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.”

Originations by Investor Types


Origination Volume Index*

% Chg


Average Loan Size ($millions)

Q3 2011

Q4 2011

Q3 2011

Q4 2011































*2001 Ave. Quarter = 100

Originations by Property Types


Origination Volume Index*

% Chg


Average Loan Size ($millions)

Q3 2011

Q4 2011

Q3 2011

Q4 2011





































*2001 Ave. Quarter = 100

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All FHA Today: Compare Ratios, Streamlines, Condo Approvals, LI Program Changes

Some will
call this a useful tool and a time saver – others will say it is another sign
of our privacy going away and “Big Brother” seeing everything. Enter an address, and it displays a map of
the area showing all residences/businesses, including their phone numbers

In Northern California, WBC Lending is
looking for experienced wholesale AE’s to call on brokers. WBC Lending has
“an aggressive product offering, including a super jumbo portfolio product
with start rate 1.625% and life cap of 6.25%, up to $2 million dollars with a
50% DTI, and a 40-year term.” With over 65 years of combined wholesale
mortgage banking experience, the executive management team at WBC Lending
believes they have put together a wholesale platform that is second to none,
and would prefer that candidates have a minimum of 2 years’ experience. WBC has
local underwriting, docs and funding all out of the San Jose based corporate
offices.   If interested, please inquire today by contacting John
Giagiari at,
and for more information on the company visit

Perhaps Bank of America home loans president Barbara Desoer could apply – she
will retire this month after being at the bank since 1977! Her most recent
assignment was the “integration of the Home Loans business into Consumer
Banking” after the 2008 purchase of Countrywide.

HUD, and the FHA, is definitely a big
part of the home mortgage environment.
In the name of further learning, HUD is offering a variety of training
, including an online course on the new HOPE LoanPort (HLP)
enhancements.  You can register for classes, which are take place every
Tuesday and Thursday
Also available is a series webinars on Loss Mitigation, offered in conjunction
with the FHA.  Some of the upcoming courses cover HUD’s Neighborhood Watch
System, loss mitigation, default reporting and FHA claims.  See the HUD
website to register.

Early pay-offs
(prepayments) of Ginnie Mae securities, made up primarily of FHA and VA loans,
is causing some concern among investors. Besides the initiatives announced by
President Obama in his Plan to Help Responsible Homeowners and Heal the Housing
Market, more changes, such as tweaks to the FHA mortgage insurance premiums
(MIP), could be unveiled in the next few weeks. President Obama’s plan describes “Streamlined Refinancing for FHA
Borrowers” by excluding streamline-refinanced loans from comparison ratio
. Most believe that this plan will be implemented and has the
potential to raise GNMA prepayment speeds. (There has been a recent increase in
early pay-offs; most attribute this to the “GNMA universe” becoming a lot more
refinanceable after the improvement in FHA rates this year.)

(As a
quick refresher, the compare ratio is the serious delinquency rate of all loans
originated by a lender during a one or two-year period relative to the average
of all lenders operating in the same region. If this ratio rises above 150%,
the lender may lose the ability to make new FHA loans out of that region or
branch – 200% is almost a sure thing. As higher coupon and seasoned loans have
a weaker credit and greater default risks, lenders worry that
streamline-refinancing them could push up the compare ratio.)

Streamlines are excluded from the compare ratio calculation, this should remove
a disincentive for streamline-refinancing higher-risk borrowers. This argues
for an increase in GNMA prepayments, particularly on higher coupons and
pre-2009 originations since these have the worst credit quality. But data from
HUD suggest that the compare ratios of most national lenders are now
significantly below the 150% threshold (see below), implying that this is not
the only binding condition for refinancing riskier loans. In addition, FHA’s
indemnification rules essentially grant put-back amnesty for loans originated
before 2009 – refinancing these loans would reset the clock and put the lender
on the hook for fresh rep & warranties. Unless FHA grants put-back amnesty
for all streamline refinances, lenders are likely to remain skittish. And let us not forget the various overlays
that most investors have in place on FHA Streamlines

