Category: Financing

Fannie Mae, Freddie Mac relax appraisal, employment verification standards in wake of coronavirus

Will allow drive-by and desktop appraisals in certain circumstances

Citing the extraordinary circumstances that the country is facing with the ongoing spread of the coronavirus, the Federal Housing Finance Agency announced Monday that it is directing Fannie Mae and Freddie Mac to ease their standards for both property appraisals and verification of employment.

The moves are part of a growing effort to “facilitate liquidity in the mortgage market during the coronavirus national emergency,” the FHFA said in an announcement.

According to the FHFA, Fannie Mae and Freddie Mac will use “appraisal alternatives to reduce the need for appraisers to inspect the interior of a home for eligible mortgages.” The issue of appraisers needing to inspect homes as part of the mortgage process has been a mounting concern as the virus has continued to spread throughout the nation.

Considering that new research shows that the virus can live for “several hours to days in aerosols and on surfaces,” appraisers entering homes to inspect may lead to increased spread of the virus. Beyond that, cities and even entire states are going into lockdowns, thereby prohibiting appraisers from traveling to houses to inspect them.

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Multifamily Lenders Highlight Challenges During Coronavirus Crisis

On-the-ground issues may keep liquidity from flowing into the market.

The situation for the affordable and market-rate lending environment remains very fluid during the nation’s coronavirus outbreak, and it’s changing hour by hour, not even day by day, says Don King, executive vice president and head of the Multifamily Finance Groupat Walker & Dunlop.

“A lot of sponsors are anxious to take advantage of the low interest rates so we have seen an uptick in calls, interest, and potential activity,” says Philip Melton, executive vice president and national director of affordable and Federal Housing Administration lending at Bellwether Enterprise. “At the same time, we have concerns.”

One of the big roadblocks for lenders is on the ground, with shelter-in-place orders, lockdowns, and social distancing affecting physical inspections and third-party vendors doing on-site work.

“Right now we are struggling with how to prudently lend when we can’t get in to inspect units,” King says. “How do you prudently assess risk?”

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Freddie Mac, Fannie Mae move to protect renters from eviction during coronavirus crisis

GSEs will offer forbearance to multifamily property owners as long as they suspend evictions

Fannie Mae and Freddie Mac last week suspended foreclosures and evictions on single-family homes as the coronavirus continues to spread, but that policy will only help those living in a house, leaving many renters vulnerable to being evicted.

Not anymore.

The Federal Housing Finance Agency announced Monday that Fannie and Freddie are moving to protect renters from being evicted if they’re unable to pay their rent due to the impact of the coronavirus.

Specifically, Fannie and Freddie will begin offering mortgage forbearance to multifamily property owners on the condition that they suspend all evictions for renters who can’t pay their rent because of the coronavirus.

Because Fannie and Freddie back the mortgages on multifamily properties, but have no contact with individual renters, the only way for the GSEs to provide relief to renters is by providing relief to the property owners themselves. Missed rent payments mean that multifamily property owners wouldn’t be able to make their mortgage payments and the entire property would go into foreclosure.

As a result of the GSEs’ action, property owners now have the ability to delay their mortgage payments if their property is negatively affected by the coronavirus national emergency.

According to the GSEs, property owners can delay their mortgage payments for up to 90 days by showing hardship as a consequence of COVID-19 and by gaining lender approval.

The condition the GSEs included — that property owners can’t use the forbearance option unless they agree to suspend evictions — should have a sizable impact on the market, considering how much of the multifamily market Fannie and Freddie support.

According to the most recent data from the Mortgage Bankers Association, Fannie and Freddie hold or back approximately 48.6% of the entire outstanding multifamily mortgage debt.

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Looking at HUD’s New Financing Opportunity for Multifamily Investors

HUD has permanently relaxed its three-year rule for Section 223(f) mortgage refinancing applications.

On March 2nd, HUD relaxed its three-year rule for Section 223(f) refinancing mortgage loan applications.

The three-year rule required that properties be seasoned for three years from certificate of occupancy before being eligible for a HUD 223(f) mortgage loan application. HUD temporarily waived this rule during the recession from 2009 to 2013, but has now permanently changed the rule. Section 223(f) insures mortgage loans for the purchase or refinancing of existing multifamily properties.

We will need to see if HUD’s 2020 multifamily accelerated processing (MAP) guide affirms the approach. In the meantime, the just released Mortgagee Letter states that multifamily real estate investors now have the ability to apply for long-term HUD financing for multifamily properties without having to wait three years for the property to season. Under the relaxed rule, HUD offers borrowers the ability to secure permanent, non-recourse fixed rate debt at low interest rates.

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Affordable Housing Lenders Anticipate 2020 Growth

Citi Community Capital remains on top of AHF’s annual ranking of construction and permanent lending volume.

With the high demand for affordable and workforce housing across the nation, lenders’ volumes were robust in 2019, with anticipated continued growth in the year ahead. According to a survey by sister publication Affordable Housing Finance, the AHF Top 25 affordable housing lenders provided over $41 billion in permanent and construction loans to developments that serve up to 80% of the area median income in 2019. This is up from the AHF Top 25 lenders’ $35.2 billion in 2018 and $30.5 billion in 2017.

Citi Community Capital remains at the top of our lender list, having lent almost $6.1 billion to affordable properties in 2019. That is down from the almost $7 billion in 2018.

