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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European Headlines Help Mortgage Rates Bounce Back

Following Friday’s employment data, Mortgages Rates
moved quickly higher.  In most cases, the changes were seen not in the quoted interest rates themselves, but rather in the closing costs required to obtain those rates.  A small number of lenders’ Best-Execution rates rose to 4.0%, but a majority stayed at 3.875%.  (learn more
about how we calculate Best-Execution in THIS POST). 

For a given interest rate, there are a range of costs at which it could still be a best-execution candidate.  Whereas Friday basically took these costs from the low side (about as low as they’d even been) to the high side, today’s improvements serve to moderate that movement back toward somewhat of a middle ground.  In another way of looking at things, you could think of the past three days as 3.875% best-ex rates being in question on Friday afternoon, but are “safe” once again, at least for today. 

Indeed, “safety” is a relative term.  All we can ever truly know is what rates are available on the day we’re looking at them.  Even then, rates can change several times a day.  They don’t usually do this more than once a day, but it does happen.  While we don’t necessarily expect any violent movements in the near future, we can’t ever rule out potential volatility.  In that regard, we can at least identify the events and possibilities that could stand as the culprits for such volatility, in the same way we prepared for Friday’s jobs report as a high-risk event. 

Of the high risk events this week, some are scheduled while others are not.  The key scheduled events are the US Treasury auctions this week, particularly the 10yr auction on Wednesday and the 30yr auction on Thursday (these two are more pertinent to the MBS–or “Mortgage Backed Securities”–market which most closely governs mortgage rates).  The other “potential event,” is a lingering LACK of resolution to an ongoing debate between Greece and it’s bond-holders to determine whether or not Greece will receive it’s next lump of bailout funds or face default.  It’s actually this uncertainty (Greece defaulting would be bad, economically speaking) that’s helping rates bounce back from Friday’s jobs data.

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875% mostly, less 3.75 today, 4.0’s getting closer
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.25%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operating near historic lows
  • (As always, please keep in mind
    that our talk of Best-Execution always pertains to a completely ideal
    scenario.  There can be all sorts of reasons that your quoted rate would
    not be the same as our average rates, and in those cases, assuming you’re following along on
    a day to day basis, simply use the Best-Ex levels we quote as a
    baseline to track potential movement in your quoted rate).

…(read more)

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SEC Names Ex-Credit Suisse Employees in Subprime Fraud Scheme

Four
former investment bankers and traders from the Credit Suisse Group were charged
by the Securities and Exchange Commission (SEC) Wednesday violating multiple
sections of the Securities Exchange Act of 1934 while trading in subprime
mortgage bonds
.  The indictments allege
the four engaged in a complex scheme to fraudulently overstate the prices of $3
billion of the bonds during the height of the subprime credit crisis. 

The
four are Kareem Serageldin, the group’s former global head of structured credit
trading; David Higgs, former head of hedge trading; and two traders, Faisal Siddiqui and Salmaan
Siddiqui.  According to the complaint
filed in U.S. District Court for the Southern District of New York, Serageldin
oversaw a significant portion of Credit Suisse’s structured products and
mortgage-related businesses. The traders reported to Higgs and Serageldin.

The SEC charges that the four
deliberately ignored specific market information showing that prices of the
subject bonds were declining sharply, pricing them instead in a way that
allowed Credit Suisse to achieve fictional profits, and, through the traders,
changing bond prices in order to hit daily and monthly profit target and cover
losses.  The scheme was driven in part by
the prospect of lavish year-end bonuses and promotions.  The scheme hit its peak at the end of 2007.

“The
stunning scale of the illegal mismarking in this case was surpassed only by the
greed of the senior bankers behind the scheme,” said Robert Khuzami, Director
of the SEC’s Division of Enforcement and a Co-Chair of the newly formed Residential
Mortgage-Backed Securities Working Group
, “At precisely the moment investors
and market participants were urgently seeking accurate information about
financial institutions’ exposure to the subprime market, the senior bankers
falsely and selfishly inflated the value of more than $3 billion in
asset-backed securities in order to protect their bonuses and, in one case,
protect a highly coveted promotion.”  

SEC
explained that it was not charging Credit Suisse in the scheme because the
wrongdoing was isolated; Credit Suisse reported the violations to the SEC,
voluntarily terminated the four, implemented internal controls to prevent
additional misconduct, and cooperated with SEC in the investigation.  The SEC said that the four named in the
complaint also cooperated in the investigation and that assistance was provided
by the FBI, the U.S. Attorney’s Office for the Southern District of New York
and the United Kingdom Financial Services Authority.

…(read more)

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Mortgage Rates Remarkably Steady At Historic Lows

Mortgages Rates
are just slightly better than unchanged on the day.  Best-Execution remains at 3.875% for conventional 30yr fixed loans, and the slight improvements seen today have benefited the borrowing costs required to obtain those rates.   (learn more
about how we calculate Best-Execution in THIS POST).  Some of the stratification between lender offerings seems to be lessening now that underlying markets have demonstrated the ability to hold recent levels.  

