Freddie Mac, Rent Controls and Predatory Contracts

ACORN Citizen Wealth Financial Justice

New Orleans  Freddie Mac is the popular name for the Federal Home Loan Mortgage Company.  It is a government sponsored entity or GSE.  It’s main purpose since 1970 has been to buy and finance mortgages on the secondary market, making in safer for banks and savings and loans to issue the initial paper.  It’s hard to tell the difference between Freddie Mac and Fannie Mae, the other major GSE with almost the same purpose, established in 1968, except that Fannie is traded publicly on the stock exchange as a private company.  Both of these GSE’s are seen by investors and Wall Street slicks as safer, more secure investments because of an “implied governmental guarantee,” though no such thing legally exists.  Both were effectively  bailed out during the Great Recession of 2008 though, which would seem to make the “implied” have more than the usual meaning.

Anyway, Freddie Mac has in recent years become the largest financier of apartment loans for developers and landlords.  Recently, they were also in the news in the financial pages for becoming the largest financier/owner of single family homes that are used as rental units, but we’ll come back to that accomplishment.

They also have been knocking on the door of offering incentives to something that looks and tastes a bit like rent controls.  In a recent announcement they are offering financing anywhere in the country with a lower interest rate to owners who agree to cap rent increases for the length of their loan term with Freddie.  According to the Wall Street Journal, developers “who receive the low-cost loans must have at least 50% of the units affordable to households making the local median income or below.  Borrowers must then agree to limit rent growth on 80% of units.”  Earlier, Freddie Mac had experimented with a similar program more focused on affordable housing with rent caps on annual increases, but this is a broader program with perhaps a little less emphasis on affordable housing, but more rent controls.  It is impossible to know what the take-up might be from developers, but given the rental availability and affordability crisis for tenants in cities throughout the country, seeing a government sponsored entity move toward rent control is a very good thing.

I am still troubled by the fact that when ACORN’s Home Savers Campaign demanded that both Fannie Mae and Freddie Mac not issue loans or allow any investors to participate in auctions who intended to sell them using contract-for-deeds or any predatory instrument in the rent-to-own space, Fannie Mae did follow through with a ban.  Freddie Mac never did, which worries us about their position in the market with such a large inventory of loans in single-family homes, and whether or not they are in effect also becoming the largest financier of predatory practices, whether explicitly or implicitly.

When you have two hands, the best thing is to keep both of them clean.