Multi-Housing News - April 2009 - (Page 11)

“ If Fannie Mae and Freddie Mac start implementing the 10 percent portfolio reduction next year, the industry’s fear is that it would begin to curtail liquidity in the multifamily industry. ” ing in 2011. Prior to that, there will be about $29 billion in multifamily loans coming due in 2009, and $26 billion in 2010, according to Jamie Woodwell, MBA’s vice president of commercial real estate research. Woodwell said that the pressure for refinancing will be felt more on shorter-term loans. Fannie Mae and Freddie Mac have provided assurances. At a panel discussion during MBA’s multifamily and commercial real estate conference in early February, moderator Shekar Narasimhan, managing partner of Beekman Advisors, asked if Fannie Mae and Freddie Mac’s appetite for multifamily financing will decline when the portfolio cap reduction comes into effect and what actions the agencies might take. It appears that the ability to issue securities rather than keep the loans on portfolio may be a key part of the GSEs’ expectation of being able to continue maintaining the same level of liquidity in the multifamily markets despite the mandated portfolio caps. Phil Weber, senior vice president of multifamily at Fannie Mae, said during the MBA conference that Fannie Mae’s top priority is to increase its securitization of Mortgage Backed Securities (MBS). This way, more of Fannie Mae’s loans can bypass the portfolio restriction. In previous years, nearly 80 percent of Fannie Mae’s multifamily business was securitized as DUS MBS, and 20 percent as whole loans that went on its balance sheet, Weber told MHN. “That strikes us as a good objective to seek [going forward],” he said. Michael May, Freddie Mac senior vice president, multifamily sourcing, responded at the MBA panel that, of Freddie Mac’s $850 billion portfolio, $600 billion is held in securities, and Freddie Mac has the ability to trade off those securities to make room in its portfolio. He explained that additionally, a certain amount of Freddie Mac’s single-family loans are prepaid every month, and it needs only a few months of the prepayment to generate a certain amount of additional capital for lending. May also noted that Freddie Mac has the ability to issue markets executions. In the future, Freddie Mac can place the loans through a variety of ways, including portfolio, securitization or capital markets executions and that he “[does] not see a problem.” To what extent will these strategies work and keep liquidity in the multifamily market? In the bigger picture, many observers believe the government will not allow Fannie Mae and Freddie Mac to end their support of the multifamily market. Jonathan Rose, president of the New York-based apartment owner and manager Jonathan Rose Cos., says the mandate to reduce the portfolio was an “ideologically, and not economically, informed” decision under then-Treasury Secretary Henry Paulsen and the Republican leadership. “It was informed by the ideal of getting the GSEs out of the credit enhancement business,” says Rose. He believes that the Obama Administration will “budget for enough credit enhancement to meet the demands of the multifamily market.” Sam Chandan, president and chief economist of Real Estate Economics LLC, also suggests that the Obama Administration may not necessarily follow through with allowing the portfolio reductions to come into effect. “My view is that the original terms of the conservatorship were predicated on the stabilization of the housing market and of the GSEs themselves in late 2009, early 2010, as a precondition to reducing the size of their portfolios,” says Chandan. “At this point, I think that FHFA Director [James B. Lockhart III] will evaluate the options carefully in that Fannie and Freddie’s reduction in participation next year is not a foregone conclusion. I do not anticipate the private market will be in a position to fill the gap left by Fannie Mae and Freddie Mac if they should reduce their role in 2010.” Chandan added that the magnitude of the GSEs’ 2008 losses suggests that “the market will benefit from their remaining in conservatorship.” With regard to Fannie Mae’s increasing its MBS securitization as a way to bypass lower portfolio limits, Fannie Mae’s Weber also said in February that the GSE has seen encouraging signs of investor interest in MBS as the markets continue to normalize, and that a lot of securities have already been traded to thirdparty investors. Indeed, NCB, a Congressionally chartered national financial institution that lends to cooperatives and condominiums, is planning to sell its multifamily- For more information, visit www.multi-housingnews.com/productinfo www.multi-housingnews.com | April 2009 11 http://www.multi-housingnews.com/productinfo http://www.multi-housingnews.com

Table of Contents for the Digital Edition of Multi-Housing News - April 2009

Multi-Housing News - April 2009
Contents
From the Editor
Executive Insight: Sue Ansel
Finance: Fannie Mae & Freddie Mac
Quote of the Month
Market Forecast: Texas
Profile: Affordable Developers
Operations: Green Laundry Rooms
Technology: BIM
Kitchen & Bath: Tile Installation
Perspective: Doug Bibby, NMHC

Multi-Housing News - April 2009