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the latest SECONDARY MARKET Or ig i nat ion Agency Says Fed Backing Critical to Success W Housing Only Beacon of Hope in Dark Economy Fannie Mae thinks the housing sector will save the economy as it bobbles on rough tide. stronger-than-expected firstquarter pace to slow somewhat in the second quarter," said Doug Duncan, Fannie's chief economist. Additionally, March's disappointing employment report, amid other economic headwinds, led the GSE to label first-quarter growth "unsustainable." "On the downside, tax hikes, sequestration, and the eurozone crisis still pose significant risks to our forecast, and the fiscal tightening will likely affect consumer spending and other economic activity in coming months," Duncan said. Fannie's economists expect GDP to land around 2.3 percent for the year, slower than the pace reached in the first quarter, but still higher than last year's 2 percent and the previous year's 1.7 percent. Fannie Mae's April outlook was issued on the same day as Freddie Mac's, which predicted employment gains as the construction sector finds its footing. The M Report | 73 se c on da r y m a r k e t H ousing continues to be a bright spot in the economy, contributing positively to GDP. In fact, Fannie Mae cited the sector as "the most likely source of upside to our forecast" in its April 2013 Economic Outlook. According to the GSE, residential investment—once a drag on the economy—has contributed positively or neutrally to the nation's economic growth for the past seven quarters. The GSE expects the trend to continue this year. Home sales charted their highest levels in recent years at the start of this year. Overall, economic growth in the first quarter outpaced expectations, rising at a rate of 3.2 percent. Business inventories contributed to this growth, but the "one-time boost" is not expected to contribute again, Fannie said. "The April forecast reflects the growing realization that 2013 is off to a good start from a GDP perspective, but we expect the A na ly t ic s Freddie Mac's report found similar ithout a governresults regarding its multifamily ment guarantee, business. Without a government Fannie Mae's and guarantee, Freddie's multifamily Freddie Mac's unit would be smaller, and its multifamily businesses would "support for certain kinds of afbe less viable and "have little fordable housing would be dimininherent value," according to the ished," according to the GSE. Federal Housing Finance Agency "Our findings suggest a (FHFA), the entities' conservator. negative impact on the market," As the FHFA works toward Freddie stated in its report, "in its goal of winding down the which there likely would be a GSEs' presence in the market, funding gap between market the conservator required each needs for multifamily debt financGSE to determine whether its ing and available resources." multifamily business could operBecause the GSEs ate sans a governinteract with the ment guarantee. Taking a multifamily market in Both GSEs suggest a much different way that absent a guarangovernment from the single-family tee, their multifamguarantee market, "FHFA deterily units would not out of the mined that the goal be able to support of contracting Fannie affordable housing multifamily programs. market "would Mae and Freddie Mac's overall market Fannie Mae said its have serious footprint should be multifamily business approached differently negative "could be a viable stand-alone entity consequences." with respect to their multifamily business," operating without a FHFA stated in a government guarpress release. antee—at least in the short run" Not only are the GSEs' footand given certain "optimistic prints in the multifamily market assumptions" about the market. much smaller, but also multifamily However, "even a mild downloans are larger and most involve turn with increased credit losses risk-sharing with private capital. and higher funding costs could Were the GSEs to sell their weaken NewCo's capital position sufficiently to raise concerns about multifamily businesses, the GSEs concluded the companies would its ability to continue to operate," function as "monocline niche Fannie stated in its report. specialty finance companies with Additionally, taking a gova focus on non-prime lending and ernment guarantee out of the secondary and tertiary market multifamily market "would have transactions." serious negative consequences" for Their costs would be higher, lenders, borrowers, and renters, which would impact their ability especially those relying on or to contribute to affordable housing participating in affordable housing in the multifamily sector. programs, according to the GSE. s e r v ic i ng FHFA asserts that a government guarantee is necessary for the GSEs' profitability.