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)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.

Strategic Default: Inconceivable Assumptions Suddenly Conceivable

Until recently it
was generally believed that only a small fraction of Americans would
willingly choose to skip their monthly mortgage payment, aka “strategically default”, when they
found themselves stuck in a negative equity situation.

The logic driving this belief was based on the notion that borrowers wouldn’t want to damage their credit profile or deal with the social stigma surrounding a public foreclosure. The assumption that most underwater borrowers will
continue making their monthly payments (absent a life event) is factored into the
analytics of risk managers, buyers and sellers of mortgage related assets,
servicing managers, and regulators across the country.

What if this
assumption is wrong? Is that inconceivable?

It wasn’t long ago when conventional wisdom
convinced us that lenders would never make loans to borrowers that had
virtually zero likelihood of being able to pay the loans back. In a 2010 study conducted
by the Cato Institute,
it was estimated that there were over 27 million Alt-A and subprime loans in the
system by mid-2008. That’s approximately 50 percent of all loans in the market.  Remember when we thought home price would never fall on a national level? Never been done and won’t
ever happen, right? That assumption was shattered when home values nationally
dropped between 30-50% from their peak in 2006, wiping out roughly $7
trillion of home equity in the process.

Fannie Mae recently published it’s latest National Housing Survey
and exposed disturbing patterns and sentiments with American homeowners. For
example,  46% of borrowers are “stressed” about their underwater
mortgage, up from 11% in June 2010. That’s an alarming four-fold increase in
three quarters. That statistic becomes even more concerning when viewing the sheer number of borrowers faced with negative equity. At the end of 2010, which doesn’t include the home price declines seen in 2011, CoreLogic estimated that 11.1 million homes, or 23.1 percent of all homes with a mortgage, were underwater. Think about those two stats this way – every morning, 46% of the estimated 11.1 million underwater borrowers wake up and debate why they should
keep paying their monthly mortgage payment. Further weighing on borrowers is that  47% of borrowers surveyed reported higher household expenses than the year before…

From that perspective, it doesn’t seem inconceivable that our assumptions might be off base again. Is principal forgiveness the answer?

Probably not, and here’s why.
Remember how many folks HAMP was supposed to save by giving them new loan
terms? The number touted by the
administration was over 4 million. In reality, the number is likely to come in
around 500-750,000 permanent modifications. Imagine the scenario when a
government sponsored principal reduction program is announced. Out of the 11
million underwater borrowers – you’ll probably get three times as
many borrowers applying for relief. Maybe one tenth of them will actually
qualify and be granted a principal reduction. In the meantime, some 20+ million
applicants would have stopped making payments to “qualify” or be
considered for qualification. How many of them will be able to or even want to
get current again after they are turned down? 

Like it or not, we have got to find ways to stabilize home prices, reward responsible behavior among existing homeowners,
and encourage home buying. I don’t
see any ideas on the table that would accomplish any of these objectives…. and the effects are starting
to show up in data.

…(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.

Good Riddance 30-Year Fixed Mortgage? Not So Fast…

Peter
J. Wallison’s recent article in the Wall Street Journal on government support
of the residential housing market (“What’s So Special About the 30-Year
Mortgage?
“) is an interesting academic exercise but it has no relevance to
the reality of the U.S. housing market.

While
it is true that, for many years over the life of a 30-year loan, most of the
payments go to interest and not principle, if we were to remove the tax
deductibility of the interest paid
(regardless of the term of amortization) as
some have suggested, we would remove another 33% of value from the American homeowner,
based on the marginal rate at the Federal level of 28% and the average State
and local tax rate of 5%.

 

…(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.

Solemn Remembrance of Those Lost Aboard Shuttle Columbia

Like countless persons across the world, I watched in quiet disbelief as thousands of pieces of debris streaked across the vast Texas sky the morning of February 1, 2003.
 
Unlike what had transpired in 1986 during the launch of the shuttle Challenger, this time the shuttle Columbia was re-entering earth’s atmosphere.  Traveling at Mach 19 at an altitude of 200,000 feet, the shuttle was only a dozen or so minutes from touching down at the Kennedy Space Center – where family and support personnel waited.  Sadly, that landing never happened.
 
