Capital Corner: Creating the two-way street between lenders and borrowers

February usually marks an annual kick-off at the MBA-CREF conference with lenders across the industry to assess which new programs will be available to borrowers and where pricing is headed. With the continuation of a virtual environment, the MBA-CREF conference was still held with more than 2,000 attendees – but what was missing were the dinners, lunches, small-group meetings, and lender-specific presentations that add context to what financing structures will be best suited for specific investment activity.

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Since those important events weren’t possible in person this year, NorthMarq created our own “CREF Conversations,” 30-minute discussions with nearly 50 correspondent lenders and NorthMarq’s more than 150 debt experts. What resulted from those conversations has been a two-way street of learning – lenders wanting to know more about what we’re hearing from borrowers along with documenting the specific programs or structure changes that each lender plans for the year.

What’s most critical for us at NorthMarq is the ability to understand which lenders are offering more creativity, which specific programs will benefit our clients, and what’s most important to borrowers about post-closing service and support.

Key Findings

• New programs: Life companies are becoming more aggressive about offering products in the bridge space. These programs can offer terms that are competitive, but with the added feature of NorthMarq servicing similar to our correspondent lender programs. Unlike the bridge-only lenders, leveraging NorthMarq’s exceptional loan servicing platform allows continuity in the loan and the ongoing needs of a bridge loan. These programs, which have grown as an offering for more lenders, have been preferred by Borrowers who value the personal attention of service in today’s bridge programs.
  
• Volume: 2021 volume will likely exceed 2020 volume for most lenders, given that some of them were on the sidelines during parts of 2020. The need for yield and mortgage loan investments should drive new programs, such as construction-permanent, floating rate, and of course, bridge, to compete with the agencies and other niche lenders. Borrowers have expressed disappointment with the post-closing experience with many niche lenders, identifying an opportunity that life companies have a history of strong customer service through its correspondent programs. NorthMarq services nearly 5,000 loans for 70 different life companies, making us the #1 servicer of life company loans in the country.
  
• Property Type and Geography: While office and retail still lag the other property types, certain segments are still attractive to lenders to maintain their diverse allocations. Service-driven retail, especially those properties that contain grocers, are attractive to lenders, especially when those properties are located in suburban communities experiencing growth. Suburban office or trophy CBD office properties remain in favor with some lenders, especially when the tenants have longer-term performing leases. Finally, industrial is of equal importance with multifamily, although in most markets it is harder to find.

Fannie Mae: Affordability Remains Critical for Best Pricing
As we approach the midway point of Q1, Fannie Mae’s priorities for 2021 are starting to come into focus. Affordability will clearly reign supreme for the foreseeable future, which was expected given the updates made to the FHFA scorecard almost three months ago. Fannie is currently providing significant pricing breaks for deals showing 50 percent of units or more at 80 percent AMI rents. And additional pricing breaks are being offered if Green Rewards or a Green Certification is layered on top of the affordability.

As the multifamily lending industry picks up steam in the new year, we are seeing increased competition from lending sources that were largely quiet in 2020 – namely Life Companies and Bridge Lenders. Despite this increase in competition, the Fannie pipeline remains strong thus far, putting between $1 - $1.5 billion in loans under application every week.

From a capital markets perspective, Fannie interest rates continue a slow but steady march upward from the all-time lows seen last summer. This has largely been driven by rising Treasury rates, resulting from increasingly positive economic sentiment. Fortunately investor appetite for DUS paper has remained robust, putting downward pressure on spreads, and offsetting some of the increases to overall rates.

Freddie Mac: Best Pricing on Fixed-Rate Loans for Garden-Style Suburban Properties
The beginning of February typically means the MBA/CREF conference is upon us. This year the event was held virtually, a first for a conference that is heavy on handshakes and toasts. Freddie Mac participated in this year’s virtual MBA-CREF conference by holding virtual meetings with their Optigo lenders, where NorthMarq was particularly excited to reflect upon our great success in 2020 with our recognition as one of Freddie’s Top 10 Lenders, an important honor for our company.

On Feb. 1, Freddie lowered spreads on fixed-rate loans and increased them on floating-rate loans. This change allowed their business to return to normal levels of inflows and under application. Freddie will remain heavily focused on properties that meet their mission goals, commonly garden-style units in suburban and third-tier markets with rents at 80 percent of AMI and lower. Because we expect to see strong pricing breaks on those deals, we recommend you reach out to your local NorthMarq debt experts to leverage Freddie’s programs.

FHA/HUD: New MAP Guide Expected to Increase Volume
FHA continues 2021 with a substantial pipeline of transactions, and this is expected to continue for the foreseeable future. The implementation of the new MAP guide on March 18 is spurring additional transaction volume due to the changes to HUD’s Green MIP program. HUD has instituted a queue system for incoming transactions, which adds time to the overall process but ensured the HUD staff are able to efficiently process a transaction once it is assigned to an Underwriter. NorthMarq continues to seek creative solutions to counteract the delays in processing, including coordinating early legal work and expediting third-party reports.

Leadership at HUD has seen recent changes with President Biden appointing Marcia Fudge as the new Secretary of Housing and Urban Development. Secretary Fudge has long been an advocate for affordable housing and combating housing discrimination. Ethan Handelman, the new Deputy Assistant Secretary for Multifamily Housing, was most recently a senior policy analyst for housing and community investment at the Federal Housing Finance Agency.

FHA interest rates remain at historical lows for some of the longest loan terms and highest possible leverage available in the market.

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