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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Nearly 100 Metro Areas on Improving Market List

The list of Improving Housing Markets (IHM) maintained by
the National Association of Home Builders (NAHB) took another big jump in
February, rising from 76 in January and more than doubling the 41 reported in
December.  There are now 98 metropolitan
areas
representing 36 states included on the list.

The IHM identifies metropolitan areas that have shown
improvement from their respective troughs on each of three metrics –
employment, housing permits, and home prices – for at least six consecutive
months.  NAHB uses data from the Bureau
of Labor Statistics, the U.S. Census Bureau, and Freddie Mac to measure
improved performance.

The additions to the February Index include some
metropolitan areas that had been particularly weak including Miami, Detroit,
Memphis, Kansas City, Missouri; Portland, Oregon, and Salt Lake City.  NAHB points out that inclusion in the Index
does not indicate strong recovery, merely that some of these troubled areas are
coming off of extreme lows.

Seven metro areas dropped off of the Index in February due
to softening housing prices.  One of
these was Washington, DC, one of the few areas that had continued to show
strong prices and sales through 2011. 

“While many of the markets on the February IMI are far from fully
recovered, the index points out where employment, home prices and housing
production are no longer retreating and have held above their lowest recession
troughs for six months or more,” said NAHB Chief Economist David Crowe.
“This is a sign that a large cross section of the country is starting to
turn the corner as local economic conditions stabilize.”

