01:09:16.080 --> 01:09:27.510
David Brickman: The that subsidy to the population that most needs it. We do run with a degree of cross subsidy, as you know, well, we very much do look to subsidize first time homebuyers

01:09:28.830 --> 01:09:39.600
David Brickman: low and moderate income borrowers so that we can provide some level of support. But to the extent that we also are looking to achieve basic financial

01:09:41.550 --> 01:09:52.020
David Brickman: hurdles in terms of our returns in a way that is consistent with a private company. There's a limit to how much we can do that, knowing that we also do experience competition. Not a lot.

01:09:52.920 --> 01:10:02.550
David Brickman: But from the private market from from banks and others. And so there is always a problem of if we were to try to provide too much cross subsidy.

01:10:02.970 --> 01:10:14.400
David Brickman: We can't raise prices effectively on certain bars that much, or will get cherry pick there and actually makes the ability to cross subsidize less effective not more so. So it's a delicate balance.

01:10:14.940 --> 01:10:24.060
David Brickman: You're asking where the line is ultimately it's somewhat quantitative answer as to which flake which price, but the broad, broad strokes are where

01:10:24.420 --> 01:10:41.940
David Brickman: The true kind of credit subsidy needs to be provided that it doesn't kind of cross a minimum level of economic return lower level economic return instead of a minimum level and it's probably more FHA, and it's it's the role of government to provide that support something

01:10:43.290 --> 01:10:52.530
Richard Green: So well, David. We're up now at 211 so I am going to close us up. Thank you very much. By the way, I have to say, Did lend to your slides.

01:10:53.700 --> 01:10:54.300
David Brickman: No, no.

01:10:55.320 --> 01:10:56.460
David Brickman: Done by our communications.

01:10:56.700 --> 01:11:05.910
Richard Green: Okay, beautiful there. I love the fonts and the colors and I'm very fussy about slides. So really enjoyed the tell your team. What a great job. They did.

01:11:06.030 --> 01:11:07.470
David Brickman: I will certainly pass that along

01:11:07.770 --> 01:11:19.110
Richard Green: With their slides. David brickman thank you so much for taking time out of your day to be with us this afternoon. Really appreciate it and hope we could see you again maybe in person. Sometime

01:11:19.470 --> 01:11:23.730
David Brickman: I look forward to thank you Richard, thank you everybody for having me again. And my apologies and fight.

01:11:24.810 --> 01:11:31.080
Richard Green: And fight on

01:11:36.900 --> 01:11:40.470
Richard Green: Great, thank you again everybody for coming. See you next week.

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