The Federal Housing Finance Agency (FHFA) has pulled the plug on pilot programs run by both Fannie Mae and Freddie Mac (the GSEs) to finance institutional investment in single-family home rentals.  The programs began in February 2017 with a $1 billion loan from Fannie Mae to the Blackstone Group. The loan was originated by Wells Fargo with a Fannie Mae guarantee and secured by some of the 48,000 single-family homes Blackstone's Invitation Homes subsidiary had purchased during the recession, often from portfolios of lender-owned real estate, and turned into rentals.

At the time, the Urban Institute wrote that the transaction "marks the first time a government-sponsored enterprise has facilitated financing for a large institutional operator of single-family rental properties," and Fannie Mae pronounced the transaction the first in a pilot program.

In ending the program FHFA said, "In the last two years, both Enterprises have participated in the single-family rental market on a larger scale than previously through pilots designed to 'test and learn' more about the market and best practices.  In June 2017 FHFA convened a Single-Family Rental Workshop to solicit feedback, identify market challenges and opportunities, and gain perspective on the overall market.  It also conducted an impact analysis and reached out to a wide array of industry stakeholders.    

When the pilot began it provoked immediate blowback, especially from the National Association of Realtors® (NAR).  NAR's president at the time, William E. Brown, wrote a letter to FHFA director Mel Watt which said in part, "Rather than focusing on allowing well-qualified Americans to build wealth through affordable mortgage options, Fannie Mae is actively financing large institutions to compete with them. These investors do not expand the affordable housing stock. Rather, in this limited market they drive up the price of rents and remove affordable inventory from the hands of American homeowners."

The National Community Stabilization Trust (NCST) also denounced the program saying it would lower borrowing costs to the institutions, allowing them to buy up more housing stock. NCST president Robert Grossinger said, "I am perplexed to see Fannie Mae place a taxpayer guarantee behind the same private interests whose risky practices led to the millions of foreclosed homes they are now buying up. These investors so far have had no trouble financing the purchase of tens of thousands of homes without government support."

With this week's announcement FHFA appears to agree with Grossinger.  Watt said, "What we learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the Enterprises."

This will mark the end, FHFA said of the GSE's participation in the single-family rental market except through their previously existing investor programs. The GSEs are not precluded however from proposing changes to their existing programs to meet the needs of the single-family rental market. They are also free to develop proposals calculated to utilize single-family rentals as a pathway to homeownership.

Not surprisingly NAR applauded FHFA's decision. NAR president, Elizabeth Mendenhall, issued a statement that said in part, "With inventory shortages facing housing markets across the country, the National Association of Realtors® has long advocated for the Federal Housing Finance Agency to end its expansion into the single-family rental market and return its focus to promoting a liquid and efficient housing market, as Congress intended. By financing the purchase of thousands of single-family homes for institutional investors to use as rentals, Fannie Mae and Freddie Mac compounded on inventory shortages and affordability concerns, which are holding back prospective homebuyers across the country.