Particularly, MBS (the “mortgage-backed securities” that most directly affect mortgage rates) recently reached new all-time highs.  The fact that this is occurring at the same time rates are back at new all-time lows is no coincidence.  But it also means that there are some physics-based considerations for MBS prices (higher prices = lower rates).  Of course we’re not talking about real physics, but consider the adage “what goes up, must come down.”  Now, this isn’t a universal truth in bond markets, and certainly it was heard on several occassions over the past 5 months, with everyone who mentioned it turning out to be wrong.  So we’re not saying MBS prices are destined to go lower simply because they’ve hit their all-time highs (meaning rates would likely move higher off all time lows). 

What we ARE saying is that things have never been as good as they are right now in terms of MBS and the rates that lenders are offering.  We certainly don’t rule out the possibility that things could get even better, but we’d sure hate to have missed out on this opportunity if they don’t.  The comforting caveat is that if things do improve, that progress will likely be slow and potentially limited in scope.

Tomorrow is the last day until Friday’s Employment Situation Report (aka “jobs report,” or “NFP”) brings a high-risk situation into the mix.  NFP, which stands for the the reports chief
component “Non-Farm-Payrolls” is generally regarded as the single most
important piece of economic data each month.  Even against the current
backdrop of European headlines exerting more and more influence on
domestic markets, it’s immensely important.  Based on where markets sit
right now, we think that rates are somewhat vulnerable if the report is
better-than expected.  In other words, there’s a certain natural level
of “push-back” at current rate levels anyway, and a bullish jobs report
would probably accelerate that. 

This, of course, is contingent on the report coming in with
better-than-expected results.  If the opposite happens, rates could
still improve. 

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875% mostly, increasing presence at 3.75%
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.25%, some lenders venturing lower, some completely stuck at 3.25%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operating near historic lows
  • (As always, please keep in mind
    that our talk of Best-Execution always pertains to a completely ideal
    scenario.  There can be all sorts of reasons that your quoted rate would
    not be the same as our average rates, and in those cases, assuming you’re following along on
    a day to day basis, simply use the Best-Ex levels we quote as a
    baseline to track potential movement in your quoted rate).

…(read more)

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Mortgage Rates Slightly Higher Despite Bond Market Improvements

After setting new record lows yesterday, Mortgages Rates
rose slightly today, though 3.875% best-execution remains intact.  Rather than affect the prevailing rates being quoted, today’s weakness is most likely to be seen in the form of slightly higher borrowing/closing costs for the same rates quoted yesterday (learn more about how we calculate Best-Execution in THIS POST).  The increases run counter to today’s market movements as well.  

Treasury yields are lower again today, and MBS (the “mortgage-backed-securities” that most directly govern interest rates) are slightly improved as well.  One reason that loan pricing hasn’t adjusted to match that fact is that MBS weakened late in the trading session yesterday.  Not all lenders priced that in by issuing adjusted rate sheets, instead reflecting the changes in this morning’s rates.  The MBS market was indeed weaker this morning, so if we’re comparing the time of day that most lenders put out their first rate sheets, today was indeed worse than yesterday.  Beyond that objective explanation, we also have to consider the fact that continued rate improvements from all-time lows are going to continue to be slow and hard-fought.  Lenders have little incentive to offer lower rates if current offerings are generating more-than-sufficient demand.  (read more on this topic in this previous post)

Finally, and although it’s not the only other potential factor, this Friday’s Employment Situation Report (aka “jobs report,” or “NFP”) represents a high-risk situation, ESPECIALLY with mortgage rates at or near all-time lows.  NFP, which stands for the the reports chief component “Non-Farm-Payrolls” is generally regarded as the single most important piece of economic data each month.  Even against the current backdrop of European headlines exerting more and more influence on domestic markets, it’s immensely important.  Based on where markets sit right now, we think that rates are somewhat vulnerable if the report is better-than expected.  In other words, there’s a certain natural level of “push-back” at current rate levels anyway, and a bullish jobs report would probably accelerate that. 

This, of course, is contingent on the report coming in with better-than-expected results.  If the opposite happens, rates could still improve.  It’s just that those improvements would likely be slower and smaller than the losses would be in the opposite scenario.  It’s also very much contingent on rates not moving much between now and Thursday afternoon, which may or may not be the case.

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875% mostly, with a few lenders on either side of this
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.25%, some lenders venturing lower, some completely stuck at 3.25%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operating near historic lows
  • (As always, please keep in mind
    that our talk of Best-Execution always pertains to a completely ideal
    scenario.  There can be all sorts of reasons that your quoted rate would
    not be the same as our average rates, and in those cases, assuming you’re following along on
    a day to day basis, simply use the Best-Ex levels we quote as a
    baseline to track potential movement in your quoted rate).

…(read more)

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