Bridging The Affordability Gap with Priscilla Almodovar, President, and Chief Executive Officer of Fannie Mae
Willy Walker: Welcome to another Walker Webcast. It's my real pleasure to have my friend and partner with Priscilla Almodovar, the CEO of Fannie Mae, joining us today. Before I dive into an intro on Priscilla and just a couple of quick things at the top of the broadcast this week.
First of all, we're about to have our 200th Walker Webcast, which is hard to believe that we've done 200 of these. And I'm deeply thankful to Susan and the rest of the Walker Webcast team for all the hard work that's gone into making this both have legs and also be able to attract the incredible guests such as Priscilla that we've been able to get on a weekly basis.
My guest for the 200th is going to be General David Petraeus. And I'm super excited to have General Petraeus join me next week to talk about the world we live in from his perspective as a former general, and now sitting at KKR, working with KKR on their global security strategies for all the different investments that KKR makes around the globe. But we will talk, as you can imagine, about Europe, the Middle East, China, and US foreign policy and military policy as we approach the presidential elections.
The second thing that I had to point out is that Priscilla is an adamant athlete and spends a lot of time running. Many of the people who listen to the webcast know that I do a lot of biking. The death of the two brothers last week in New Jersey on Thursday night, there for their sister's wedding on Friday is so heartbreaking. And more than losing two outstanding young men. One of the brothers having won the Hobey Baker Award and has been an NHL All-Star for years and years, being there for their sister's wedding. But more importantly, just the fact that they couldn't go out and ride their bikes on the road and get hit by a drunk driver and losing both of their lives. Quite honestly, all of my biking community friends were texting about what a sad event and how sad it is that our roads aren't safe enough for people to go out and get the type of exercise that those two incredible athletes were getting last Thursday evening. And obviously, our thoughts and prayers go out to their family for their tragic loss.
And then, finally, I would say that many people tune in to hear my perspective on what's going on in the markets, and I always try to keep the light on my guests. Today's guest will give us great insight into what's going on in the economy and what we should expect as it relates to Fed policy and mortgage rates and things of that nature. I know Priscilla will try to demure on a lot of that, saying that she's got economists who do all that for her. But I'm going to push her on that one a little bit.
But I would say that it's very evident that with rate cuts on the horizon, investors in commercial real estate and, more specifically, in multifamily are quite active again. We are seeing a huge uptick in activity across the sales and financing side of our business. And it's after the great tightening nice to see a little bit of a thaw coming. And I think the other piece to it is that with rates having been quite stable in this 3.75 to 4.50 range, having the ability to put a cost of capital on deals that is allowed for actual bidder list to grow people, to actually get some type of conviction that they're buying at a real cap rate with real financing costs that they can underwrite. And that's obviously allowing for transaction volumes to start to recover to where they were, not quite pre-great tightening, but certainly quite a change from 2023.
Let me introduce Priscilla briefly, and then we will dive into our discussion. Priscilla Almodovar is president and chief executive officer of Fannie Mae, a leading provider of mortgage financing in the United States and serves on Fannie Mae's board of directors. Priscilla leads Fannie Mae's mission to facilitate equitable and sustainable access to homeownership and quality, affordable rental housing across America. Prior to joining Fannie Mae, Priscilla was president and CEO of Enterprise Community Partners, a national organization focused on investing and increasing the supply of affordable housing. Previously, she was a managing director at JPMorgan Chase, where she led two of the firm's national real estate businesses. Earlier in her career, Priscilla was president and CEO of the New York State Housing Finance Agency and the State of New York Mortgage Agency. Priscilla started her career as a partner at the global law firm White & Case, specializing in international project finance. Priscilla is a board member of Realty Income Corporation and also serves on the board of New York Roadrunners. She earned a bachelor's degree from Hofstra University and a law degree from Columbia.
Priscilla, you were born in Brooklyn. You went to college and law school in New York. You worked at White & Case in New York for 14 years before going to work for the state of New York. You then went to the largest bank in New York, and then you went to Enterprise. My question is, how did Fannie Mae get you to come to Washington?
Priscilla Almodovar: Oh, gosh. First of all, Willy, thank you for having me. Congratulations on your 200th episode. That's a big number. And thank you for your partnership and your entire team at Walker & Dunlop. You're our number one DUS Lender, so we really appreciate working with you. Yes, I'm a true New Yorker. But the Enterprise got me to go to Maryland, so I knew about the deal.
Willy Walker: Did you move? You didn't move to buy?
Priscilla Almodovar: I thought I was going to move, but this thing called the Covid pandemic happened, so I did not move. These days, I spend half of my time in D.C. I'm in New York today because of the holiday weekend. But I spend Tuesdays to Thursdays in D.C., and because you're a runner, my running these days is only in D.C., so I'm signed up for the October Army race—the ten-miler. I did the April cherry blossoms. So I feel I'm sort of co-city living.
Willy Walker: Just as an aside, Priscilla, I checked it. You did negative splits on the cherry blossom.
Priscilla Almodovar: Yes, I'm slow, but I'm a smarter runner.
Willy Walker: Negative splits. You started slower, and you got faster throughout the race. That's the idea.
Priscilla Almodovar: I was slow because I have not been running. And I love my job. The one thing that has sacrificed a bit is my running. I was going slowly, but I knew when you run, I had more gas in the tank, so I did at the end. It was a beautiful day for anyone who did it.
Willy Walker: So, getting you to come to DC, one of the things that I thought was so interesting in listening to some of your previous interviews was that you had a briefcase when you were six years old. Knowing that you went into international project finance and into real estate when you were that little six-year-old in Brooklyn, New York. What was going to be in that briefcase as a six-year-old versus where you've ended up in your career?