 MSA  Permits Trough Date Growth From Trough Prices Trough Date Growth From Trough Employment Trough Date Growth From Trough
1 Florence, AL 03/31/09 2.6% 02/28/11 0.6% 07/31/09 3.9%
2 Tuscaloosa, AL 05/31/11 8.8% 02/28/11 3.6% 06/30/09 1.7%
3 Fayetteville, AR 03/31/09 1.2% 02/28/11 1.0% 02/28/10 3.0%
4 Napa, CA 06/30/11 31.2% 02/28/11 0.3% 02/28/11 3.3%
5 Boulder, CO 11/30/09 11.6% 01/31/11 6.2% 01/31/10 2.7%
6 Denver, CO 03/31/09 2.8% 02/28/11 2.1% 01/31/10 1.4%
7 Fort Collins, CO 03/31/09 4.5% 12/31/10 4.6% 12/31/09 3.5%
8 Greeley, CO 11/30/10 8.1% 02/28/11 3.3% 12/31/09 0.1%
9 Bridgeport, CT 03/31/09 1.2% 02/28/11 4.5% 01/31/10 1.4%
10 New Haven, CT 04/30/11 26.0% 02/28/11 0.0% 02/28/10 2.1%
11 Cape Coral, FL 03/31/09 3.1% 02/28/11 8.1% 01/31/11 1.7%
12 Deltona, FL 03/31/11 2.6% 03/31/11 15.1% 01/31/11 3.3%
13 Jacksonville, FL 04/30/09 1.4% 02/28/11 1.5% 02/28/10 2.3%
14 Miami, FL 04/30/09 7.3% 03/31/11 2.6% 03/31/10 1.7%
15 North Port, FL 01/31/09 2.7% 02/28/11 6.2% 06/30/11 1.2%
16 Punta Gorda, FL 01/31/09 1.6% 02/28/11 11.5% 06/30/09 3.5%
17 Tampa, FL 03/31/09 1.7% 03/31/11 3.8% 12/31/09 2.6%
18 Athens, GA 03/31/11 4.2% 01/31/11 2.7% 01/31/10 0.8%
19 Augusta, GA 12/31/08 1.7% 03/31/11 3.0% 05/31/11 0.0%
20 Honolulu, HI 12/31/08 0.4% 01/31/11 3.4% 08/31/10 3.1%
21 Ames, IA 07/31/10 7.4% 02/28/11 6.3% 05/31/11 2.4%
22 Davenport, IA 05/31/09 1.8% 12/31/10 4.1% 01/31/10 0.7%
23 Des Moines, IA 02/28/09 4.5% 01/31/11 2.6% 05/31/11 1.5%
24 Dubuque, IA 12/31/08 5.0% 02/28/11 3.1% 04/30/09 5.8%
25 Waterloo, IA 03/31/09 1.4% 11/30/10 0.9% 07/31/09 4.1%
26 Elkhart, IN 04/30/09 2.2% 02/28/11 1.5% 08/31/09 10.4%
27 Indianapolis, IN 01/31/09 0.4% 02/28/11 3.0% 10/31/09 0.6%
28 Lafayette, IN 01/31/09 15.7% 02/28/11 5.4% 07/31/09 4.0%
29 Muncie, IN 04/30/11 11.1% 02/28/10 3.4% 02/28/11 2.7%
30 Lake Charles, LA 04/30/11 6.2% 02/28/11 0.9% 11/30/10 3.6%
31 Monroe, LA 03/31/09 3.3% 05/31/10 3.6% 03/31/11 1.3%
32 Shreveport, LA 01/31/09 1.9% 03/31/11 5.6% 10/31/09 3.2%
33 Boston, MA 02/28/09 1.1% 03/31/11 0.7% 07/31/09 2.9%
34 Springfield, MA 04/30/11 3.8% 03/31/11 2.5% 08/31/09 2.6%
35 Cumberland, MD 05/31/10 3.1% 01/31/11 6.2% 06/30/11 6.5%
36 Lewiston, ME 06/30/11 16.1% 01/31/11 1.4% 06/30/11 3.8%
37 Ann Arbor, MI 05/31/09 0.1% 12/31/10 4.5% 07/31/09 3.0%
38 Detroit, MI 04/30/09 8.6% 03/31/11 6.8% 06/30/09 2.4%
39 Grand Rapids, MI 04/30/09 2.9% 02/28/11 7.7% 07/31/09 5.0%
40 Lansing, MI 05/31/09 4.4% 02/28/11 10.6% 08/31/09 2.7%
41 Monroe, MI 12/31/09 2.7% 02/28/11 7.6% 10/31/09 2.5%
42 Muskegon, MI 11/30/09 0.2% 01/31/11 6.1% 12/31/10 1.6%
43 Duluth, MN 05/31/11 2.9% 03/31/11 4.6% 09/30/09 0.6%
44 Minneapolis, MN 03/31/09 1.8% 02/28/11 2.5% 09/30/09 1.5%
45 Rochester, MN 03/31/09 0.7% 02/28/11 2.4% 12/31/10 1.5%
46 Columbia, MO 11/30/08 1.7% 02/28/11 1.5% 08/31/09 3.6%
47 Jefferson City, MO 08/31/10 1.0% 03/31/11 3.9% 02/28/10 2.1%
48 Joplin, MO 02/28/11 5.0% 02/28/11 15.4% 08/31/09 1.2%