So where are the compare ratios of “the
big boys”?
current national compare ratios for the big lenders, from research piece I read
from a large broker-dealer, are all below 130% – well below 200% recommended by
FHA. Only 6% of lenders have a compare ratio of above 200% and these lenders
comprise of only 2% of the total loans outstanding (that are considered for
calculating compare ratios). BofA has 126, Chase 39, Wells 79, Quicken 78, US
Bank 69, Fifth Third 59, PHH 66. Bank of America 90+ delinquencies have been
steadily rising and there are concerns that they will be forced to do a
one-time buyout as their 90+ delinquencies hit 5%, and/or, similar to GMAC, BofA
starts buying out just enough delinquent loans to maintain delinquencies at
that level.

Critics of
the compare ratio ask, “Isn’t it more of a long term snapshot of performance
than short term?  If a lender tightens up their guidelines would you see
an immediate impact to the compare ratio?” Some liken it to turning a cruise
ship, and only looking in the rear view mirror. And further complicating things
is the theory that most delinquencies are caused by unforeseen job losses,
rather than other reasons that might have been caught during the underwriting
process – unless one’s underwriters were very poor and the company was seeing a
first payment default problem.

of which, the serious delinquency rate for FHA mortgages reached 9.6% in
December, and the highest level in more than two years, HUD recently announced.
More than 711,000 FHA-insured loans were seriously delinquent, up almost 19% from
one year earlier, according to the HUD report, and up 3% from November. At the
same time, mostly for pricing reasons, originations are down. In December, the
FHA insured 93,700 mortgages, a nearly 30% decline from the 133,000 insured in
December 2010. Analysts are most
concerned with the FHA’s insurance fund
: in its fiscal year 2011, the FHA
Mutual Mortgage Insurance Fund slipped to a 0.24% capital ratio from 0.5% the
year prior. By law, the fund must remain above 2%. Lenders should not be surprised if the FHA insurance premiums go up
again this year.

Here in
Miami, and everywhere else condos exist, condo
buyers are having a hard time obtaining FHA mortgages
, and often it’s down
to the building’s financial status, not the borrower’s.  Since February
2010, the FHA have required that the whole building be deemed financially
viable rather than just the single units, which has resulted in a proliferation
of rejected buildings, a headache for condo sellers who rely on the FHA stamp
of approval as a marketing mechanism, impeding the housing market’s recovery. FHA
regulations now dictate that buildings must be 50% owner-occupied, that no more
than 10% of the units are owned by one entity, that no more than 15% of the
units are 30 days past due on their monthly assessments, and that at least 10%
of the association budget be set aside for capital expenditures and deferred
maintenance.  The general consensus in the housing industry is that, given
consumer demand for FHA-backed mortgages, the regulation is short-sighted.

mortgagees participating in the Lender Insurance (“LI”) program will be
required to indemnify HUD for self-endorsed loans that HUD deems ineligible for
FHA insurance based on a final regulation published by HUD on January 25. The
regulation finalizes changes to the LI regulations and will take effect on
February 24. In addition to the significant changes to HUD’s indemnification
authority for self-endorsed loans through the LI program, the final regulation
also amends mortgagee eligibility criteria to participate in the LI program,
including acceptable default/claim rates, amends HUD’s authority to monitor
lenders participating in the LI program, and implements a process for FHA
lenders terminated from the LI program to request reinstatement of their LI

HUD made
clear that these amendments are designed to improve and expand the risk
management activities of the FHA and to strengthen the FHA Insurance Fund by
limiting “unnecessary and inappropriate risks” to the Fund associated with
loans that the Department determines should not have been endorsed through the
LI program. As HUD notes, this is the latest in a series of steps the
Department has taken to strengthen the financial soundness of the FHA program
and mitigate the risk of possible insolvency of the FHA Insurance Fund as HUD
continues its efforts to increase FHA’s capital reserve ratio to meet the congressionally
mandated threshold of two percent.

