Archive for June 2010

Fannie Mae, Freddie Mac Continue to Lead Multifamily Lending; Delisting From NYSE Likely to Have Little Impact

June 19, 2010
  • Fannie Mae, Freddie Mac Continue to Lead Multifamily Lending;

    Fannie Mae, Freddie Mac Continue to Lead Multifamily Lending;

    Fannie Mae and Freddie Mac have provided much-needed liquidity to the apartment investment market through the credit crunch and recession, helping to offset the void left by the stagnant CMBS sector. Since the federal government took control of Fannie Mae and Freddie Mac in the third quarter of 2008, the amount of multifamily mortgage debt outstanding in the GSEs’ portfolios and federally related mortgage pools has increased by more than 10 percent, or approximately $33.5 billion. During the same period, other major sectors, including commercial banks, CMBS and life insurance companies, registered decreases in multifamily debt outstanding, curbing their exposure to real estate debt.

  • The government takeover of Fannie Mae and Freddie Mac came after the companies reported massive losses tied to their residential mortgage portfolios. Losses have continued to mount in the quarters since, and the government has provided $146 billion to aid the struggling GSEs, taking a massive toll on their values and shareholders. By June 15, the day before it was announced that both companies would voluntarily delist from the NYSE, Freddie Mac’s share price was only slightly greater than $1, and Fannie Mae’s had fallen below the same threshold. The companies remain registered with the SEC and will be traded on the over-the-counter market. The delisting should have little impact on their day-to-day operations but highlights the precarious positions of both firms.
  • While soft housing market conditions and related losses have battered Fannie Mae and Freddie Mac’s balance sheets, the GSEs’ multifamily portfolios have performed relatively well through the recession. As of the first quarter of 2010, Freddie Mac reported a multifamily delinquency rate of 0.24 percent, while Fannie Mae’s came in at just under 0.8 percent. These rates compare favorably to commercial mortgage performance trends in the banking and CMBS sector, where delinquency rates have reached 4.24 percent and 7.24 percent, respectively.
  • Despite problems surrounding Fannie Mae and Freddie Mac and the expectation of government-mandated changes in the quarters ahead, it remains probable the GSEs’ multifamily lending arms will operate with few changes. Apartment loan originations by the GSEs may continue at depressed levels this year when compared to activity in early 2009, however, reflecting a paucity of attractive deals in the marketplace rather than a shortage of available debt capital. Last year, GSE originations volume received a boost from apartment owners refinancing ahead of loan maturity to avoid further erosion in fundamentals and values.
  • The GSEs will remain selective, employing strict underwriting standards and shying away from riskier deals. At present, however, Fannie Mae and Freddie Mac continue to offer competitive terms and pricing on new multifamily loans. Loan-to-values range from 55 percent to 75 percent, with five-year loans pricing in the 4.5 percent to 5.0 percent range and 10-year rates averaging 5.25 percent to 5.75 percent.