Walker Webcast: Fannie Mae’s Priscilla Almodovar Discusses Housing Affordability, GSE Perception and Mortgage Rates with Host Willy Walker

With the issues and news concerning interest rates, commercial real estate, and especially housing, it was timely that the Sept. 4, 2024, Walker Webcast hosted Priscilla Almodovar, president and CEO of the Federal National Mortgage Association—Fannie Mae.

During the first part of the discussion, Walker & Dunlop Chairman and CEO Willy Walker took Almodovar through her interesting resume, which included stints at White & Case LLP, the New York State Housing Finance Agency, the State of New York Mortgage Agency, JPMorgan Chase, and Enterprise Community Partners.

Then Walker dropped the question: “Why is it so hard to build affordable housing?”

“We’re in an unprecedented time of unaffordability,” Almodovar acknowledged, explaining that much of the problem comes down to costs. “You need the land. You need the financing. And you have to charge the rent while keeping it affordable for today’s households. It’s not so easy,” she said.

Then there is the disconnect between the seemingly large amount of capital in Washington, DC for affordable housing (thanks to Fannie Mae, Freddie Mac, low-income housing tax credit, and other programs) and local-level requirements. Almodovar explained that using those funds and incentives requires the coordination of federal, state, county, and local governments. “Everyone has to give something to build this housing,” she observed.

How Sound is Fannie Mae?

Fannie Mae has been in conservatorship since 2008, following the housing crisis. But Almodovar said that today’s Fannie Mae differs from the one before the Great Financial Crisis. For one thing, the agency’s development of liquidity is significant.

“Before, the agency had a retained investment portfolio,” she said. “Today, we buy loans and sell them. We have different lending standards. The 30-year fixed-rate mortgage makes up our $3.6 trillion of (our single-family guaranty book of business). That’s a plain-vanilla product, as it should be.”

Additionally, the GSE began retaining earnings in 2019. “I’m amazed that people in our industry don’t know we’ve been retaining earnings,” she said. Other tools Fannie Mae has include loss mitigation and required regulatory capital.

As they say, the proof of the transformation is in the pudding. During the GFC, Fannie Mae didn’t have the means to help struggling homeowners. “Fast-forward to COVID, when I worked with Fannie while I was at Enterprise,” Almodovar said. “They were able to respond to the pandemic; 1.5 million households kept their homes because of what Fannie Mae did, and 99% of that has been resolved,” Almodovar commented.

Finally, while the GSE remains in conservatorship, Almodovar said it’s a well-run business with built-in risk management tools. “I’m going to keep telling that story as long as I’m in my chair,” she added.

Will Mortgage Rates Come Down?

Fannie Mae economists anticipate that the Federal Reserve will likely make two rate cuts this year, one in September and one in December. Meanwhile, home mortgage rates are coming down but continue to hover around 6%. “You probably won’t see them go down south of 6% until the fourth quarter of 2025,” Almodovar observed.

Furthermore, the disconnect remains between buyers and sellers. Almodovar said that 92% of non-homeowners want to own a house. But only one-fifth of those think it’s a good time to buy. Meanwhile, given higher home prices, more sellers believe it’s a great time to sell.

Overall, “the consumer still remembers when mortgage rates were 3% just a few years ago,” Almodovar commented. “They’re not going to come down real fast, but that’s probably what consumers are waiting for.”

What About Fannie Mae and Multifamily?

Another question posed by Walker involved Fannie Mae lending and multifamily investments. Almodovar acknowledged that lending volumes were down in 2023. But then again, so was the overall market, especially relative to 2022. “We’ve always been 20% of total existing markets. That was the case in 2023, and this year, we’re on track with that as well,” Almodovar added.

Furthermore, there is additional competition from non-traditional lenders. “Personally, I think it’s fantastic that sponsors have different options,” Almodovar said. In addition to Fannie Mae and Freddie Mac choices, “they have CMBS, they have bank capital, and they have Lifecos, among others,” she commented. “It’s good to have different options as a sponsor.”

The Almodovar Mandate

Walker’s final question was what Almodovar’s “mission accomplished” would look like during her time at Fannie. She said one of her main goals is to change the agency’s perception of struggling. Another is to continue supporting Fannie’s mission of making homeownership and affordable rental housing more accessible and sustainable in the U.S.

Fannie Mae is using technology to help serve more people. “We’re just getting started with what we’re doing with on-time rent payments and cash flow underwriting,” Almodovar said. “We’re saying there’s about 30 million people in the gig economy, and we’re looking at their cash flows as well.”

Almodovar commented that another goal is to provide more people with access to credit. “I get so much inspiration from the people who aren’t seen by the system,” she noted. “We can improve that, especially with technology helping us.”

On-demand replays of the Sept. 4 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple. Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.