What also made this morning different for me was that I had taken over the White House Office of Cabinet Affairs only 10 days earlier.  The Office served as a policy-coordinating body across the White House policy councils, in addition to its primary function as an early warning system for events transpiring across the Executive branch – including NASA.
 
Watching the events unfold on television, I knew to quickly head to the office as I did most Saturdays and not surprisingly my phone went off en route to the White House.  I arrived at 10:00 and already meetings and conference calls related to the disaster were being scheduled.
 
There was no doubt that all aboard were lost – a point made crystal clear to us later that morning.  A human simply cannot withstand the tremendous physical forces from a rapid deceleration of that magnitude.  We also learned quickly that few nations have the capability to shoot down anything traveling at that altitude and speed, thus ruling out the possibility of an act of terror.
 
All we knew was that something had gone horribly wrong.
 
White House Chief of Staff Card entered my West Wing office early that afternoon and told me I was going to be the main point of contact for the White House for this tragic event and for the soon-to-be-announced accident investigation board.  I wasn’t quite sure what that meant at the time but Mr. Card instructed me to get the NASA chief of staff on the phone.
 
That is when I first met Courtney Stadd – an impassioned public servant who had dedicated his life to the US space program.  Courtney was amazingly patient with me and explained in great detail what protocols were already being invoked, as were dictated post-shuttle Challenger accident.  Courtney was laser-focused on the families of the astronauts, as was all of NASA.  Throughout the months-long ordeal of the accident investigation, Courtney worked diligently behind the scenes, focused at all times on the well-being of the families of the fallen astronauts.
 
Following a Homeland Security Council meeting that afternoon, a second meeting was held early in the evening among the various offices within the Executive branch, as we heard more about the soon-to-be-announced Columbia Accident Investigation Board and a memorial service at the Johnson Space Center later that week.
 
While it was not discussed that day, we also learned that, this time, the mindset of the public was questioning the American space program and, specifically, whether or not the risk of space flight was worth the reward.  That was in stark contrast to the mindset post-Challenger accident, when the public was eager for the shuttle to fly safely again as soon as possible.  This new mindset ultimately led us to chart a new course for NASA – a policy announced in January 2004.
 
But that was much later, as more immediate matters took precedent.
 
At the invitation of NASA, I attended the memorial service of Astronaut David Brown of Virginia.  I had never met Mr. Brown, but you could not help but be in awe of his accomplishments, which were many.  He was by training a medical doctor and was the first Navy flight surgeon to become a fighter pilot.  He was also a college gymnast and had somehow managed to remain single.  The similarities between the two of us were few and far between, yet as I sat only three feet from his flag draped coffin, I learned we were only a couple of months apart in age and both not yet married.  And as I heard others tell his life story during the memorial service at the Arlington National Cemetery Chapel, I felt a sense of deep regret that I never had the opportunity to meet him.
 
Following the service, the coffin was placed atop a horse-drawn caisson for the mile long walk to his final resting place near the marble amphitheater.  As we got closer, the crowd was 10 deep and I recall my amazement at seeing so many school kids who, I suspect, were there as part of a school trip.  Here they stood by the hundreds, heads draped and hands over heart as the cortege moved slowly toward Mr. Brown’s final resting place.  Many of them wiped away tears and occasionally cried aloud.  Otherwise, there was compete silence except for the occasional plane landing at nearby Reagan National Airport.
 
America buried many heroes that day and this is only one of many stories to be told of sacrifice and duty to Country which in this instance includes India and Israel.  I would hope that Americans remember them all, and on this — the 9th anniversary of Shuttle Columbia’s tragic accident — pay eternal solemn respect to the crew of her final mission: Commander Rick Husband, Commander William McCool, Commander Michael Anderson, Payload Specialist Ilan Ramon, Mission Specialist Kalpana Chawla, Mission Specialist Laurel Clark, and Mission Specialist David Brown.  The words of President Reagan spoken many years ago are a fitting tribute to each of them: May God cradle you in His loving arms.

…(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.

Life Sciences Development Rebounds in Central New Jersey

With its concentration of pharmaceutical giants and academic powerhouses, the region could be a major center for life sciences businesses, developers say.