Fannie Mae halts purchases for Mid-America Fund

NEW YORK, Aug 26 (Reuters) - Fannie Mae's (FNM.N) troubles have hit the apartment industry and analysts said the troubles at the government-sponsored enterprises such as Fannie Mae would likely send rates higher for loans to apartment building owners.

Late Monday, apartment real estate investment trust Mid-America Apartment Communities Inc (MAA.N)said its joint-venture with Fannie Mae, would cease making new acquisitions. It was Fannie Mae's decision to halt the fund's acquisition activity.

"The message is they need to preserve capital, given what's going on with their institutes right now," Mid-America Treasurer Al Campbell said.

Fannie Mae has a two-thirds stake in the Mid-America Multifamily Fund I. The goal of the fund was to have about $500 million invested in apartment assets. Fannie was an equity partner in the fund, which was to be 65 percent leveraged.

Fannie Mae and Freddie Mac (FRE.N) are the two biggest U.S. mortgage financers of residential housing. They also supply debt to apartment building owners, who have seen other sources of loans dry up.

Shares of both GSE's are at lows not seen in nearly two decades, amid fears they will not have enough capital to sustain themselves as the U.S. housing market worsens.

The GSEs have suffered rising mortgage defaults, and speculation has persisted that the U.S. government would have to bail them out.

"While we will be the first to acknowledge that direct real estate investment and real estate lending are two different animals, and expect multifamily lending to continue given the profitability of the business, we believe that a focus on capital conservation at the GSEs will, at a minimum, cause the cost of financing for the multifamily industry to increase over the next 12 months," Bank of America analysts said in a research note.

The analysts said Fannie and Freddie might raise the cost of loans to apartment owners to a range of about 6.25 percent to 6.5 percent from 5.75 percent to 6 percent, depending upon the borrower.

The Mid-America Multifamily Fund I has two assets under management and used roughly $60 million to $65 million. Mid America said it was seeking another partner for the fund.

"We suspect it will be some time late 2009 or early 2010 before a new fund is formed," RBC analyst Mike Salinsky wrote.

Campbell said Fannie Mae remained committed to providing debt financing for the company's own ventures.

Shares of Mid-America fell nearly 1 percent or 46 cents to $49.50 Tuesday on the New York Stock Exchange. Shares had reached a 12-month high of $60.66 about a month ago.

(Reporting by Ilaina Jonas; Editing by David Gregorio)