Investors need to be clear about Fanny and Freddie

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The annual Zelman Housing Summit is a small but elite conference of public and private home builders, mortgage lenders, investors and financial analysts run by Ivy Zelman, one of the most well-known builder analysts. When the meeting began 18 years ago, it was primarily focused on housing. But now the conversation has expanded. And this year’s meeting will focus on apartment complexes, GSE, labor and land in particular.

Four years ago, Zelman’s company was acquired by Walker & Dunlop, a commercial real estate finance and advisory firm. This is the multi-family lender of top GSE (Fannie Mae and Freddie Mac). CNBC sat on a podcast with CEO Willy Walker.

Below are some highlights from our discussion and the broader meetings.

Much of the conversation at Zelman surrounded interest rates. The 10-year yield fell again when the meeting began on Thursday. Walker said he was surprised at where the interest rates are now and did not expect them to stay there.

“If I told him three weeks ago that I would have 4.01% in today’s 10 years, I wouldn’t have made that bet,” he told CNBC. “The rate is much lower than I thought.”

However, he noted that, going back to 1980 and looking at nine Fed rate cut periods over that 45-year period, the reductions made in the recession environment led to long-term bold yields. Outside of the recession, long-term interest rates had no real impact.

“So, as much as I’m hoping to see at least a 25 basis point cut, I don’t think a cut of another 25 basis point would have a very significant effect on the long edge of the curve, even if I get 50 basis points from the short edge of the curve,” Walker said.

For builders and collective developers, the future of Fannie Mae and Freddie Mac is important, and the uncertainty about what the Trump administration will do with them has been Zelman’s hot topic.

Walker said commercial property suffered widely over the past three years due to higher interest rates, but multifamilies were in the advantage. When banks and CMBS issuers may not have loaned, Fannie and Freddie were always on the market to provide liquidity.

Currently, GSES parents, FHFA director Bill Prute and Treasury Secretary Scott Bescent have said there are actions to keep the company private and ultimately take it to the open market. Pulte recently told CNBC that the two will remain in government reserves, but hopes to sell about 5% of them to the open market.

Walker said there are many concerns about Fannie and Freddie’s situation, especially given the recent report of the debate between Parth and Bescent, who have become physical. He compared it to the situation at flexible coworking company WeWork a few years ago, but said there was no strong board to guide it.

“I’m a public company. I have a very strict board of directors with independent directors,” Walker said. “There is no separate way Fannie and Freddie are managed from the perspective of today’s board of directors.”

And when it comes to dust up between Pulte and Bessent, Walker said, “Who’s going to lead, who has the pen that says this is Fannie and Freddie’s plan of action?”

Also among concerns raised around the Zelman Conference Hall: Land.

“We don’t have a housing crisis, we have a land crisis,” said Adrian Foley, CEO of Brookfield Residential, a land developer and home builder on one of the conference panels.

Both single and multi-family builders need more land qualifications and hope that the Trump administration will open up more federal land and promote it by easing zoning restrictions.

“I basically love the equivalent of the residential chips method,” Foley said in an interview with CNBC.

But Doug Yearley, CEO of Toll Brothers, said that even if there was enough land to build, there wasn’t enough workers to build it.

Small builders say they lost their workforce because they feared an ice attack on employment sites. There was a lot of talk at the Zelman Conference about getting more people into the business given the number of migrant workers fueling the industry and increasingly threatened by deportation.

Large public builders have consistently said they have not had any major problems with ice raids at their work sites, but they lament the lack of workforce overall.

“We need a healthy immigration policy,” Early said on the panel. “You go to one of our hometowns, and that’s (like the United Nations).”