49 Kansas City, MO 03/31/09 3.2% 02/28/11 5.2% 06/30/11 1.2%
50 Hattiesburg, MS 01/31/11 2.2% 03/31/11 4.1% 04/30/11 3.6%
51 Fayetteville, NC 12/31/08 2.1% 01/31/10 0.3% 10/31/10 3.2%
52 Winston-Salem, NC 03/31/09 1.9% 11/30/10 0.1% 01/31/11 2.4%
53 Bismarck, ND 03/31/09 15.3% 02/28/10 8.8% 12/31/07 8.8%
54 Fargo, ND 04/30/09 4.9% 02/28/11 3.0% 07/31/09 4.2%
55 Grand Forks, ND 04/30/09 3.0% 12/31/10 7.7% 09/30/10 4.2%
56 Lincoln, NE 01/31/09 1.6% 01/31/11 4.2% 07/31/10 3.2%
57 Omaha, NE 07/31/10 4.5% 03/31/11 2.7% 02/28/10 2.6%
58 Manchester, NH 02/28/11 2.1% 02/28/11 0.5% 01/31/10 1.8%
59 Ocean City, NJ 03/31/09 1.0% 03/31/11 6.3% 05/31/11 5.7%
60 Syracuse, NY 03/31/11 2.9% 03/31/11 10.2% 08/31/10 1.5%
61 Cincinnati, OH 01/31/09 0.2% 02/28/11 2.1% 12/31/10 1.6%
62 Springfield, OH 01/31/11 13.4% 03/31/11 2.5% 01/31/10 3.5%
63 Toledo, OH 05/31/09 1.4% 01/31/11 0.6% 06/30/09 3.4%
64 Youngstown, OH 06/30/11 5.2% 02/28/11 3.9% 06/30/09 4.0%
65 Oklahoma City, OK 05/31/09 0.6% 02/28/11 1.0% 01/31/10 4.0%
66 Tulsa, OK 10/31/10 0.8% 02/28/11 4.4% 02/28/10 3.1%
67 Corvallis, OR 04/30/11 5.7% 02/28/11 4.3% 07/31/09 4.9%
68 Portland, OR 03/31/09 2.6% 03/31/11 3.7% 11/30/09 2.0%
69 Erie, PA 03/31/11 4.6% 02/28/11 3.1% 02/28/10 3.9%
70 Philadelphia, PA 03/31/09 0.7% 02/28/11 2.9% 02/28/10 0.5%
71 Pittsburgh, PA 02/28/09 1.6% 01/31/10 6.5% 02/28/10 4.1%
72 Williamsport, PA 03/31/11 46.3% 02/28/10 8.5% 12/31/09 3.9%
73 Chattanooga, TN 05/31/11 2.6% 02/28/11 4.0% 08/31/09 3.2%
74 Clarksville, TN 01/31/09 2.7% 02/28/11 1.3% 08/31/09 5.1%
75 Kingsport, TN 02/28/11 0.4% 01/31/11 1.6% 02/28/10 2.8%
76 Memphis, TN 04/30/09 2.8% 03/31/11 1.1% 09/30/10 3.1%
77 Nashville, TN 03/31/09 1.6% 02/28/11 1.4% 09/30/09 3.7%
78 Amarillo, TX 10/31/08 1.7% 01/31/10 3.2% 04/30/10 4.6%
79 College Station, TX 10/31/10 5.5% 02/28/11 10.2% 12/31/07 3.6%
80 Corpus Christi, TX 01/31/11 5.1% 12/31/10 4.3% 11/30/09 6.0%
81 Dallas, TX 05/31/09 0.9% 02/28/11 0.5% 12/31/09 3.6%
82 Laredo, TX 12/31/08 1.3% 01/31/10 2.9% 09/30/09 7.1%
83 Longview, TX 04/30/09 3.2% 03/31/11 5.9% 10/31/09 7.9%
84 McAllen, TX 01/31/09 0.4% 11/30/10 1.9% 12/31/07 5.2%
85 Midland, TX 04/30/09 3.6% 01/31/10 8.7% 08/31/09 10.0%
86 Odessa, TX 02/28/09 24.5% 11/30/10 8.9% 08/31/09 9.0%
87 Tyler, TX 03/31/09 0.4% 12/31/10 0.8% 07/31/10 5.3%
88 Victoria, TX 09/30/10 4.2% 02/28/11 6.2% 11/30/09 4.8%
89 Provo, UT 02/28/09 2.7% 03/31/11 1.1% 12/31/09 4.6%
90 Salt Lake City, UT 03/31/09 2.3% 03/31/11 0.4% 02/28/10 3.6%
91 Danville, VA 03/31/09 1.8% 11/30/10 11.4% 11/30/09 2.9%
92 Winchester, VA 04/30/11 7.9% 10/31/10 8.4% 08/31/09 5.4%
93 Burlington, VT 03/31/11 6.1% 01/31/10 1.3% 09/30/09 4.5%
94 Bellingham, WA 04/30/11 2.7% 03/31/11 0.2% 06/30/11 0.4%
95 Kennewick, WA 03/31/09 4.2% 03/31/11 0.3% 12/31/07 4.4%
96 Madison, WI 01/31/09 1.3% 02/28/11 0.8% 08/31/09 2.1%
97 Casper, WY 11/30/10 7.0% 01/31/10 3.2% 12/31/09 8.5%
98 Cheyenne, WY 12/31/08 6.0% 12/31/10 3.0% 01/31/10 2.8%