Priscilla Almodovar: Gosh. I don't know what I thought as a six-year-old, but I knew I wanted to be a boss. I've just owned that. And I've always been very hard-working, very optimistic, very much of a can-do attitude. The relative gave me literally an attaché case as a holiday gift, and that became my book bag. And I would probably take it to school every day. And someone told me that it sums me up pretty well.
Willy Walker: Was there anything outside of business that you, as a young girl, aspired to do? Is there ever a ballerina thought, a schoolteacher thought, or something else? Or was it always, “I'm going to go do business.” And if so, why did you do law school rather than go to business school?
Priscilla Almodovar: Yeah. No, that's a great question. I wish I had some good answers to say. I just like to learn and didn't have much of a plan. I went to college, and I went to Hofstra when I was 16 years old. I was a big fish in a small pond and very grateful for the place. And when I graduated, I was 19. I'm now a junior, and I have had this tremendous guidance counselor. She said to me that I was an economics major, “You can get a PhD in economics, you can go to business school, or you can go to law school.” And I didn't know what I wanted to do at that point. But she did say that law school is probably the most flexible of all of them. So I went to law school.
Willy Walker: And when you get out of law school, you go to work for White & Case, and you became a partner at White & Case. And one of the few female partners in White & Case, was that an opportunity or a burden?
Priscilla Almodovar: An opportunity. Yeah. Honestly, I grew up in White & Case. I like to say, I was very young as an associate. I did become a partner. I think at the time I might have been the third woman partner at the time. I've been very fortunate to have been surrounded by leaders who've seen my potential and have given me opportunities. That's when I learned I probably would have gone to business school if I'd known then because I was a corporate lawyer, and it's quite common for a corporate lawyer to do deal work. By the way, like you, I could have been in Latin America. My first ten years in my career were almost all in the 1990s doing all the privatizations of banks and airports and toll roads. I could have gone that route, but life takes turns. And, 20 years ago, I discovered housing, and you went through my bio. Fannie Mae's is my fifth role in this incredible industry that we're part of.
Willy Walker: Before we jump to that as it relates to White & Case. I'm certain that you and I were sitting in some area between New York and Argentina when I was doing deals for Morgan Stanley in Ladder Boulevard.
Priscilla Almodovar: Yes, I'm sure.
Willy Walker: It's one of those things, or I thought back on, I was like, there's no doubt that we were like sitting across the aisle from each other and had absolutely no idea that 30 years later we'd be doing something like this together. But it's kind of wild.
Priscilla Almodovar: I’d had the same thought, Willy, when I learned that about you.
Willy Walker: Yeah. No doubt. I've heard you say that leaving White & Case was the riskiest thing you've ever done.
Priscilla Almodovar: Yeah.
Willy Walker: Why take the risk, or what was it about jumping into state government that had you leave quite honestly the very established, lucrative, secure world of White & Case and jump into local state politics?
Priscilla Almodovar: Yeah. So it was the biggest decision I've ever made professionally. Not only did I love my practice, but my clients and my partners were fantastic. I literally grew up there, as I said. And I think what happens in life is long. At that point, I had two children with my husband, who also has a 24/7 job. I took a leave of absence for two months. It turned out to be two years. And during that time, I guess I'm not someone who sits still. I started working on a campaign that actually wasn't official yet. I started working on policy work. I didn't know anything about policy. And it literally changed the trajectory of my life. And that's when I discovered housing.
Willy Walker: So, you discover housing. But come on, there's got to be something more there to say, “I'm jumping out of the ivory tower literally to go and roll up my sleeves.” I know that first of all, when you were growing up in Brooklyn, at first, your family was renters, and then you became homeless when you were like five years old. You clearly saw the progression, and all of us have some sense of where we're from, the actual structure or building that we lived in, and what those formative years were. But what was it about housing policy and housing finance that got you so engaged in what was 2007 or 2008?
Priscilla Almodovar: 2004, 2005, I'm pretty old.
Willy Walker: Actually, it was easy on that one. You and I are exactly the same age, so anything you say as it relates to that. I know exactly where I was when I was six because you and I were six at the same time. Talk about that. What was it that got you so engaged in it?
Priscilla Almodovar: Yeah. No, I think you have touched on it. First, I love finance, number one. Number two, project finance. Then I discovered housing, which was also all about people. And I love people. I found this industry where I could have a huge impact on people and the mission. I think back to that six-year-old girl who had that attaché case. I grew up as a renter. I grew up in a very loving home. My parents came from Puerto Rico in the 1950s. I remember they were savers. They bought their first home when I was five years old. This is the work we do. It's about people who saved, were renters and bought a home. And that home paid for my education, my law school, and my sibling's education. I found an area in finance where I could do it all and potentially have an impact. I think of my parents; my mom was a very religious person, and I think about giving back. So, I found something where I can give back and still do complex, interesting work. I said this is my fifth role. I've been in three sectors, all doing housing. I've been in the public sector for three years. When I ran the New York State Housing Agency, then JP Morgan, I ran two businesses there. So I saw it from the private side and probably one of the best well-run banks in the world and then Enterprise. I thought I would retire from Enterprise. I was a former board member of the Enterprise. Then, I got a call from a headhunter, and I went to Fannie Mae. I've been fortunate with each role to stay in housing, and each one just gave me a bigger platform to hopefully have a bigger impact. And holy cow, Fannie Mae is the culmination of all of it because I think it's one of the rare jobs. I don't know if you can think of many that touches all of the housing, from rentership to homeownership, and that's my story. I get the full continuum. And by the way, all the stakeholders like “Holy cow,” how many stakeholders are there that Fannie Mae has to manage. I view this position as a culmination of my 35-plus years. Because what I've even learned at White & Case, I draw on that experience as well. It's all coming together in this pretty incredible role. And, hopefully, it could have an impact on the country.
