Arbor has helped shape the small multifamily loan market into what it is today, partnering with Fannie Mae to develop the first-ever agency small loan program over 20 years ago. More recently, Arbor helped launch the Freddie Mac Small Balance Loan program that debuted in 2014 — and was the program’s top lender in 2015 and 2016.

Ivan Kaufman, Chairman, President & CEO of Arbor, recently sat down with Stephen Johnson, Vice President of the Small Balance Loan business at Freddie Mac, for a conversation on the sector moderated by Sam Chandan, founder & chief economist of Chandan Economics. Here is Part 1 of that conversation, which covers the history and evolution of the small multifamily finance market.

(The following is excerpted from the December 9, 2016 episode of The Real Estate Hour, a weekly SiriusXM Radio show powered by the Wharton School of Business. The text is edited for clarity and brevity. You can listen to the full show by clicking here.)

Sam Chandan: One part of the housing market that is particularly relevant to the discussion of affordable housing options for American families is the small balance multifamily market, which refers to relatively smaller rental properties typically backed by mortgages between $1,000,000 and $5,000,000.

Steve, our audience understands the agencies’ role in the single-family market. Can you briefly tell us a little bit about Freddie Mac’s role in the rental market?

Steve Johnson: Freddie Mac was chartered by Congress in 1970 with the mission to keep the nation’s mortgage market stable and to expand the opportunities for homeownership and affordable rental housing. We seek to provide liquidity to every corner of the multifamily space, with a specific focus on safe, clean and affordable rental housing. Now how do we do this?

We purchase loans from a select group of licensed sellers/lenders. As with single-family, we don’t lend money directly to borrowers, but rather package the loans into securities for third-party multifamily investors. To give a matter of perspective, for the first three-quarters of 2016, Freddie Mac purchased $40 billion in loans that financed more than 523,000 rental units — approximately 90% of which are affordable to working families, seniors and students earning less than the local median income.

Sam Chandan: So, tell us a little bit about the role of Freddie Mac and the agencies over the course of the financial crisis. I want to make sure that folks have an idea of the critical role that your business played in ensuring continued access to financing, so that we’ve had affordable rental options out there over the course of this period where, in many cases, banks and other institutions were really pulling away and not able to lend.

Steve Johnson: Like you said, there was a drawback from some other sources. But this is our business. When markets are good, or when markets are bad, we will be in this business. Liquidity is what we do. Workforce housing is what we do. Regardless of the market conditions, Freddie Mac is going to be there. And I think that if you were to watch our performance through the downturn, you saw the tremendous performance of a portfolio. Frankly, it was the result of the strong credit culture that has been created over the years. I think the way to answer the question is that we are going to be here. Period.

Ivan Kaufman: I would just add that as we went through the crisis we saw other asset classes — whether it be office buildings or retail — with a lack of financing and liquidity. But with Fannie and Freddie being a consistent provider of loans and liquidity, there was never a gap or dislocation in the multifamily market. The job that was done by Fannie, Freddie and the FHFA allowed these companies to continue to function and stabilized apartment buildings and residential housing throughout the United States. I know that residential housing went through some difficult times, but without Fannie and Freddie, who knows where it would have gone.