Category: Financing

Fannie-Freddie Fall as Trump Plan Shows Quick Windfall Unlikely

Treasury officials acknowledged their recommendations could take years to implement.

(Bloomberg)—The Trump Administration’s plan to release Fannie Mae and Freddie Mac from their government shackles laid out a vision that could eventually lead to hedge fund managers minting riches on their investments in the mortgage giants.

But the Treasury Department’s proposal left much to be ironed out, signaling there might not be a windfall unless President Donald Trump wins re-election in 2020. That sentiment was palpable on Wall Street Friday with Fannie and Freddie suffering their biggest one-day drops since January.

Treasury officials themselves acknowledged that their recommendations could take years to implement — a timetable that would extend beyond Trump’s first term. And the report, released late Thursday, left it to a politically divided Congress to handle some of the most sweeping changes.

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How rate sensitive are borrowers? Slight uptick in interest rates leads to decline in mortgage applications

MBA report shows mortgage applications fell in last week

Are mortgage borrowers sensitive to small movements in interest rates? Recent data shows that refinances are on the rise thanks to the low interest rates of the last few weeks, but what happens if mortgage rates start to move back up? Will that demand dry up just as quickly as it appeared, even if rates only pick up by a few basis points?

It appears that may be the case, as new data from the Mortgage Bankers Association shows that mortgage applications fell for the second straight week as mortgage rates increased for the first time in more than a month.

According to the MBA’s Weekly Mortgage Applications Survey for the week ending Aug. 23, 2019, mortgage applications fell by 6.2% on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Market Composite Index, a measure of mortgage loan application volume, fell 7% compared with the previous week.

Interestingly, the decline was seen across both purchase and refinance applications, perhaps indicating that borrowers, especially those looking to refinance, are paying close attention to mortgage rates.

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PMI gains as fewer first-time homebuyers use FHA

Most young buyers aren’t waiting to save for a 20% down payment

The share of first-time homebuyers using conventional mortgages that require private mortgage insurance, or PMI, to compensate for low down payments increased in the second quarter while the use of FHA loans fell.

Fannie Mae and Freddie Mac typically require buyers to purchase PMI if they’re using down payments smaller than 20% of a home’s value. While PMI allows buyers to get into a property earlier than if they waited to save for a larger down payment, it can add hundreds of dollars to a monthly mortgage bill. FHA loans also charge a monthly insurance premium which can be lower than PMI, depending on a borrower’s credit score.

The share of first timers using conventional mortgages with low down payments requiring PMI rose 6% from a year earlier, while the share using FHA mortgages fell 5%, according to a report from Genworth, one of the nation’s largest providers of PMI.

Overall, purchases of single-family homes by first-time buyers dropped 4% to 559,000 in the second quarter, the report said. The total share of first timers using some form of low down payment mortgages was about 80%, Genworth said.

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Life Companies Find CRE Lending Opportunities in a Volatile Market

Some life company lenders are offerings interest rates as low as 3 percent.

Life insurance companies have maintained a steady appetite for commercial real estate debt over the past several years. And some see recent interest rate volatility as an opportunity to edge out the competition.

A few life companies have tapped the brakes on lending amid interest rate volatility and are waiting for things to smooth out, but the majority remain active participants, notes Jeffrey Erxleben, executive vice president/regional managing director at NorthMarq Capital, a commercial real estate debt and equity provider. “A lot of life companies view some of the volatility in the market today as a good opportunity to pick up good commercial loans that are out there. So, we see them being pretty aggressive,” says Erxleben.

Interest rate volatility has given life companies an opportunity to distinguish themselves compared to other capital sources. Notably, life companies are being aggressive on rates, with some lenders offering rates as low as 3 percent. They have also added different options to create value for borrowers, such as pre-payment flexibility, notes Erxleben. Life company lenders bring certainty of close, along with an ability to rate-lock early so there is less interest rate risk for the borrower.

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Low-income Housing Tax Credit Prices Remain Steady

Syndicators discuss income averaging, GSEs, and market concerns.

A little more than a year after “income averaging” was introduced into the low-income housing tax credit (LIHTC) program, the option is being pursued in a number of projects.

In sister publication Affordable Housing Finance’s annual midyear survey, syndicators reported closing on more than 65 income-averaging deals around the country, with more coming down the pipeline.

The option expands the reach of the LIHTC program to more families by allowing LIHTC-qualified units to serve households earning as much as 80% of the area median income (AMI) as long as the average income limit at the overall property is no more than 60% of the AMI, but these deals require additional scrutiny and underwriting.

Several syndicators are stressing the need for a buffer to make sure projects stay within the AMI requirements.

