Industrial and Multi-family Loans Drive Annual CRE Increase

The Mortgage Bankers Association
(MBA) reports that commercial and multifamily loan originations were down 7
percent in the fourth quarter of 2011 compared to the third quarter but were 13
percent higher than originations in the fourth quarter a year earlier.  The year-over year change was driven by
originations for both industrial and multifamily properties which increased 43
percent and 31 percent respectively from Q4 2010.  On the negative side, retail loans were down
8 percent, loans for healthcare properties fell 24 percent, office properties
were down 29 percent and hotel originations decreased 44 percent.

Quarter over quarter results were
mixed.  There was a 153 percent jump in
originations for health care properties; industrial loans were up 51 percent
and multifamily properties increased 29 percent.  Originations for healthcare properties fell 52
percent, office properties were down 39 percent, and retail property loans
decreased 24 percent.

Looking at lending by investor groups,
commercial bank portfolios were up by 122 percent compared to the fourth
quarter of 2010 and Freddie Mac and Fannie Mae (the GSEs) increased lending 17
percent.  Life insurance companies and
conduits for commercial mortgage backed securities (CMBS) decreased lending by
23 percent and 50 percent respectively.

 On a quarter-over-quarter basis only the GSEs
increased their loans, which rose 34 percent to an all time high.  Conduits for CMBS were down 26 percent, life
insurance companies decreased lending by 23 percent, and commercial bank
portfolios declined by 16 percent.  

“MBA’s Commercial/Multifamily
Mortgage Bankers Origination Index hit record levels for life insurance
companies in the second and third quarters of 2011,” said Jamie Woodwell,
MBA’s Vice President of Commercial Real Estate Research. “In the fourth
quarter, multifamily originations for Fannie Mae and Freddie Mac hit a new
all-time high. While the CMBS market continued to be held back by broader
capital markets uncertainty during the past year, others – like the GSEs, life
companies and many bank portfolios – increased their appetite for commercial
and multifamily loans.”

Commercial/Multi-family
Originations by Investor Types

Investor
Type

Origination Volume Index*

% Chg

Q4-Q4

Average Loan Size ($millions)

Q3 2011

Q4 2011

Q3 2011

Q4 2011

Conduits

42

31

-50

30.5

23.9

Commercial
Banks

169

143

122

11.8

7.8

Life
Insurance

282

216

-13

20.5

14.0

GSEs

176

236

17

13.8

14.3

Total

138

129

13

14,9

11.6

*2001 Ave. Quarter = 100

Commercial/Multi-family
Originations by Property Types

Investor
Type

Origination Volume Index*

% Chg

Q4-Q4

Average Loan Size ($millions)

Q3 2011

Q4 2011

Q3 2011

Q4 2011

Multi-family

140

181

31

13.2

13.5

Office

91

56

-29

19.1

11.7

Retail

222

169

-8

20.9

12.3

Industrial

142

214

43

12.4

16.2

Hotel

231

110

-44

39.0

20.1

Health
Care

91

229

-24

7.2

12.4

*2001 Ave. Quarter = 100

…(read more)

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GSE Profitability to Test Conviction of Lawmakers

Yesterday
Freddie Mac announced net income
of $676 million for the quarter ended March 31, 2011, compared to a net loss of
$113 million for the quarter ended December 31, 2010. The company release
states Freddie had a positive net worth of $1.2 billion on March 31, 2011. As a
result, no additional funding from Treasury was required for the first quarter
of 2011.

Up
until now the notion that either GSE could be profitable in this housing market
and canoe-shaped recovery seemed unimaginable to even the most informed and
astute industry veterans. The likelihood was further hamstrung by required 10% dividend
payments which must be paid by the GSEs to Treasury each quarter.

Then
again, one has to remember that Fannie Mae and Freddie Mac can produce $35B+ a
year in net interest margin alone, standing on their head…

Both
firms now have substantial credit loss reserves thanks to Treasury infusions
during conservatorship.  Both organizations are also working diligently at
slashing their operational expenses through a combination of outsourcing,
system enhancements, and cutbacks. From that perspective, with positive
progress in motion,  the inevitable
question becomes – “how loud will
the cries from Capitol Hill be after the second or third quarter of
profitability by these organizations?”

One
thing I do know is that while it might take half a lifetime for the GSEs to pay
the Treasury back in full on their current course – wound down institutions
don’t write checks at all.

