Browse Tag: Freddie Mac

CMBS Credit Risk Elevated By Louisiana Floods

A group of 302 Louisiana properties backing over 200 loans totaling approximately $1.1 billion in allocated property balance have, according to Morningstar credit ratings, elevated default risk due to the flooding in the area.

The August 12 floods killed 13, dumping three times as much water on southern Louisiana as did Hurricane Katrina in 2005. The areas surrounding Baton Rouge and Lafayette have seen the worst damage, prompting evacuations of at least 30,000.

Multifamily and Retail Properties Hit Hard

Affected commercial properties located in the 20 flooded Louisiana parishes included a group of the ten largest properties in the area.  The properties make up about a quarter of the portfolio backing a 2014 Freddie Mac offering totaling over $1 billion. Morningstar called leasing agents at the properties but could confirm flood damage at only one of the ten, a multifamily complex. In Livingston Parish — the hardest-hit in the area according to the Baton Rouge Chamber of Commercce — multifamily, self-storage and stand-alone retail properties stand amid the 86% of housing that experienced flooding. Morningstar’s research identified the Freddie Mac CMBS has the most exposure to multifamily properties, with loans backing 52 such, totaling over $700  million.

Renter Demand Uptick?

According to Urban Land Institute:

Although there is risk that many of these properties were damaged by the floods, reports indicate that the Baton Rouge area is undersupplied, so undamaged multifamily properties may see increased demand as people seek out new homes.

According to the Baton Rouge Area Chamber report, retail, which accounts for 31.8 percent of the CMBS exposure in the area, was the hardest-hit industry. Even properties that may not have been damaged may feel the effects of the disaster. Although the economic effects of the flood are still uncertain, malls will likely see reduced foot traffic over the coming months. As a result, we believe that the $126.9 million Mall of Acadiana loan in BACM 2007-2 may suffer from the aftereffects of the floods, even though all stores in the mall were open for business at the end of last month.

The flood costs to the people of Louisiana are incalculable, but the soaking could well spread to investors and taxpayers — even as the Freddie Mac guarantees are in place to protect principal and interest payments, the shock of a rare event like 2016’s Louisiana flooding has put the structure in all of structured finance to the test.

 

Refi Roundup: A National Look At The Summer’s Refinancing Deals

Percent Symbols - Best Percentage Growth or In...

In commercial property, the only constant is change.  Notes come due, loan interest rates float, property financial performance is uncertain, spreads narrow and widen, baseline assumptions go by the wayside.  Sometimes, it’s just time to go get some new capital and refinance.

Let’s take a look around the national refinancing market for some recent commercial loans:

 

(Photo credit: SalFalko)

 

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Fannie And Freddie To Cut Multifamily Lending

Seal of the United States Federal Housing Fina...

As private capital scrambles back to the perch in the housing market, your friendly neighborhood GSE is about to change its lending patterns to multifamily property.  And it won’t result in more GSE capital in the market.

The Federal Housing Finance Agency (FHFA) outlined 2013 goals for Fannie Mae and Freddie Mac earlier this month that aim to lower the exposure the GSEs have to the national housing finance system.  While most of the direct regulations are aimed at the single-family financing system, the multifamily sector needs to look closely at provisions in the regulation that affect multifamily.

When the FHFA says it intends to “contract the [GSE]s dominant presence in the marketplace while simplifying and shrinking certain  operations (by lines of business) – 50 percent weight” it specifically means aims to reduce the unpaid balance amount of new multifamily business relative to 2012 by at least 10 percent.

This will be accomplished by “tightening underwriting, adjusting pricing and limiting product offerings, while not increasing the proportion of the Enterprises’ retained risk.  (Reductions between 0 and 10 percent will receive partial credit.)”

Necessary?

The National Multi Housing Council is among the protestors over this regulation and its “arbitrary caps” and potential “restrictions in product lines”.  But the moves are essential to the restoration of balance to the financing markets, says FHFA Acting Director Edward J. Demarco. In remarks to  the National Association for Business Economics Policy Conference, Demarco said:

Unlike the single-family credit guarantee business, the Enterprises have a smaller market share and there are other  providers of credit in the multifamily market. The Enterprises’ market share of new multifamily  originations did increase during the financial downturn, but in 2012 it returned to a more normal  position.

Another difference from the single-family business is that each Enterprise’s multifamily business  has weathered the housing crisis and generated positive cash flow. In contrast to their common  approach to their single-family businesses, Fannie Mae and Freddie Mac do not take the same  approach to their multifamily businesses. Each approach also already embeds some type of risk  sharing. For a significant portion of its business, Fannie Mae shares multifamily credit risk with  loan originators through its delegated underwriting program. For a significant and increasing  portion of its business, Freddie Mac shares multifamily credit risk with investors by issuing  classes of securities backed by multifamily mortgages where the investor bears the credit risk. Given that the multifamily market’s reliance on the Enterprises has moved to more normal range,  to move forward with the contract goal we are setting a target of a 10 percent reduction in  multifamily business volume from 2012 levels. We expect that this reduction will be achieved  through some combination of increased pricing, more limited product offerings, and tighter  overall underwriting standards.

Bottom line: as the markets continue to normalize, watch for the measured retreat of the GSEs from the markets that drew them in so deeply and so dangerously.  And watch as multifamily too feels the weight of the changes.

 

 

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Mortgage Bankers Association: Strong Upticks In Most Commercial Sectors

U.S. Subprime lending expanded dramatically 20...
Different banking numbers; today’s are sunnier.

Our pinstriped friends over at the Mortgage Bankers Association released the 2Q 2012 Commercial/Multifamily Survey today, and announced a series of positive findings.

In second quarter 2012, MBA’s survey found:

  • Commercial plus multifamily lending was 25% higher  compared to the second quarter of 2011.
  • Commercial plus multifamily lending was 39% higher compared to the first quarter of 2012.
  • Dollar volume of loans for commercial bank portfolios went up over 58% from the second quarter of 2011.
  • A 50% rise in loan volumes for Government Sponsored Enterprises (i.e., Fannie Mae and Freddie Mac).

Additionally, loan dollar volume went up in 2Q 2012 for loans backing:

  • 56% – retail properties;
  • 22% – hotel properties;
  • 19% – multifamily apartment buildings; and
  • 15% – office buildings.

Report: Office loan originations up sharply at +66%

According to MBA’s numbers for loan originations nationaiwde for 2Q 2012, there was a 66% increase for office properties as well as a 47% percent increase for  industrial properties, a 33% percent increase for healthcare properties, a 29% percent  increase for retail properties and a 21%  percent increase for multifamily properties.

The good commercial RE news found its way around the pinstripe-prone community this morning, with coverage at AmericanBanker.com leading the way.

About The MBA

Headquartered in Washington, the Mortgage Bankers Association works to help their members conduct business of single and multifamily mortgage finance by promoting fair and ethical lending practices, fostering professional excellence through educational programs and publications, providing news and information, and holding conferences.

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