Freddie Mac Boosts Reserves for More Multifamily Defaults

Mortgage giant Freddie Mac is bracing its reserves for deepening credit stress in the apartment market amid rising delinquencies and an uncertain economic outlook.

The government-sponsored enterprise boosted its rainy-day fund by $57 million, citing a steady rise in delinquencies for multifamily mortgages which also include affordable housing projects and senior and student housing.

“There’s a housing crisis we’ve never seen before,” said affordable housing expert Mecky Adnani, founder of MAHousing Advisers. 

The Federal Housing Agency, which insures mortgages to protect lenders from default, has also seen similar strains in the third quarter, reporting serious loan delinquency rates above pre-pandemic levels.

The rising delinquencies in multifamily buildings come as part of a wider conversation about lingering inflation and housing affordability in the United States. The shelter category of the consumer price index, a measure of inflation, continues to be a stubbornly large contributor to overall price increases.

“This asset class is under a lot of stress because the tenants who live in the building have not seen their income go up as much as expenses are rising. This is why the politics of this have gotten to be so toxic,” says Chris Whalen, investment banker and chairman of Whalen Global Advisors LLC. 

The issue of housing affordability has only grown more contentious in the United States, where there’s an estimated shortage of 4.7 million homes and construction costs remain too high for builders to offer competitive pricing. Spikes in home prices have significantly outpaced income growth, according to the U.S. Chamber of Commerce. 

Zohran Mamdani’s recent election as New York City’s mayor has cast a spotlight on housing affordability, with rent prices still increasing in America’s largest and most expensive city. Analysts like Whalen are skeptical of any political efforts to make the city cheaper.

Instead, he says it’s a matter of monetary policy for the Federal Reserve, which has been recently trying to balance its dual mandate of low inflation and maximum employment. 

“Politicians can't do anything about inflation. I think you're going to see serious problems in New York City,” he said.

Other segments of the housing market look more hopeful, but only to those who can afford it. HousingWire’s Lead Analyst Logan Mohtashami says the single-family mortgage market is healthy because most mortgages are owned by those with high credit scores. 

“You don't really have a lot of people with very low FICO scores even applying for mortgages, let alone qualifying for them. This is why the credit profiles in America look really good the last 14, 15 years,” says Mohtashami.

Housing inventory, which is a primary indicator of market health, according to Mohtashami, has risen to 2019 levels with price growth also cooling. 

The Trump administration has kept Freddie Mac and Fannie Mae in headlines, initially eyeing the sister corporations for public offering. Director Pulte now says he’d like them to own equity in tech companies.