Willy Walker: I'm not so sure that this is the final stop. I was thinking about your career in Shaun Donovan's career, and Shaun ran the New York Housing Authority. Then he went to run HUD, then OMB, then Enterprise. And so I think he might have to go from Fannie to OMB and run OMB for a period of time. Priscilla, so you and Shaun can stay on those parallel paths.
Priscilla Almodovar: Shaun was one of the people I met back in 2006, and we're still very good friends. One of my proudest relationships from state service was my relationship with Shaun. I still go back 20 years. I have the same relationship. That's what's so great about what we do. I'm sure it's true of you. I've been working with people, and again, this is my fifth position, and I'm still drawing on. There are many on the multifamily side, but the three years I was in a single-family in New York State had those relationships as well.
Willy Walker: So before we jump from New York State to JP Morgan for a moment, there's a quote that I've heard you say, which is, “It's much easier to get things done if you don't worry about who gets the credit.” This is a great quote, except it's the antithesis of what I found when I ran the D.C. Water Authority and dealt with politicians from D.C., Maryland, Virginia, and all around, where it seemed the only thing that people cared about was who got credit for something. For a moment, given that you've been in the private sector as well as in the public sector, can you actually act in the public sector by that quote? It's easier to get things done if you don't worry about who gets credit for it.
Priscilla Almodovar: I learned that in the public sector.
Willy Walker: Really?
Priscilla Almodovar: Yes.
Willy Walker: That certainly isn’t what I've seen in the public sector. It seems like all they care about is who gets credit.
Priscilla Almodovar: I learned many things in the public sector, but I was very new. I didn't know anything about the government. I was at White & Case all those years. I got one New York state housing agency, and there was this major deal that we were going to do, and we were going to bring the governor to the ribbon cutting. And we didn't call anyone. We just went to the ribbon cutting. I got back to the office, and the state assemblyman called me and said, “What do you mean?” He was head of personnel, and said, “You're supposed to call the state assemblyman, the senator, and the mayor.” And naive me, said, “Why would I do that? They had nothing to do with it.” And did I get schooled. And he told me, and he is dead now, but to this day, I have learned, “If you want to get anything done, especially in government, you must share credit.” Because we actually… Shaun Donovan and I would talk about this. He had a very strong principle. I had a very strong principle. Like, wait a second. They have different constituencies. The two of us could do things. Everybody gets credit. So, I learned that lesson in government. Now, what's that expression? Success has a lot of fathers, whatever. But yes, to the contrary. I have learned in government. First of all, policy is key to having a big impact and big solutions. You need a good policy. But by sharing credit and giving everyone credit, you get a lot of things done.
Willy Walker: It's super interesting. When I was running D.C. Water, we built this digester, which was a $400 million biosolids treatment plant where we take the biosolids from the treatment and burn them and turn them into electricity. That now generates all the electricity for Blue Plains, which is a wastewater treatment plant in Washington, DC, the largest in the world. And when we actually made the decision at the board to fund it was in 2009. Fast forward to 2016. I think it was when they actually had done all the studies and built the darn thing, and it was up and going and made Blue Plains self-sufficient in terms of energy. I looked at the front page of the Washington Post, and there's a great ribbon-cutting ceremony. The mayor of DC at that time, not Adrian Fenty, who was there as the mayor who actually got me to do that, the new chairman of the board, not me, the new head of DC Water, not George Hawkins, who actually did it. And I'm sitting here looking at all these people taking credit for it. And I said that the only way you get really big stuff done is if people are happy to get it done and are not there to take credit for it. I think it's a very similar type of thing. I think your point about sharing credit is very important. But at the same time, I also saw many people say that if I'm not going to be on the front page of the Washington Post, it's not worth my vote. It's not worth my time.
Priscilla Almodovar: Sorry for them.
Willy Walker: Yeah, exactly. The one other piece to working for New York State mission, purpose, and people. What was unique about the mission, purpose, and people at the state level versus what you did previously in the private sector?
Priscilla Almodovar: Yeah. First of all, I was in the state during the great financial crisis. I learned a lot about how you can motivate people, first of all, with purpose. When you're in the public sector, your client is the public. And we had an incredible mandate. But when I joined, the agency was not really living up to its full mandate. And at the risk of sounding totally immodest. One of my proudest moments is what the New York State Housing Finance Agency is today. And I think I set the groundwork to say, “Let's lean into our mandate, which is affordable housing.” We were doing 80/20 at the time, which is nothing wrong with that. We had to do those deals to be able to do affordable. But we started doing affordable, and we made money doing affordable, and we would reinvest them in new affordable deals. And it was during the crisis that the agency leaned in. That's when I first met Fannie Mae was in the GFC. I think the state saw the struggling homeowners in New York State. New York City has Buffalo, and there are a lot of homeownerships and struggles there. I saw that mission really as a rallying cry to bring a workforce together. There was one very senior leader at the agency who told me one day, “I told my wife, I've never worked so hard in my life, but I'm having so much fun under you.” So it says that's another lesson I've learned from the government, that with the right leadership, the right purpose. And that's true in the private sector, too. Frankly, true at Fannie Mae, I am amazed at the commitment of our 8,300 employees. We come to work every day to do the best we can to serve the housing needs of the United States. And we do it with great integrity. And I think that's why our engagement scores are so high as well: because they are very tangible. That's another thing I love about our work. It's very tangible. It's about people who could actually go and feel the projects and the homes that we finance. And it makes it very real for people. So, purpose, mission, and profit are to me is in the case of Enterprise. At Enterprise we were that rare social enterprise that made money to do good. And there's nothing wrong with that. If anything, I have learned through all these roles that real innovation happens at the intersection of mission and profit. And you try to do the best you can to try to maximize the two.
