Latest posts by Tiya Jain (see all)
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- The dilemma of foreign capital chasing residential real estate in Vancouver and other gateway markets (8 mins) - April 23, 2018
- DSS Wrap-up: Alumni panel (5 mins) - April 2, 2018
It was a phenomenal experience to sit across from Tim Mayopoulos to gain his insights on Fannie Mae, the economy, and many other subjects. Our interview began with understanding his journey of helping to resurrect Fannie Mae into a resounding success. As with all great leaders, he gave the credit to the players on his team. The specific decision points were improving the underwriting and servicing standards, while at the same time helping people stay in their homes.
Additionally, Tim guided Fannie Mae towards better pricing of credit risk, and distributing risk like never before. Historically, Fannie Mae would take on the credit risk of long-term fixed rate mortgages and hold on for the life of the loan. Under Tim’s guidance, Fannie Mae now distributes that risk through a newly created market in capital and reinsurance transactions. Through structured transactions, Fannie Mae retained the 1st loss position, transferred or sold the mezzanine / middle part of the credit stack, and retains the catastrophic risk. The goal was to create a deep & liquid market similar to the mortgage-backed securities market that has existed for many years. Fannie Mae helped standardize this market, improve liquidity in it, and has clearly had remarkable success in doing so.
Stuyvesant Town-Peter Cooper Village
Tim Mayopoulos shed light on a marquee multi-family transaction – financing of Stuyvesant Town-Peter Cooper Village. He explained to us that most people know Fannie Mae as a financer of single family homes. Fannie Mae finances 1 in 3 single family homes in America either through purchasing of those home or through refinancing. There is another big part of Fannie Mae’s business which is multifamily rental business where the company works with lenders. In this segment, it focuses on work force and affordable housing. So 90% of all projects Fannie Mae finances are affordable at 120% of the area median income. It does this in all markets around the country.
Stuyvesant Town is a large 110 building complex in lower Manhattan. It was built right after the 2nd world war and is a substantial source of workforce housing in the city. Fannie Mae refinanced the project after the acquisition consisting of a Blackstone and Canadian pension fund affiliate. Through the bankruptcy process, the affiliate gained the rights to the project. With Fannie Mae’s assistance, they worked in conjunction with New York City to maintain the rent rates, and support the much needed affordable housing mix. With Fannie Mae’s 2.7 billion dollars of financing, Blackstone matched the amount in equivalent equity, leading to support the project for decades to come.
Tim was provided a bullish outlook on the current real estate outlook. With respect to the multifamily sector, Tim perceives the fundamentals to be really strong, especially in supply constrained markets such as New York and San Francisco. Valuations are quite high, vacancies are low, rent increases are still occurring in those markets. In tertiary markets, things are still comparatively soft. Household formation which is a strong indicator of housing markets generally is improving. Adding to positive outlook are strong employment numbers, increased labor participation, and a market being driven by millennials. The rate of household formation will increase significantly in the next 5-10 years. He further elaborated that the economic recovery that we are in is the 3rd longest, in the 7th year, since the recovery has been slow with a longer than expected expansion. There has been a lot of confidence in the market, from CEOs, but those in decision-making positions have their antennas tuned for changing results.
Questioning Tim on the company’s future led to the following:
- He said that Fannie Mae has paid back 154 billion dollar to tax payers to date in dividends.
- He reiterated that the tax payers deserve to get their money back.
- He is pleased that they have been able to make that happen.
- He said “it is truly one of the challenges that remain in the wake of the financial crisis, we have seen a lot of reform in other parts of the financial sector but that hasn’t happened with respect to Fannie Mae.”
With respect to the new administration, Tim is hopeful that they bring a fresh set of eyes to lots of issues. There has been a vigorous debate over the last 8 years over what should happen in housing finance. The debate has made people more thoughtful about what they are doing versus some of the extreme things that were talked about immediately after the financial crisis. Tim feels that we are likely to get to a sensible outcome after this long period of debate than otherwise. In his opinion, the key thing about housing finance is that we preserve what works and improve the things that need improving. There is no panacea or magic outcome to the problem, there are trade-offs to be made. But he is proud that Fannie Mae has been led in the right direction because in order to reform the company and improve the housing finance system. The amount of work that needs to be done is substantially lessor than 8 years ago.
Tim provided his insights on the impact of the Fed increasing interest rates on the housing market. He mentioned that, historically, fed rate increases have not negatively affected home prices, the market would see a difference in the amount of activity / number of transactions. The reason is that the Fed is raising rates typically as it sees core strength in the economy. The fed is embarked on a measured delivered approach. In this process they are trying to promote stability and so far they have been pretty successful at it, said Mr. Mayopoulos.
Tim enjoyed practicing law and stressed the importance for legal education in the context of the real estate business. He mentioned that the for most people, it is really hard to be a good real estate professional without having a good command of the fundamentals of the legal principles that apply and a close attention to certain contractual agreements. The success or failure of real estate businesses depends on if they anticipated the potential of legal issues they might have and prepare for those in terms of the contacts they enter into.
We requested Tim to draw from his deep leadership experience to offer advice on inculcating leadership skills. He pointed out that “It is not about being a subject matter expert, it is about being a strong leader, a good manager, driving collaboration, setting aspirational goals for the organization and help driving others towards them. My goal in the company is to get the very most of everyone who is on the team from the senior execs to day to day workers.” Additionally, he mentioned that a firm’s success involves empowering employees by giving them the latitude and vision to pursue those goals.
Tim also shared with us the mantra for personal success. He mentioned that although it is important to have technical knowledge, graduate students focus too much on acquiring a vocational skill that they could take to the market place to sell. “People need to have a broad range of interests, life is about understanding different perspectives, developing critical thinking skills, being able to analyze problems, and see solutions in them. The most important skill is being able to influence people, what/how they think and feel”, said Tim Mayopoulos. This is very important for him, being able to influence people, because, his job as the leader of Fannie Mae is as a stakeholder management job.