Last week
was not kind to fixed-income U.S. securities, especially after that strong jobs
number Friday. But the U.S. economy is not setting the world on fire, and Europe
still poses a threat – and could for years. So we can all expect rates to
drift and drift down. Rates are holding record lows as mortgage bonds (MBS)
rally ever higher. Any modest improvement in our economy would nudge investors
into equities and out of bonds – but the overhang of the Eurozone debt crisis
proves to be too much. Our 10-yr T-note closed Friday at about 1.94%

economic calendar will be very light this week – so watch for Europe to perhaps
regain center stage. We do, however, have some Bernanke testimony and Treasury
auctions tomorrow, Wednesday, and Thursday; the Trade Balance and Consumer
Sentiment will be released on Friday. Ahead
of that rates and prices are nearly unchanged from Friday.

HIGH SCHOOL — 1957 vs. 2010 (Part 1 of 2)
Scenario 1:
Jack goes quail hunting before school and then pulls into the school parking lot
with his shotgun in his truck’s gun rack..
1957 – Vice Principal comes over, looks at Jack’s shotgun, goes to his car and
gets his shotgun to show Jack.
2010 – School goes into lock down, FBI called, Jack hauled off to jail and
never sees his truck or gun again. Counselors called in for traumatized
students and teachers.
Scenario 2:
Johnny and Mark get into a fist fight after school.
1957 – Crowd gathers. Mark wins. Johnny and Mark shake hands and end up
2010 – Police called and SWAT team arrives — they arrest both Johnny and Mark.
They are both charged with assault and both expelled even though Johnny started
Scenario 3:
Jeffrey will not be still in class, he disrupts other students.
1957 – Jeffrey sent to the Principal’s office and given a good paddling by the
Principal. He then returns to class, sits still and does not disrupt class
2010 – Jeffrey is given huge doses of Ritalin. He becomes a zombie. He is then
tested for ADD. The family gets extra money (SSI) from the government because
Jeffrey has a disability.
Scenario 4:
Billy breaks a window in his neighbor’s car and his Dad gives him a whipping
with his belt.
1957 – Billy is more careful next time, grows up normal, goes to college and
becomes a successful businessman.
2010 – Billy’s dad is arrested for child abuse; Billy is removed to foster care
and joins a gang. The state psychologist is told by Billy’s sister that she
remembers being abused herself and their dad goes to prison. Billy’s mom has an
affair with the psychologist.
(Part 2 tomorrow.)

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Geithner Outlines Accomplishments, Future of Financial Reform

Treasury Secretary Timothy Geithner told
the Financial Stability Oversight Council that the financial system is getting
stronger and safer and that much of the excess risk-taking and careless
financial practices that caused so much damage has been forced out.  However, he said, “These gains will erode
over time if we are not able to put our full reforms into place.”

He outlined the basic framework has been
laid, with new global agreements to limit leverage, rules for managing the
failure of a large firm and the new Consumer Financial Protection Bureau (CFPB)
up and running, and the majority of the new safeguards for derivatives markets proposed.  Geithner ticked off the major accomplishments
of reform.

First, banks now face much
tougher limits on risk which are critical to reducing the risk of large
financial failures and limiting the damage such failures can cause.  The focus in 2012 will be “on defining the
new liquidity standards and on making sure that capital risk-weights are
applied consistently.”

 The new rules are tougher on
the largest banks that pose the greatest risk and are being complemented by
other limits on risk-taking such as the Volcker Rules and limits on the size of
firms and concentration of the financial systems.  These will not apply only to banks but to
other large financial institutions that could pose a threat to financial system
stability and this year the Risk Council will make the first of these

Second, the derivatives market will,
for the first time, be required to meet a comprehensive set of transparency
requirements, margin rules and other safeguards.  These reforms are designed to move
standardized contracts to clearing houses and trading platforms and will be
complemented with more conservative safeguards for the more complex and
specialized products less amenable to central clearing and electronic
trading.  These reforms, the balance of
which will be outlined this year, will lower costs for those who use the
products, allow parties to hedge against risk, but limit the potential for
abuse, the Secretary said. 