Willy Walker: Another person that you and I happen to both know quite well is Jamie Dimon. You got the opportunity to work with Jamie for a number of years.
Priscilla Almodovar: Yes.
Willy Walker: What did you learn from Jamie while you were at JPM from either a leadership or credit management standpoint?
Priscilla Almodovar: Wow. An amazing leader. I learned a lot from him. First, I have learned from him. He treats everyone the same. What you see is who he is. That's something I really valued in him. Jamie's the one who hired me, and it was amazing how he just. I still remember our interview. He said things that only Jamie Dimon could say. He's like, “Okay,” so he asked me all these questions. He's like, “Okay, work hard!” I grew up in Brooklyn. Renter. Like, he just went to a Columbia Ivy League partner. Like he just calculated all this in his head so he could see talent. He stretches people. But what I really learned from him is risk management. I didn't know. If you run any business for Jamie Dimon, you do not realize he's making you into his manager, and it's end to end. It's all stripes of risk. The place is naturally paranoid. When you're at the top, you have to be paranoid. He constantly reminded us that we can always be better and more efficient and always do the right thing. So, he would always say this quote, he would call people and say, “Would you sell this product to your mother?” And he genuinely means it. I just think he's an incredible leader. It's amazing what he's done with JP Morgan. And by the way, amazing leaders are all under his tutelage. I learned a lot from him.
Willy Walker: I will say your point about amazing leaders. One of the things that I've consistently been super impressed with is the senior leadership team at JP Morgan, is so broad and diverse. Look, you, and I both engage with lots of financial services institutions that talk about it. You walk into JP Morgan, and there is such a diverse senior, the highest ranks of JP Morgan. The backgrounds are so distinct, and it's such an incredible culture as it that relates to thinking about ideas and being willing to challenge one another's ideas. And we do a lot with them. We do a lot with other financial service institutions. I'm not trying to throw anybody else under the bus, but I think Jamie's focus on getting just the best and the brightest around him, no matter where they come from, what they look like, or what their background is, has been such a huge benefit to JP Morgan.
Priscilla Almodovar: For sure, and at this level of humility, they know they're good, but they don't. Again, they're paranoid, which keeps them really strong. Also, his level of attention to detail is high. I still remember my first business review with Jamie. Even though my business was a small of 35 businesses, he is very disciplined. And once a year, I would have to defend our business in front of him. Holy cow. He reads materials. He asked the tough questions and is always one step ahead of you and makes you a better as a leader. I am forever grateful to him.
Willy Walker: As a quick aside, I was looking at your earnings from Q2 and saw that you made $4.5 billion, which is a big sum of money. And I was like, I wonder how that kind of just fits into what JPM made in Q2. So JPM made, I think, $19.6 billion in Q2. $4.5 billion is a huge amount, but $20 billion is also a somewhat larger one. But then I was trying to figure out what $4.5 billion of earnings for you in Q2 measured up against. And I put in a search that said $4.5 billion Q2 earnings. And the one thing that kept coming back was that Meta lost $4.5 billion in Q2 on their investments in the metaverse, in their virtual reality world. And I was sitting there going like, “What a luxury to be at Facebook and be able to lose $4.5 billion on the quarter of just investing in the metaverse or whatever Mark Zuckerberg's future vision looks like.
Priscilla Almodovar: Wow.
Willy Walker: That's really quite something. You go from JPM. This is when you went from White & Case to the state of New York. You're at JPM, and you're doing big deals. You run two of their big real estate businesses, and you leave to go run Enterprise, which, by the way, talk about the mission, is one of the most mission-driven companies and nonprofits in the country. With that said, you go from all the balance sheets and influence that JPM has to a relatively small enterprise, play on words there. What was that transition like, Priscilla, as it relates to going from the perch you had at JPM to a much smaller company that didn't have any of the same resources that you had when you were at JPM?
Priscilla Almodovar: Yeah. I think that's probably the mission and purpose. I loved my time at JP Morgan. The first business I ran there was their community development group, which is affordable housing, construction lending, LITHC stuff. Then, I went to the conventional side. And this is not a comment on JP Morgan. But it was the full real estate business, so it no longer was just about project finance and doing deals. It was also about selling treasury products and de-risking the balance sheet. So, it was not about doing deals because JP Morgan was calling for a recession back in 2015 and 2016.
Willy Walker: At some point, you were actually right. The pandemic and a couple of other things, but at some point, you're actually right.
Priscilla Almodovar: So again, I learned a lot there. I had an amazing team there, and it was a national team that was very customer focused. But it became harder to service all your clients. So we worked with the cream of the crop developers and sponsors, and we wanted their full relationship, not just giving them a balance sheet. But we wanted treasury services, we wanted their investment banking, etc. It was probably 2018, and I thought if opportunities came up. I got a call. I wasn’t looking for a job, but I was on the board of the Enterprise, as I mentioned. I got a call from their board chair and he said, “We're looking for a CEO,” and I gave them names. He called me back ten months later. I got a call from Shakar, you know Shakar, and the call said, “We still haven't found someone.” I'm like, “What are you looking for?” And all of a sudden, I became the candidate. And that's how I ended up at Enterprise. I wasn't looking.
Willy Walker: You pulled a Dick Cheney.
Priscilla Almodovar: That's what everyone says. Yes. And these were Ron and Jonathan Rose and Shakar. We had served on the Enterprise board together. They knew me, and they knew which strings to pull. And I have to say it was an unbelievable experience. It was during the pandemic. I learned a lot from Enterprise as well as from the workforce as a leader. It's a very unique organization. Leading any organization during the pandemic was something that I think every CEO remembers.