…(read more)

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Will the White House Move the ‘Boulder’ on Principal Write-Downs?

The aversion of the government-controlled mortgage companies Fannie Mae and Freddie Mac, and their regulator, to writing down the loan balances of homeowners has frustrated advocates of a more aggressive response to the housing crisis.

Democratic lawmakers in Congress have prodded the regulator, the Federal Housing Finance Agency, to carry out principal write-downs. Some have even called on President Barack Obama to remove the agency’s acting director, Edward DeMarco, if he doesn’t do more to aid the ailing housing market.

Now the Obama administration is raising the stakes on the issue. The administration on Friday said it would triple payments to the mortgage industry in an effort to encourage more loan forgiveness. And it challenged the FHFA to allow these same incentives for Fannie and Freddie.

To supporters of principal write-downs, this is a deal worth taking. In a blog post, Jared Bernstein, who was previously Vice President Joe Biden’s top economic adviser, says that Mr. DeMarco has been “a big boulder in the path to principal reduction.”

Mr. Bernstein writes:

Now, FHFA acting director Ed DeMarco has consistently resisted reducing principal. …But he’s also said he’d go there if there were incentives to do so—some way to mitigate the losses to the agencies (and the taxpayers) from the loan forgiveness.

Well, here it is, Ed.

Critics, however, aren’t so thrilled. Sen Bob Corker (R., Tenn.) said Monday that he would introduce legislation to ban the government from using taxpayer money to pay for principal write-downs. “The idea that federal tax dollars would be used to reduce the principal on some outstanding mortgages and perhaps even bailout investment properties and beach houses is terrible public policy,” Mr. Corker said. It means “that people who acted responsibly in Tennessee will be paying for the bad behavior of lenders and borrowers in places where reckless housing practices were most prevalent, something I find to be irresponsible.”

For its part, the FHFA said in a statement that it is studying whether the new incentives will provide a benefit to Fannie and Freddie, whose rescue has cost taxpayers $151 billion to date.

The FHFA , in a letter released last week has analyzed how principal write-downs and a principal forbearance program might impact Fannie and Freddie. The regulator indicated its preference for a principal forbearance plan, which does not require lenders to forgive debt. Instead, lenders set aside a portion of the loan, not requiring any payments on it until the borrower sells the home or pays off the loan.

For example, a lender could allow a homeowner to make principal and interest payments on only $150,000 out of a $200,000 mortgage, but the borrower would still owe the remaining $50,000 to the bank.

The FHFA’s analysis calculated that Fannie and Freddie would save $24 billion by enacting a forbearance plan for the 1.4 million of Fannie and Freddie’s borrowers who owed more than 15% more than their property’s current value as of last summer. The analysis found that a principal forgiveness plan for those borrowers would save less — $20 billion over the life of those loans.

New Obama Housing Plan Not Winning Republican Fans

There was a lot of criticism on Capitol Hill Wednesday of President Barack Obama’s latest housing proposals, an indication that the effort faces steep odds of being enacted.

Republicans were quick in their denunciations.

“This is not a serious plan to help the nation’s housing market,” Rep. Spencer Bachus (R., Ala.), the chairman of the House Financial Services Committee, said in a statement. “This is just more of the same from an administration that offers expensive program after expensive program, none of which have worked to help struggling homeowners.”

House Speaker John Boehner (R., Ohio) told reporters that “none of these programs have worked… I don’t know why anyone would think that this next idea is going to work.”

Obama administration officials are proposing to expand the authority of the Federal Housing Administration, a government-run mortgage insurer, so it can refinance loans for up to 3.5 million new borrowers.

That’s on top of 11 million borrowers who could benefit from the existing program for borrowers with loans backed by Fannie Mae and Freddie Mac, the government-controlled mortgage finance companies.

The administration’s plan would require Congress to allow the FHA to insure loans for borrowers who owe more on their loans than their properties are worth—something that the agency is not currently allowed to do. That idea didn’t sit well with Republican lawmakers, who pointed out that the FHA is financially troubled and could be on the verge of a bailout.

With the FHA on “a collision course with bankruptcy, it is unconscionable for the president to even consider a proposal that would make a disastrous situation worse,” said Rep. Scott Garrett (R., N.J.) a top Republican on the financial services panel.

However, Housing and Urban Development Secretary Shaun Donovan said the FHA would be protected in several ways, most notably by imposing a fee on banks to help cover the program’s $5 billion to $10 billion cost.

