Mortgage Banking

Making sense of commercial real estate finance.

Archive for July, 2008

Weekly Rate News

Posted by Jordan Crouch on July 21, 2008

  • ECONOMIC NEWS: Last week saw several financial companies report positive earnings, and a drop in the price of oil, lifting the overall markets. The yield on the 10 Year T-Bill rose 30 basis points last week as investors moved back into the stock market. This week Bank of America will report earnings as will Apple, Boeing, WaMu and Columbia Bank (a local Seattle Lender). Watch for Congress to vote on the Freddie/Fannie Plan this Wednesday.
  • LENDING MARKET: Lenders are holding spreads where they’re at, even as the 10 Year Treasury Bill continues to hover above 4.00% again. Once again we are seeing loan dollars being constricted by debt service. On a ten year loan, rates are in the 6.50% range.
  • FINANCE TERM OF THE WEEK: Non-Recourse- A loan that is only secured by the property. If the owner defaults, the lender can only take back the property.
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Can the Government help you?

Posted by Jordan Crouch on July 15, 2008

Yes. If you are Fannie Mae or Freddie Mac, the government can make good on its promise to bail you out. Both Fannie and Freddie are government sponsored entities (GSE) meaning that even though each is a private company, the government will guarantee the loans bought by the companies.

So what happened?

As Fannie bought loans for a dollar, they quickly became worth 50 cents because of the sub-prime “meltdown”. These are exaggerated numbers but you get the idea of what is happening. Fannie and Freddie were losing money; this became more and more clear as the companies’ respective stock prices tumbled. Fannie dropped from $30 a month ago to just above 8 this morning. This pulled the entire stock markets down, with the DOW dropping below 11,000 for the first time in two years. Seeing this transpire, Henry Paulson, the Treasury Secretary, announced plans to make good on the ‘government sponsored’ promise.

What’s the plan?

Mr. Paulson, with the help of the President, Congress, and others, has a three part plan.

Step One: to increase the line of credit for the GSE’s with the treasury department. Meaning if they need more capital, Fannie can use its credit card to pay.

Step Two: if its need the Treasury (i.e. the government) will purchase equity in either Fannie or Freddie; another way to get more capital to the GSE’s.

Step Three: to give the Federal Reserve an oversight role over the GSE regulator’s process. Huh? Basically to help make policies, recommendations, and keep the GSE’s out of trouble. Since the Federal Reserve controls the proverbial cookie jar, seems only fair that they have a say in how the GSE’s are run.

Will it work?

There have been 266 major USlending operations that have ‘imploded’ according to ML-implode.com. The most recent being IndyMac Bank last week. Banks that remain active are still seeing their shares plummet, even with the Fed’s plan being released two days ago. So will this 3 part plan save the GSE’s and the mortgage industry? Only time will tell.

What does this have to do with commercial real estate?

It’s true that Freddie/Fannie are primarily residential lenders, but both companies provide mortgages to multi-family projects as well. This sector of the business has not seen the massive defaults that residential homes have. Therefore, MF lending should continue to be a strong earner for the two. It’s also worth noting that for the last six months, the majority (more than 50%) of the MF lending across the US has been done by Fannie or Freddie. They have been dominating and gobbling up market share. When all of this craziness blows over Fannie or Freddie will still be there.

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Weekly Rates – July 14, 2008

Posted by Jordan Crouch on July 14, 2008

  • ECONOMIC NEWS: Fannie Mae and Freddie Mac are hurting from mortgage losses. Both companies’ stocks were hammered last week, dragging down the entire market, with the Dow reaching below 11,000 for the first time in two years. Yesterday the federal government announced a three part plan to stabilize Fannie and Freddie. From the statement “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current …Their support for the housing market is particularly important as we work through the current housing correction.” Also affecting the economy is the price of oil, now at $145 a barrel.
  • LENDING MARKET: Life Insurance Companies and regional banks are still active in the lending market, though still at a conservative level. Spreads are in the high 200’s, meaning rates are in the 6.25 – 6.75% range. The four main property types (Office, Retail, Industrial, Multi-Family) are all getting loans, with MF getting the majority.
  • FINANCE TERM OF THE WEEK: Recourse – A loan that is secured by the property and the owner’s personal liability. If the owner defaults, the lender will take back the property as well as personal property to repay the loan.

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Largest Construction Loan this Year

Posted by Jordan Crouch on July 10, 2008

via CoStar…Deutsche Bank, with eight other banks, lent $613M to the Carlyle Group, Exctell Development and RREEF for a luxury residential building.

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Rays of Sunshine

Posted by Jordan Crouch on July 8, 2008

For the capital markets, the only rays of sunshine I see are the ones coming through my office window. CMBS Lenders are still laying off staff; now the high dollar producers are getting the pink slip. I know one former producer who upon getting shown the door took an extended European trip. Asked when he would come back to look for a job, his reply was probably not this year. With many high level staff and/or entire production offices closing, the CMBS market will definitely not be returning in 2008. An article in the WSJ suggests the overall credit market hasn’t seen the worst yet. If this is the case, it will be one bumpy ride for commercial real estate financing.  On the flip side, this investor thinks the worst is over.

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