Third, is a carefully designed set
of safeguards against risk outside the banking system and enhanced protections
for the basic infrastructure of the financial markets: 

  • Money market funds will have new
    requirements designed to limit “runs.”
  • Important funding markets like the
    tri-party repo market are now more conservatively structured.
  • International trade repositories are
    being developed for derivatives, including credit default swaps.
  • Designated financial market utilities
    will have oversight and requirements for stronger financial reserves;

Fourth; there will be a stronger set
of protections in place against “too big to fail” institutions.  The key elements are:

  • Capital and liquidity rules with
    tough limits on leverage to both reduce the probability of failure and prevent
    a domino effect;
  • New protections for derivatives,
    funding markets, and for the market infrastructure to limit contagion across
    the financial system;
  • Tougher limits on institutional size;
  • A bankruptcy-type framework to
    manage the failure of large financial firms.
    This “resolution authority” will prohibit bailouts for private
    investors, protect taxpayers, and force the financial system to bear the costs
    of future crisis.

Fifth, significantly stronger
protections for investors and consumers are being put in place including the
CFPB which is working to improve disclosures for mortgages and credit cards and
developing new standards for qualified mortgages.  New authorities are being used to strengthen protections
for investors and to give shareholders greater voice on issues like executive

Geithner pointed to the failure of
account segregation rules to protect customers in the MF Global disaster as proof
of the need for more protections and said that the Council will work with the
SEC and the Commodity Futures Trading Council on this problem.   

Moving forward, reforms must be
structured to endure as the market evolves and to work not just in isolation
but to interact appropriately with each other and the broader economy.  “We
want to be careful to get the balance right-building a more stable financial
system, with better protections for consumers and investors, that allows for
financial innovation in support of economic growth.” 

First, he said, we have to make sure
we have a level playing field at home; that financial firms engaged in similar
activity and financial instruments that have similar characteristics are
treated roughly the same because small differences can have powerful effects in
shifting risk to where the rules are softer. 
A level field globally is also important, particularly with reforms that
toughen rules on capital, margin, liquidity, and leverage, as well as in the
global derivatives markets.  “In these areas we are working to discourage
other nations from applying softer rules to their institutions and to try to
attract financial activity away from the U.S. market and U.S. institutions.” 

It is necessary to align the
developing derivatives regimes around the world; preventing attempts to soften
application of capital rules, limiting the discretion available to supervisors
in enforcing rules on risk-weights for capital and designing rules for
resolution of large global institutions.  Also, because some U.S. reforms are different
or tougher from rules in other markets, there needs to be a sensible way to
apply those rules to the foreign operations of U.S. firms and the U.S.
operation of foreign firms.

 The U.S. also needs to move
forward with reforms to the mortgage market including a path to winding down
the government sponsored enterprises (GSEs.) 
The Administration has already outlined a broad strategy, Geithner said,
and expects to lay out more detail in the spring.  The immediate concern is to repair the damage
to homeowners, the housing market, and neighborhoods.  The President spoke this week about the range
of tools he plans to use.  Our ultimate goals
are to wind down the GSEs, bring private capital back into the market, reduce
the government’s direct role, and better target support toward first-time
homebuyers and low- and moderate-income Americans.

Geithner said the new system must
foster affordable rentals options, have stronger, clearer consumer protections,
and create a level playing field for all institutions participating in the
system.  For this to happen without
hurting the broader economy and adding further damage to those areas that have
been hardest hit, banks and private investors must come back into the market on
a larger scale and they want more clarity on the rules that will apply. 