Mr. Donovan predicted that the bill would garner bipartisan support in Congress because the program is targeted at people who have been keeping up with their mortgage payments, not delinquent homeowners. “I think you will see broad support across the political spectrum to do this,” he told reporters at a White House briefing.

Mr. Donovan also said that the FHA’s main insurance fund would be walled off and wouldn’t be threatened by the new refinancing program, which would be paid for by a tax on banks.

However, Mr. Donovan said “we are open to having a discussion with Congress” about finding a different way to pay for the program, but added it must include a commitment of some form from banks.

Frank Keating, chief executive of the American Bankers Association, said the bank tax would reduce banks’ ability to lend. Mr. Keating cautioned that “uncoordinated and ever-changing government programs, including those detailed today, create uncertainty in the market, increase the cost of home ownership, and reduce credit availability needed to support home ownership and the economic recovery.”

The new housing proposals may allow Obama and other Democrats to establish contrasts with Republicans in the run up to November’s elections. Sen. Barbara Boxer (D., Calif.), applauded the move, saying that that Obama “understands clearly that for the economy to recover fully, the housing crisis must be resolved.”

Starting shortly after taking office in 2009, Obama announced a series of programs that were designed to help the troubled housing market turn around, an effort initially estimated to cost $75 billion.

However, only about $3 billion has been spent on the administration’s housing programs as of the end of last year. That total is projected to grow to about $8.6 billion by 2017, based on the number of borrowers who are currently enrolled, according to the Treasury Department. However, recent changes to the housing programs could mean more borrowers will sign up, and therefore more money will be spent.

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What’s in the Latest White House Proposals on Housing?

Associated Press
President Barack Obama is set to give a speech on housing Wednesday.

President Barack Obama is set to give a speech Wednesday outlining his call for more help for the nation’s housing markets, according to administration officials. Here’s a preview of what’s on the White House wish list:

Extend refinancing options to more borrowers: Last October, the Obama administration and the federal regulator for Fannie Mae and Freddie Mac revamped a program, called the Home Affordable Refinance Program, that allows borrowers with loans backed by the mortgage-finance companies to refinance if they meet certain qualifications. The changes allow borrowers to refinance even if they owe far more than their homes are worth.

The latest push would require congressional action to make the HARP changes broadly available to everyone else who doesn’t have Fannie and Freddie-backed loans. Under the plan, homeowners would be able to refinance into new loans backed by the Federal Housing Administration.

Borrowers with privately held mortgages who have made their last six payments and have no more than one delinquency in the prior six months can participate. The program is open only to owner-occupants whose loans are within their county FHA loan limit. Borrowers who can verify current employment don’t need to otherwise go through the regular underwriting process. Banks have to agree to cut loan balances for borrowers who owe more than 140% of the value of their homes.

Improve refinancing for FHA borrowers: The new program doesn’t apply to loans that are already backed by the FHA, but the administration says the agency will take steps to ease restrictions that have inhibited refinancing of FHA loans.

Broaden HARP: Fannie and Freddie and their regulator didn’t make a handful of technical changes to HARP that had been sought by the Obama administration, which will instead ask for Congress to make those changes. Among other steps, it will seek to extent HARP to borrowers who have more than 20% equity in their homes. Currently, HARP is only open to borrowers with less than 20% equity.

New uniform standards for mortgage servicers: The administration is set to unveil a borrower “bill of rights” that would become an industry standard code of conduct for mortgage servicers.

Among other steps, the proposal will clarify steps to modify the so-called “dual track” process by which banks process foreclosures at the same time that they evaluate borrowers for a loan modification. Under the code, banks will have to certify in writing that they’ve taken all appropriate loss-mitigation steps before referring loans to foreclosure.

Converting some foreclosures to rentals: Given the huge overhang of distressed homes in some markets, officials are preparing a pilot program to turn foreclosures into rentals through bulk sales of the properties to private investors. The first pilot program, which would be conducted by Fannie Mae, is limited only to properties that Fannie has already rented out through a program that allows tenants to rent out homes when their landlords go into foreclosure, according to people familiar with the matter.

The first pilot covers real estate with an estimated value of at least $250 million that would be pooled into portfolios in six areas: Southern California, Las Vegas, Chicago, Phoenix, Atlanta, and parts of Florida.