Willy Walker: Why is it so hard to build affordable housing?
Priscilla Almodovar: Why is it so hard? Look, there is an affordability crisis. You have rents going up higher than income. Same thing with home prices. Today, if you look at renters, as you know a third of renters pay more than 30% of their income on rent. It all comes down to numbers. You need land. It costs money. You need land, you need the financing, and you have to charge the rents. And to keep it affordable for today's households is not easy. So it's a combination of land. It's financing. NIMBY is very real when it comes to low-income housing. I saw a lot of that at Enterprise you are seeing a lot of that today. You need all stakeholders together to have the courage and the willingness to build more housing. And that's ultimately, I think, what we're seeing now in this country. Supply has been an issue for a long time since the GFC, but it's really coming to roost now, given the affordability. We are in an unprecedented time of unaffordability in this country.
Willy Walker: And given the amount of both capital that Fannie and Freddie supplied to the housing industry, the amount of capital that HUD supplies, and the amount of capital that LIHTC supplies, it seems, Priscilla, there's a lot of capital in Washington to, if you will, put to housing and housing affordability. However, the real disconnect is at the local level in terms of land use management and entitlement. How do we solve that disconnect? And I want to give equal airtime to both presidential candidates now so that it does not seem like we're talking about just one. But I will say that the Harris campaign's proposal on housing to build 3 million new homes is an actual concrete proposal that, from my personal view, is much better than the rent control proposal that the Biden administration had launched previously in the summer. And then, on the Trump side, it appears that the housing policy from the Trump campaign is force illegal immigrants and push them back to their home countries, therefore freeing up additional housing and then also bring interest rates down by being more activist as it relates to Fed policy. Those are the two stated policies from housing. I want to focus on the Harris one for a second, though, here, because if the idea is to build 3 million new homes, there does seem to be a disconnect between the capital that sits in Washington and the policy at the local and state level. Any thoughts on how to marry up those two things to try and actually get to a proposal that Vice President Harris's campaign is putting forth?
Priscilla Almodovar: Look, I know I'm not here to opine on any proposal. I will say I'll confirm. You're right. Their estimates out there show that we have a shortage. Our economists say 3 to 4 million homes in this country. We’re being built at a rate that when you look at the net new household formation and what we're building, there's a huge supply-demand imbalance. We need more homes. And you're right it is a local issue. I think, and this is where, having worked at the state level, you really need the integration between federal policy and local policies because it's real. How do you create incentives to align the two? That's the challenge. We're trying to do our part when it comes to supply in single families. We have fewer tools at Fannie Mae when it comes to supply per se on the single-family side. To the extent we have REO foreclosed properties, we're repairing them to a high standard or selling them to low-income and moderate-income aspiring homeowners, giving them a 3% discount. We're also on the multifamily side and trying to preserve or create more housing at an existing housing. We're working with sponsors from the conventional space to dedicate some of their units for individuals at 120% of the AMI or lower. We're trying to create. We have to all be very creative. It's yes, we need new units, but we also have to preserve the units that already exist. And it really is all hands-on deck. But it's that coordination of all levels of government. It's federal and state, and it's local as well, and at some states you have county level as well. I understand that everyone has to get something to build this housing, but the numbers have to work for developers as well. Developers are not going to build if the deals, as we say in real estate, doesn't pencil out. Costs are becoming more expensive. If you think of inflation, labor costs are more expensive, and materials are more expensive. I think the government were to put in subsidies they have to get something in return. Usually, there are rent restrictions. And in the case of a single-family, Fannie Mae, we're trying to do our part. We have a 3% down payment home mortgage product. For low-income and moderate-income, we have down payment assistance and closing cost assistance. We're trying to do what we can, but it really does take coordination at all levels of government.
Willy Walker: I asked this question from a 30,000-foot level to get a sense of how challenging it is for you to run an enterprise that is so integral to this whole daisy chain of all the influencing parties. And yet, at the same time, you're in the penalty box and not allowed to really engage from a political standpoint. And yet, at the same time, you're also not allowed to be, if you will, a free-wheeling public company and private enterprise. That's a very, I would imagine, challenging balancing act to be in the role that you're in. Particularly, when you have $4.3 trillion of assets, something like that.
Priscilla Almodovar: Yes.
Willy Walker: 4.3. You're buying one out of every four home mortgages in America.
Priscilla Almodovar: And we're about 20% of the multifamily.
Willy Walker: Of the multi-market. One out of every five on the multi-side and one out of every four on the single-family side. And yet you're boxed in because you can't fully engage on the policy side given what's happened with Fannie and Freddie and conservatorship. And you can't run as a private enterprise that can go do whatever they want to do. How do you manage that? It's got to be wildly challenging.
Priscilla Almodovar: Yeah. Look, challenging makes it fun. We work very closely with our regulator, FHFA. We work very closely with our board. And I would say we're doing an incredible job in this situation. We are true to our mission. We provide liquidity, stability, and affordability. We are leveraging technology to let us do what we think needs to be done to make the system more fair and sustainable for everyone. So I would say, “Yes, there are limitations, but we do the best job we can and work very closely with the Federal Housing Finance Agency.” We have a tremendous director running FHFA who cares about housing. She's passionate about low and moderate-income families. I would say, again, I've only been to Fannie Mae. It's going to be almost two years. And so far, I would say we're highly engaged.