“2019 was a surprisingly strong year. We went into 2019 thinking that interest rates would rise and that it would be more difficult for some projects to pencil,” says Richard Gerwitz, co-head of Citi Community Capital. “But not only was that not the case, but as the year went on, it became increasingly apparent that private-activity bond allocation was going to run out in a few more states, driving some developers to advance their projects. As a result, the last months of the year were even busier than they usually are.”

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Lenders Enter 2020 Willing to Fund New Apartment Construction

Lower interest rates are helping offset rising labor and materials costs and helping sustain apartment construction levels.

As fears of a possible recession and overbuilding in the multifamily sector diminish, lenders are showing they still have an appetite for financing construction projects. The availability of mezzanine loans and lower interest rates are helping fuel this activity and helping to offset rising construction costs.

Even if the economy shrinks sometime in 2020 or 2021, multifamily pros believe demand for apartments is still strong enough to prevent major damage to apartment properties in most markets—even with the thousands of new apartments recently opened by developers across the country. “There is clear evidence that multifamily is the asset class best equipped to weather a downturn,” says David G. Shillington, president of Marcus & Millichap Capital Corp., based in Atlanta, pointing to overall fundamentals in the sector that remain healthy.

“Occupancy rates continue to stay steady in the face of new supply,” adds Bill Leffler, senior vice president of equity and structured finance for CBRE, based in based Atlanta. “The strong economic conditions, job creation and population increases (in the southeast) still fill up the new product hitting the market.”

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Banks Focus CRA Dollars on Affordable Housing

The banks see the affordable and workforce housing sectors as steady investments.

Banks provide more than $100 billion in capital each year to low and moderate-income communities as part of their Community Reinvestment Act (CRA) investing requirements. Increasingly, they are focusing those dollars on supporting affordable housing projects.

“As a regulated institution, we are required for CRA purposes to make these types of community development investments, but we are really passionate and purposeful about impacting our communities,” says Keitt King, head of Truist Community Capital. Truist is the new entity from the recent merger of SunTrust and BB&T. “I like to think we would be doing this at Truist whether the regulators required this of us or not. We see it as good business, and an opportunity to build our communities.”

Prior to its merger with BB&T, SunTrust had announced a $60 billion community benefit plan that Truist will now be executing over the next three years. Part of that commitment includes a $3.6 billion commitment to CRA eligible investments.

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Liked 2019’s mortgage rates? 2020 will be lower

The year that’s passing was marked by the Fed’s refusal to bend to the president’s will

The year that’s winding down will be remembered, in the real estate world, for its mortgage rates that persistently and unexpectedly declined.

While rates aren’t going to plunge another percentage point – November’s average rate for a 30-year fixed mortgage was 3.7%, compared with 4.87% in the year-ago month, according to Freddie Mac data – they’re going to set some new lows, Fannie Mae said in a forecast.

The average fixed rate probably will be 3.6% in 2020, which would be the lowest annual average ever recorded in Freddie Mac records going back to 1973. It compares with 3.9% in 2019 and 4.5% in 2018, according to Fannie Mae. The current record was set in 2016 when the annual average fell to 3.65%.

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Five Tips for Securing Multifamily Financing and Articulating Your Case to Capital Providers

This about what is your borrower story when trying to secure financing.

With a possible recession looming, investors seeking to de-risk their portfolios are looking at an increasingly limited menu of stable investment options. Yet one of those options is clearly evident: multifamily remains a popular option for investors and capital providers alike. That’s largely because home affordability issues and changing lifestyle preferences are driving more renters to stay in apartments longer, strengthening demand and, in turn, pushing up rents. In fact, rents in the third quarter of 2019 were up 2.9 percent over the previous year, according to RealPage Inc., a real estate analytics firm.

Foreign investors alone acquired $16.1 billion of apartment properties in the U.S. between the second quarter of 2018 and the same period this year, according to research firm Real Capital Analytics. This occurred even as those investors pulled back on other asset classes.

Investors who are trying to increase their presence in the multifamily market don’t have to look far to find lenders to finance an acquisition. There’s plenty of capital to go around. The Mortgage Bankers Association (MBA) projects multifamily lending will grow to $359 billion in 2019, up from last year’s record total of $339 billion.

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Investors Hit the Pause Button on CRE Debt Strategies

Private equity investors allocated a lot of capital to CRE debt plays over the past few years. That trend has been slowing of late.

Private equity real estate funds have stepped up to be a major source of financing for the commercial real estate industry—and a bigger allocation for investors. However, fund managers may face a tougher road ahead for fundraising in the near term as capital flows to the sector slow.

Debt strategies have moved from the fringe to a more established and accepted part of the commercial real estate investment universe over the past several years. That shift has generated a significant wave of capital. According to London-based research firm Preqin, global private equity real estate debt funds have raised about $165.6 billion since 2013.

“Over the last three years in particular we’ve seen a massive amount of capital allocated to debt funds,” says Todd Sammann, executive managing director and head of credit strategies at CBRE Global Investors. The vast majority of that capital is targeting double-digit returns and is almost entirely allocated to closed-end funds. “The industry has seen fundraising trail off a little bit in 2019, which is not particularly surprising given the amount of capital that was formed,” says Sammann.

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