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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.

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Regulator: Freddie Ceased Mortgage Transactions ‘On Its Own’

Bloomberg News
Edward DeMarco, acting director of the Federal Housing Finance Agency

By Alan Zibel and Nick Timiraos

Freddie Mac stopped investing in certain mortgage derivatives last spring amid a weak market for such transactions, the firm’s federal regulator said on Friday, as an uproar continued on Capitol Hill about the investments.

The obscure investments known as inverse floaters caused a flurry of angry statements from lawmakers this week after NPR News and nonprofit investigative news outlet ProPublica reported that the mortgage giant’s investments in certain mortgage derivatives created conflicts of interest that amounted to bets against homeowners’ ability to refinance.

The Federal Housing Finance Agency said in a statement that Freddie Mac made the initial decision to suspend the investment strategy in spring 2011.

“Freddie Mac, on its own, ceased structured financing that produced inverse floaters, as there was limited market demand for these structured products,” said Corinne Russell, a spokeswoman for the FHFA. She said there was “no connection” between Freddie Mac’s mortgage financing structures and its refinancing policies.

The “underlying premise” that Freddie had sought to bet against homeowners by holding the investments “is simply incorrect,” said the agency’s acting director, Edward DeMarco, in a letter on Tuesday.

The mortgage-related investments receive a certain piece of the cash flow from interest payments on mortgages. They would be worth less if borrowers refinanced their home loans and paid off loans that carry higher interest rates.

The NPR-ProPublica report said there was no specific evidence that Freddie’s decision to retain exposures to those investments was tied to its decisions to tighten credit policies that made refinancing more difficult.

Freddie Mac says that its portfolio management operations are “walled off” from other parts of the business. In an interview with NPR on Friday, Mr. DeMarco said he was “completely puzzled by the notion that there was something immoral that went on here.”

Mr. DeMarco said in a letter to Sen. Robert Casey (D., Pa.) that regulators had raised their own concerns about over the firm’s ability to manage the risks associated with the complex investments after Freddie Mac ceased retaining the mortgage investments.

“The risk associated with these transactions is inconsistent with FHFA’s goal of having Freddie Mac reduce its risk profile and avoid unnecessary complexity that requires specialized risk management practices,” wrote Mr. DeMarco. Mr. Casey pressed Mr. DeMarco for more detailed answers in a separate letter Friday. He asked Mr. DeMarco to explain Freddie’s rationale for retaining more of those investments in 2010 and 2011 and to clarify FHFA’s oversight of those investments.

Freddie Mac, which buys up mortgages and packages them into securities, has a $650 billion mortgage portfolio. It holds about $5 billion of the derivatives in question.

Homeowners Continue Shift Away from Cash-Out Refinancing

Homeowners who refinanced their homes during the fourth
quarter of 2011
either refinanced for about the same amount or actually brought
cash to the table according Freddie Mac. 
Fewer than 15 percent of those who refinanced during the quarter
increased their loan amount by 5 percent or more.  This is the lowest percentage of “cash-out”
borrowers in the 26 years that Freddie has been tracking the statistics.  During those 26 years covering 1985 to 2010
the average percentage of cash-out borrowers was 46 percent.

Thirty-seven percent of refinancing homeowners took out new
loans of approximately the same size as the old loan but nearly half (49
percent) actually brought cash to the table, reducing the amount of the new
loan to a median ratio of .74 of the old loan. 
The percentage of “cash-in” borrowers is also a 26-year record.

The fourth quarter figures are a stark contrast to the
pattern of refinancing during the last years of the housing boom.   During
eight consecutive quarters (Q4 of 2005 to Q3 of 2007) cash-out loans exceeded
80 percent of all refinancing and in none of those quarters did more than 8
percent of homeowners reduce the size of their mortgages when refinancing.

Borrowers who refinanced achieved a new interest rate about
1.4 percentage points lower than their old mortgage, a 26 percent improvement.  These borrowers will save a median of $2,700
during the first year if they have a $200,000 loan.

The 15 percent who did cash out took an estimated $5.5
billion in net equity out of their homes, representing 3.0 percent of the total
refinanced.  This was down from $5.6
billion and 3.7 percent in the third quarter. 
Adjusted for inflation this was the lowest level since the third quarter
of 1995.  During the peak period for
cash-out refinancing, the second quarter of 2006, homeowners cashed out $83.7
billion through refinancing, 31.1 percent of the total value of all transactions.   

Freddie Mac said that the mortgages refinanced had been in
place for a median of four years and the underlying collateral had decreased in
value by a median of 4 percent during that time.  The Freddie Mac House Price Index shows about
a 23 percent decline in its U.S. series during that four year period.  Thus, Freddie Mac says, “Borrowers who refinanced in
the fourth quarter owned homes that had held their value better than the
average home, or may reflect value-enhancing improvements that owners had made
to their homes during the intervening years.” 
This statement does not seem to recognize the possibility these
borrowers had been able to refinance solely because their homes had held value
and thus self-selected their loans for analysis.   

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