We're reaching out to stakeholders. We like to say at Fannie Mae that we listen, we lead, and we do listen to many stakeholders. Look, we set standards. You don't like to say too strongly, but we set standards whether it's for mortgage credit and multifamily credit. And multifamily we’re only 20% of the market. But in a single family, as you said one four, I think it's something like 70% of mortgage applications go through our desktop underwriting system that lenders throughout the country use. I think we have a huge responsibility to ensure that access to credit is fair. And I think we're doing a pretty good job even in the slow market. I think this year, we have over $187 billion of liquidity combined in a single-family multifamily. More and more, we're leaning into first-time homeowners. I would say that despite the challenging market in both single-family and multifamily, we're serving the market as best as we can.
Willy Walker: I hear you run through those numbers, and they're super impressive. Like the net worth of your Q2 financial statement. Fannie's net worth has just continued to go up. I think my net worth has gone from $47 billion to $60 billion to $77 billion. You added another $9 billion in the first half of 2024. So you're up to $86 billion of net worth. How much messaging needs to be done as it relates to the safety and soundness of Fannie and Freddie after 2008 and them going into conservatorship and all of the $190 billion that was required to bail Fannie and Freddie out at the time has been not only, but then you all have added another $100 billion. It's been the best investment the US federal government's probably ever made. How much is that part of your mandate to make sure people understand what's going on from a safety and soundness standpoint, or do you have to let that take care of itself?
Priscilla Almodovar: Yeah. It's a great question. And this is where I don't know if it's my mandate, but it's my personal mandate. I don't know if I have the mandate. But I have to say; people often ask me what has surprised me the most about Fannie Mae since I joined because I've worked with Fannie Mae. I said that in all my past four jobs, I worked with both Fannie and Freddie, so I knew the enterprises. The number one thing that surprises me the most is that even within our industry, people do not understand how substantially transformed Fannie Mae is. Our business model is completely different from how we made money before the GFC and how we make money today. It was an investment portfolio. It was a retained portfolio. Today, it's a guarantee. We buy loans, we sell them all. That's very different. We have different lending standards. The products of 30-year fixed rate mortgage that makes up that 3.6 trillion, that's a plain vanilla product, as it should be. And that's where our book is today. When you look at what we've done with capital. We started retaining earnings in 2019. I'm amazed that people in our industry don't know that we've been retaining earnings since 2019, which is now $87 billion. We have a capital rule now that one could argue. Yes, are we still undercapitalized? For sure. But can we run the business knowing that's the regulatory capital that we have to hit. It's completely transformed. And by the way, the loss mitigation tools that we have now did not exist. I mentioned I first met Fannie Mae, during the great financial crisis. The enterprise didn't know what to do with struggling homeowners. Fast forward during COVID, I worked with Fannie Mae again when I was at Enterprise in two capacities, one for homeowners, but also, we had a dust license right to Bellwether Enterprise. Holy cow. Talk about transformation. They were able to respond to the pandemic. That story hasn't been told. 1.5 million households kept their homes because of what Fannie Mae did. And by the way, like 99% had been resolved. The muscle we have, the business model we have, there's a lot for our people to be proud of. And there's one thing I do while I'm here: try to close that perception gap. And it doesn't care if we're in or out of conservatorship. It is a different business today. It's a well-run business. It's risk managed. It's governed well. We have an incredible board of directors, and I'm going to keep telling that story for as long as I'm in my chair.
Willy Walker: So, talk for a moment then on that same theme as it relates to the benefit that Americans have today of having a long-term fixed-rate mortgage. So, the numbers that I think you talked about during an earnings call was that 80% of American homeowners have a fixed-rate mortgage under 5%. One of the big differences between the U.S. economy and other developed economies around the globe is that if you live in the UK, you've got a typically a five-year floating rate mortgage on your home, and it might be a ten-year mortgage, but it's certainly not a 30 year fixed rate instrument. We're incredibly blessed to have the secondary mortgage market in the United States that we have. But it's been one of the big untold stories about why we've come through this great tightening where the consumer still had cash to go out and to go back to the movie Trading Places with Eddie Murphy and Jamie Lee Curtis, go out and buy the GI Joe with the kung fu grip, as Eddie Murphy famously says in that movie. But people could actually go out and spend money, and in other developed economies, our GDP growth has been so much greater than that of Japan, the UK, and Germany. One of the main reasons for that is that people, as rates went up, weren't paying more for their home mortgages. It was a fixed expense and not a variable expense. And that's all due to the secondary mortgage market that Fannie and Freddie provide.
