They may  retain these loans in their portfolios or sell them to the enterprises or  other secondary market investors. Serious  delinquency rates for the enterprises’ multifamily loans were generally  less than 1 percent from 1994 through 2011, but the unpaid principal  balance on seriously delinquent loans rose considerably starting in 2008. Fannie Mae Retained a Lower Percentage of Multifamily Loans Than Freddie Mac

From 1994 through 2011, Fannie Mae retained a lower percentage of its  annual multifamily loan purchases in portfolio at acquisition than Freddie  Mac (see fig. The enterprises  met their affordable housing goals in most years, with multifamily  activities greatly contributing to their fulfillment. Their share of the multifamily market  increased to 86 percent in 2009, but decreased to about 57 percent in  2011 as other participants reentered the market. The Safety and Soundness Act required the enterprises to meet annual  numeric goals for the purchase of mortgages serving targeted groups. On July 30, 2008, HERA transferred the housing goal oversight  function to FHFA.HERA, requires FHFA to consider the following when setting multifamily  goals: national multifamily mortgage credit needs and the ability of the  enterprises in making mortgage credit available to provide additional  liquidity and stability for the multifamily mortgage market; the performance  and effort of the enterprises in making mortgage credit available for  multifamily housing in previous years; the size of the multifamily mortgage  market for housing affordable to low-income and very low-income   The Safety and Soundness Act, as amended by  families; the ability of the enterprises to lead the market in making  multifamily mortgage credit available; the availability of public subsidies;  and the need to maintain the sound financial conditions of the  enterprises. performance that include loan-level data, as well as an annual report at  the end of each year. For example, in 2008 the  enterprises’ multifamily business, which represented 4.5 percent of the  enterprises’ total unpaid principal balance financed, accounted for 32  percent of the units that met the low- and moderate-income goal, 27  percent of the units that met the underserved areas goal, and 39 percent  of the units that met the special affordable goal (see table 5). For example, they found deficiencies in Fannie Mae’s  delegated underwriting and servicing program, its risk-management  reorganization, and information systems; and Freddie Mac’s management  of its lower-performing assets. Both enterprises are taking steps to  address these deficiencies. The enterprises also performed better than commercial banks and thrifts  insured by the Federal Deposit Insurance Corporation (FDIC). Regulators Have Identified a Number of Deficiencies in Multifamily Credit Risk Management

From 2006 through 2011, FHFA and its predecessor, OFHEO, identified  deficiencies in management of credit risk at the enterprises. FHFA, Fannie Mae, and Freddie Mac  provided technical comments, which we incorporated into the report  where appropriate. Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine (1) how Fannie Mae and Freddie Mac’s  (the enterprises) multifamily loan activities, products, and loan  performance have changed over time; (2) the enterprises’ role in the  multifamily housing financing marketplace and the extent to which they  have met their affordable housing goals; and (3) how the enterprises’  credit standards and delinquency rates compare with those of other  mortgage capital sources and how they have managed credit risk  associated with their multifamily housing activities. To describe how the enterprises’ multifamily loan activities, products, and  performance have changed, we analyzed loan-level data from Fannie  Mae and Freddie Mac for 1994 (the earliest year for which data were  available) through 2011.
Why GAO Did This Study

Congress established the enterprises to provide stability in the secondary market for residential mortgages and serve the mortgage credit needs of targeted groups. But in September 2008, FHFA placed the enterprises in conservatorship out of concern that their deteriorating financial condition would destabilize the financial system. As Congress and the Executive Branch have explored options for restructuring\ the enterprises, most of the discussion has focused on the single-family market. But the enterprises also play a large role in providing financing for\ multifamily properties (those with five\ or more units).
GAO was asked to describe (1) how the enterprises multifamily loan\ activities have changed, (2) the financing marketplace and how they met affordable housing goals, and (3) how the enterprises multifamily delinquency rates compare with those of other mortgage capital sources and how they have managed their credit risk.
To address these objectives, GAO analyzed (1) loan-level data from 1994 (the earliest period for which loan-level data were available) through 2011 from the enterprises and (2) data from the Mortgage Bankers Association; interviewed key multifamily housing stakeholders; and reviewed FHFA examination reports. FHFA, Fannie Mae, and Freddie Mac provided technical comments, which GAO incorporated where appropriate.

What GAO Found

From 1994 through 2011, the multifamily loan activities of Fannie Mae and Freddie Mac (the enterprises) generally increased. In this period, Fannie Mae held a lower percentage of multifamily loans in its portfolio than Freddie Mac. While the enterprises multifamily business operations generally were profitable, both enterprises reported losses in 2008 and 2009.
In recent years, Fannie Mae and Freddie Mac played a larger role in the multifamily marketplace, and their multifamily activities contributed considerably to meeting their affordable housing goals (set by their regulator for the purchase of mortgages that serve targeted groups or areas). Before 2008, the enterprises financed about 30 percent of multifamily loans. Their share increased to 86 percent in 2009, but decreased to 57 percent in 2011 as other participants reentered the market. GAO's analysis showed that multifamily activities greatly contributed to the enterprises' ability to meet affordable housing goals. For example, the enterprises' multifamily activities constituted 4.5 percent of their total business in 2008, but about a third of the units used to meet the goal of serving low- and moderate-income persons were multifamily units.
The enterprises have purchased multifamily loans that generally performed as well as or better than those of other market participants, but the Federal Housing Finance Agency (FHFA) has identified deficiencies in their credit risk management. In 2005-2008, the enterprises' serious delinquency rates (less than 1 percent) were somewhat lower than the rates on multifamily loans made by commercial banks and much lower than rates for multifamily loans funded by commercial mortgage-backed securities. FHFA, through its examination and oversight of the enterprises, identified a number of credit risk deficiencies over the past few years. For example, FHFA found deficiencies in Fannie Mae's delegated underwriting and servicing program, risk-management practices, and information systems; and Freddie Mac's management of its lower-performing assets. Both enterprises have been taking steps to address these deficiencies.