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Bank or Private Loan: Which Financing Strategy Should You Choose?

What to consider when choosing a lender for your real estate investment.

Borrowers looking to increase their assets and diversify their portfolios have more financing options today than ever before. Yet securing the proper financing for a real estate project can prove to be challenging, especially considering investment strategy is not a one-size-fits-all approach. Investors can choose to borrow from a traditional bank or a private lender and it’s important to note the complexities of each to see how they fit into your overall plan. Let’s take a closer look at these two popular financing methods.

Borrowing from a bank

Bank lending is the most traditional and commonly sought-after financing strategy for commercial real estate professionals. According to a recently published report by the Mortgage Bankers Association (MBA), 2018 was another stellar year for commercial and multifamily mortgage originations with a 14 percent rise in borrowing reported at the close of the year. Additionally, a preliminary measure from the 2018 fourth quarter mortgage originations survey pointed to volume that was 3 percent higher than the record-breaking $530 million reported at the close of 2017. Multifamily, industrial, offices, hotels, and retail spaces ranked as the most in-demand properties contributing to this increase.

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Fannie Mae: One-third of homebuyers didn’t shop around for a mortgage

Borrowers are “leaving money on the table,” Fannie’s Duncan says

More than a third of 2018 homebuyers say they did not shop around before selecting their mortgage lender, according to Doug Duncan, chief economist of Fannie Mae.

“Although homebuyers who received only one quote didn’t usually express regret, most still reported trying to negotiate mortgage terms with somewhat less success than those who did shop around,” Duncan said. “By not shopping around to give themselves leverage when negotiating their mortgage, some homebuyers are leaving money on the table.”

The biggest reason people gave for not shopping around was a pre-existing relationship with a lender, he said.

“Many recent homebuyers who received only one quote reported doing so because they were more comfortable with that particular lender,” Duncan said. “Non-shoppers also reported much less concern with competitive terms when selecting a lender, citing other non-financial priorities, such as customer service/responsiveness and having a preexisting account with a lending institution.”

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Federal Reserve poised to reduce its benchmark rate

President Trump tweets: “A small rate cut is not enough”

The world’s most powerful central bank is poised to cut its benchmark rate for the first time since 2008. The reasons couldn’t be more different.

Back then, the economy was in freefall after a spike in foreclosures deflated the value of bonds backed by home loans. This time, more than a decade later, Federal Reserve policymakers aren’t dealing with a financial crisis. They’re trying to keep the nation’s longest expansion from petering out.

The Fed’s policy-setting Federal Open Market Committee, or FOMC, has a two-day meeting that starts on Tuesday. On Wednesday at 2 p.m. it will issue a statement with its decision on whether to maintain or change its overnight lending rate, an important benchmark for financial markets.

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Future markets indicate a 0.25% cut at July Fed meeting

Trump’s intended Fed nominee pushes for bigger reduction

Traders in futures markets have signaled a 77.5% probability of a quarter percentage point cut at next week’s Federal Reserve meeting and a 22.5% chance of a half percentage point cut, according to the CME’s FedWatch tool.

Mortgage investors closely monitor the actions and statements of the Fed’s policy-setting Federal Open Market Committee, or FOMC, when deciding the coupon rates they’ll accept – effectively, what mortgage rates people pay for their homes.

An unlikely voice weighed in on Monday advocating for the bigger cut: Judy Shelton, President Donald Trump’s intended nominee for the Fed’s Board of Governors, whose members vote on monetary policy as part of the FOMC.

While her name hasn’t been officially submitted to the Senate for confirmation, Trump said in a tweet three weeks ago that he planned to nominate Shelton and Christopher Waller for the Fed board’s two empty seats.

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Loans for Speculative Projects Continue to Flow in Industrial, SFR Build-to-Rent Sectors

While lenders are remaining disciplined, they feel there’s plenty of demand for industrial space and single-family rentals.

As this real estate cycle stretches out, the availability of financing for speculative development appears to be more constrained than during the last market peak, although opportunities continue to present themselves to investors betting on the growing e-commerce distribution sector.

Financing of speculative construction is somewhat common in the industrial sector and typically the only way development occurs when it comes to apartment, seniors housing and self-storage properties. It’s far less available for retail and office construction, but it is emerging in single-family build-to-rent communities.

“Things are robust and positive in terms of the overall amount of capital looking for investments in the real estate space,” says Lauro Ferroni, director of research with real estate services firm JLL. “We projected a minor decline in overall transaction volume for the U.S. in 2019, and we are really seeing the market moving in line with those expectations, so we aren’t seeing any real surprises at the moment.”

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