Priscilla Almodovar: Yeah. There's a lot there. Even taking a step back, I think that it's part of our country. It's part of the American dream. 1938 was part of the New Deal. And that's how generational wealth is still built in this country. And that is just like apple pie, whatever that expression is. That 30 year fixed-rate mortgage, is very unique to the United States. But another key point you're mentioning is why we had Fannie Mae talk about it. We don't yet know. We all focus on the ten-year mortgage rates. And because it is a very important component of how the mortgage rate is built. But the other thing you're touching upon is the investors. We have a highly sophisticated capital markets when it comes to mortgage finance in this country. So, when you think of the fixed-income market, you have U.S. treasuries, corporate debt, and mortgage-backed securities. It's incumbent on Fannie Mae, given our business model today, which I mentioned. Our model today is we buy mortgages. We put them in the TBA market. We are selling this. We have to make sure that our investors like the mortgage-backed securities because that is where the liquidity comes from. That is our liquidity. One thing I've learned from Fannie Mae in two years is we're so focused on the primary market that the liquidity market is key, and therein lies a big question mark because who during the GFC till today, who were the biggest buyers of mortgage-backed securities? It was the Fed. And they're not buying anymore. They're just rolling off their portfolio. It was the banks and they took a step back as they waited for bank regulatory capital to be resolved. It's money managers. We're very lucky that money managers today are overweight mortgages. But that same money manager has options. They have a choice. They could buy treasuries. They could buy corporate debt. I think one thing that I've grown to appreciate, which I didn't before I joined Fannie Mae, is how important it is for all of us to understand that any new product that we produce has to be something that we could sell to an investor. Because it is key to that liquidity, the stability in the market is to have that mortgage, that investor. And when you think of mortgage rates, we focus on the ten years. The ten year, is at 3.8 today. But mortgages now they've come down. So, at 6.3, there's about 40% of the spread. And that spread doesn't get talked about enough. That spread to the simplest way to describe it. There's the investor. They have to get paid for the ability of the consumer to prepay their mortgage, which only exists here. So here they think they're buying an MBS that could be out for 30 years instead of getting reified the minute there's a bond rally. So they have to get paid for the duration risk they take. But the other piece is originators. They, too, have to get paid for originating mortgages. I think that us, Fannie Mae, is highlighting more about what makes up mortgage rates because there's so much focus on mortgage rates. They have come down from even a year ago, even from August. I think education and transparency are good for the system. That end-to-end, the primary all the way to the MBS investor. One of the things we do is bring capital to the U.S., but also foreign capital. Most people don't know that there are mortgage-backed securities. I think the MBS market, which is probably the mortgage market, is at a point of $13 trillion, $14 trillion. And the MBS market is probably $10 trillion. That's coming from U.S. investors as well as foreign investors. Part of our job is that liquidity is key, which I did not appreciate until I joined Fannie Mae.
Willy Walker: Given that 80% of U.S. homeowners have a 30-year fixed rate mortgage under 5%, the chance that they're going to go and refi that. That's neither here nor there as it relates to when you think rates are going to go. I'm not going to ask you to opine up. But there's a lot of trapped equity inside of the US single-family market. Why not provide secondary mortgages to allow people to add leverage when those fixed-rate mortgages are at such a low level? Why wouldn't we do in the single-family space what we're able to do in the commercial space?
Priscilla Almodovar: Yeah. So, first of all, I'm okay with opining on mortgage rates. Our economists do.
Willy Walker: Are they going down and is there going to be a rotation out of money market funds, which I think right now has $6.7 trillion into longer duration as the Fed fund rate comes down and therefore bring down the two-year, five-year, and ten-year.
Priscilla Almodovar: That's probably way more sophisticated for me to respond. But our economists, were more conservative than others out there. So we think there's probably two rate cuts, one in September and one in December, 25 basis points each. That's where we see the Fed funds rate. And we have reasons for that. The economy is still growing. It's slowing down, but it's still growing. Unemployment still has a four-handle. And if you're in real estate, you know that in construction, you need more labor, and inflation has come down. But it's not at that 2% that Chairman Powell has said he still wants. We've taken a more cautious view. As it relates to mortgage rates we do think that rates will come down, but they'll still be in that six-handle this year. You won't see them go down south of six probably till the fourth quarter of 2025. And a lot is what you're describing. It's that lock-in effect. So right now, we're seeing a real disconnect between buyers and sellers in single-family. The aspiration to be a homeowner remains very high. It's like our last survey. I think something like 92% of nonhomeowners aspire to be a homeowner, but yet only one-fifth think it's a good time to buy a home. You flip to sellers. They think it's a great time to sell a home because they're seeing these high home prices. When you couple the lock-in effect, as you said, 80% of consumers today have a mortgage that is 200 basis points lower than current rates. You have a lack of inventory. So that's what we think rates are. We don't know what the consumer sees even though home prices have come down, the pace has come down, the consumer still sees high home prices, and the consumer still remembers when mortgage rates were at 3% just a few years ago. I think they're going to stay up there at six, and maybe people will transact at six. But they're not going to come down real fast. And that's probably what consumers are waiting for.
Willy Walker: And let's shift for a moment to multifamily. We've been blessed to be your largest partner for eight of the last ten years. We have an incredible partnership between our two companies. The originations that both Fannie and Freddie did in 2023 were well below what the regulator has as a cap on originations for Fannie and Freddie. And then this year, Freddie's volumes through the first half of the year were up about 20% off of a very low 23, and Fannie's volumes were down. Why is it that Fannie has had a tough time deploying capital in this market on the multifamily side?
Priscilla Almodovar: I think you forgot a very important fact. So, in 2023, the market was way down. I think the market was like $246 billion. In 2022 was like $4 billion. We've always been that 20% of the existing market. So that was the case in 2023. And this year, we are on track to be about 20% of the market. So I'm not sure what numbers you might be referring to, but we look at our pipeline very closely, and what we have found is that today, as you know better than me, you now have competition from nontraditional lenders. You have CMBS come back and we do acknowledge that the market is slower because of rates. I think until that clarity is there for all of us, we won't see the same level of transactions. But we're quoting deals, and we're finding that many of the deals we quote go away. They don't happen. But when I look at our numbers, yes, you're right. Our cap is $70 billion. We'll probably be inside, maybe more close to what we were last year, but we're still 20% to 22% of the total market. And I think that's a very important fact. If we look at absolute numbers and the percentage as well, we have competition. One thing that we talk about a lot at Fannie Mae is we are very committed to the delegated model. And personally, I think it's fantastic that sponsors have different options. They have our model, they have Freddie's model, which is a very different model. They have CMBS, they have bank capital, and they have life cos. That's good. Again, I'm a former JP Morgan banker. It's good to have different options as a sponsor. But I hope where we get to at Fannie Mae is acknowledged. We should talk about the elephant in the room and how things are slowing down. We are very committed to the delegated model. But the world has changed a little bit for us this past year. And as you think about fraud, I don't know about you, Willy, but 18, 24 months ago, we couldn't imagine some of the fraud that we've seen in the industry. So yes, we've had to slow down a little bit. We are doing more inspections. We do have to get to the root causes. Yes, we're doing more. We're asking our lenders to do more. And frankly, you should be asking your sponsors to do more because they should be worried about tenant fraud. I think our industry is at a point where it's a great industry right now. We can't have fraud. We all have to get better at detecting it and knowing how to do so to bring the activity back because there are a lot of tailwinds for multifamily right now. When you look at demographics, where you look at the supply that's coming on, it'll clear through the system.