Credit availability is still a problem
and there is a broad array of programs in place to improve access to credit and
capital for small businesses.  As
conditions improve, it is important that we remain focused on making sure that
small businesses, a crucial engine of job growth, have continued access to
equity capital and credit.

Many Americans trying to buy a home
or refinance their mortgage are also finding it hard to access credit, even for
FHA- or GSE-backed mortgages.  The Administration has been working closely
with the FHA and FHFA to encourage them to take additional measures to remove
unnecessary barriers and they are making progress.  They will probably outline additional reforms
in the coming weeks.

Bank supervisors, in the normal
conduct of bank exams and supervision, as well as in the design of new rules to
limit risk taking and abuse, must be careful not to overdo it with actions that
cause undue damage to the availability of credit or liquidity to markets.

Geithner said the U.S. financial
system is getting stronger
, and is now significantly stronger than it was
before the crisis.  Among the achievements:

  • Banks have increased common equity
    by more than $350 billion since 2009.
  • Banks and other financial
    institutions with more than $5 trillion in assets at the end of 2007 have been
    shut down, acquired, or restructured.
  • The asset-backed commercial paper
    market has shrunk by 70 percent since its peak in 2007, and the tri-party repo
    market and prime money market funds have shrunk by 40 percent and 33 percent
    respectively since their 2008 peaks.
  • The financial assistance we provided
    to banks through TARP, for example, will result in taxpayer gains of
    approximately $20 billion.

The Secretary said the strength of
the banks is helping to support broader economic growth, including the more
than 3 million private sector jobs created over 22 straight months, and the 30
percent increase in private investment in equipment and software.  
Broadly, the cost of credit has fallen significantly since late 2008 and early
2009.  Banks are lending more, with commercial and industrial loans to
businesses up by an annual rate of more than 10 percent over the past six

He concluded by saying that no
financial system is invulnerable to crisis, and there is a lot of unfinished
business on the path of reform.  The reforms are tough where they need to
be tough.  “But they will leave our financial system safer, better able to
help businesses raise capital, and better able to help families finance safely
the purchase of a house or a car, to borrow to invest in a college education,
or to save for retirement.  And they will protect the taxpayer from having
to pay the price of future crisis.”

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New York Real Estate Question & Answer

Taking responsibility for a roof leak; a bank loan for capital repairs; lender says no to co-op sublet; next time, don’t forget the key.

Reports Continue to Show Home Price Declines

CoreLogic and Lender Processing Services
(LPS) have each released their most recent Home Price Indices.  CoreLogic’s HPI covers December; LPS’s covers
the month of November.  Here is a quick
review of each.

LPS found that the average home price
for transactions during November was $199.000, down 0.6 percent from the
October average.  This is the fifth consecutive
month that this index has declined. 
Preliminary information on December sales indicates that the HPI might
have lost another 0.8 percent during that month.

When the market peaked in June 2006 the
total value of the U.S. housing inventory covered by LPS was $10.8
trillion.  The value has declined 30.6
percent to $7.5 trillion since that time.

Price changes were consistent across the
country, increasing in 13 percent of the ZIP Codes in the database.  Higher priced homes had somewhat small price
declines than those in the middle and low price categories with the range from
high to low covering only 13 basis points.

CoreLogic issues two sets of indices,
one including sales of distressed properties, the other excluding those
sales.  The HPI for all sales decreased
1.4 percent in December and was down 4.7 percent on an annual basis, the fifth
year in a row that this HPI has declined.   
The Index covering market sales was 0.9 percent higher than in December
2010 which, Core Logic says, gives an indication of the impact distressed sales
are having on the market.  The HPI excluding distressed sales posted its first month -over-month
gain since last July, rising 0.2 percent. 

the top 100 Core Based Statistical Areas as measured by population, 81 showed
year-over-year declines in November compared to 80 that were down on a monthly
basis in November compared to October.

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