2026 and 2027 might be an amazing year for multifamily. We think in terms of valuations that we're probably at the end. Our economists say, “You know, like a 25% peak to trough,” we're probably asking them, “Where are we? How close are we to that 25%? Probably about 20-ish or so.” I think when things settle down. But we have to tackle this fraud issue because our ultimate goal is to lean into our delegated model so that folks like Walker & Dunlop can provide the certainty that sponsors are looking for. But we're going to need your help. I think it's incumbent on all of us to commit to doing that. I think a lot of myths about what we're not doing and doing, but when I look at the numbers, we're still delivering about 20% of capital from multifamily.
Willy Walker: Yeah. I don't think there's a lot of myth in there. I think that the issue, the numbers are the numbers as they relate to caps and non-caps and where you all are from a competitive standpoint as far as volumes. I think your comment on fraud is very important one. It's been widely reported. There was a Wall Street Journal article two weeks ago. I have said numerous times that the Wall Street Journal article should have been written a year ago because it's been the past year that Fannie and Freddie and the regulator and partners like Walker & Dunlop and all of our competitor firms have been really diving into this issue with you all to root it out and to figure out where it has been. We also need to try to make sure that the information sources and the policies and procedures around them are robust enough to make sure that we're catching it.
I think the other interesting thing that you pointed out, Priscilla, is the difference between the Fannie Mae DUS model and the Freddie Mac Optigo model, in the sense that you've got the DUS lenders out there doing the underwriting, taking the risk, and holding the risk in the mortgage loan. Therefore, if we do have fraud, if there's a loss on it, we're the ones taking the loss. The first loss position versus some of our competitor firms has pere pursue with Fannie Mae, on the Freddie Mac side, where it's non-delegated there's a big question mark: is it Walker & Dunlop’s responsibility for catching the fraud? Is it Freddie Mac's responsibility to catch the fraud? Or is it the B-piece buyer's responsibility to find the fraud in the tape when they're buying the first loss position? And should it go back to the BP buyer? I think the Fannie Mae model is much clearer chain of responsibility from an underwriting standpoint versus the Freddie Mac model, where we co-underwrite the loans of Freddie Mac, and it's sort of like, “Should you have caught it? Should we have caught it? Should the BP's buyer be the one to pay for this?” It's very interesting as the regulators are working with both you and Freddie Mac to figure out how to put in the policies and procedures to deal with this effectively going forward. And, on those deals that do have fraud, which has been widely reported, who ends up paying for it? And it's an important issue right now, as you correctly underscored.
Priscilla Almodovar: Yeah. Look, I can't comment on Freddie's model. I can comment about Fannie Mae's model, and you hit it on the spot. The delegated model exists because of the alignment of interest. We are in it together. It's the delegation. It's also the life of loan servicing. When something goes wrong in our delegated model, we know exactly who to call. We go to the sponsor directly. It is a very different model. However, it is important for sponsors to have different sources of capital as well. But this issue is really an industry-wide issue. And we're working very closely with FHFA on it as well. But in the meantime, the cues are longer; we acknowledge that. We don't like it; I'll be honest, we don't like it. We want to delegate more and get back to a day where you have the certainty that you need so that you can deliver that for sponsors.
Willy Walker: And as you know, we are all ears on that one. And we obviously have a great partnership behind that.
Final question, Priscilla, you've been very generous with your time and thoroughly enjoyed our conversation.
Coming to Fannie Mae mission-based for you. You came because of Fannie Mae's mission. You became because of your dedication to housing and providing safe, affordable housing to Americans. What's the mission accomplished from Priscilla's standpoint as it relates to improving safety and soundness? Getting Fannie and Freddie out of conservative? You only have Fannie but getting Fannie out of conservatorship and back as a public company or something else that's outside of it that, I don't know, might be the mission that you have as it relates to your tenure as CEO.
Priscilla Almodovar: But one is the perception gap of Fannie Mae. Telling that story is number one. And number two is continuing to lean on our mission. We didn't even get to talk about what we're doing about increasing access to capital and the credit invisible and how we're using technology to see more people, to serve more people. Holy cow. We're just getting started with what we're doing with on-time rent payments. Now we're doing cash flow underwriting. Now we're saying, “Holy cow, there's about 30 million people in the gig economy. Are we looking at their cash flows?” So my hope is that I could continue to help Fannie Mae build on the work that's already started and using technology to allow us to look at borrowers and renters in a safe and sound way to provide access to credit. Those were my parents. I get so much inspiration from people who are not seen by the system, and we could help do that. And technology is helping us. The third thing is that I'm also an operator. I love running the operations and working with our cyber people. Our operations people, our risk people. It's a really fun place to be. There's a lot of energy, 8300 people. I could come to work every day. Everyone is a change maker at Fannie Mae and throw a lot of energy from all of that.
Willy Walker: Given Fannie's role in the housing finance system as well as our partnership, I'm very thankful that you're in the seat you are in. And I'm also thankful that you joined me for this conversation. Thanks, Priscilla. It's great to see you. And thanks for all you do.
Priscilla Almodovar: Thank you. And congratulations again.
Willy Walker: Thanks very much. Have a great day, everyone. Thanks for joining us.
