Our Perspective 7/ 21/ 2021

Capital Corner: GSE updates on programs, pricing

As the GSEs enter the second half of 2021, pricing continues to tighten, with popular programs coming back, and Covid-reserves fading away. The agencies are preparing for new leadership from acting director of the Federal Housing Finance Agency, Sandra L. Thompson, an experienced, long-time leader within housing finance management.

Freddie Mac
Despite the volatility of the bond market, Freddie Mac spreads continue to remain at their lowest levels in over a year. Freddie saw over $2.5 billion in new loans under application just before the July 4 holiday weekend. That is twice their normal week and harkens back to March of 2020 when borrowers were frantically trying to get deals done at the onset of the pandemic.

There is no indication at this time that spreads will move out, but be on the lookout if the market volatility continues in the next few weeks. Other good news was the announcement of a new director of FHFA. The previous administration was known for limiting the Agencies’ business and tamping down on new products. We expect to hear the resurgence of former products over the next couple of months.

Fannie Mae
As we enter the second half of 2021, Fannie Mae is looking to continue their recent positive momentum. At the end of June, Fannie announced a substantial pricing reduction for lower leverage loans, making them even more competitive in this space. Fannie Mae also continues to be very aggressive on Mission and Non-Mission loans alike, offering substantial rate reductions for loans over $6M that demonstrate good credit. And Treasury markets have taken a risk-off tone in recent weeks, which has pushed yields down throughout June and July, with the 10 UST dropping below 1.20% for the first time since February. As a result, interest rates on Fannie Mae loans are near the lowest they have ever been.

Additionally, with many local economies rebounding as COVID restrictions ease and vaccinations rates increase, Fannie Mae is once again open to entertaining Near Stabilization loan transactions. Ideal transaction candidates include properties in major MSAs that have a clear lease-up trajectory. Properties should be able to achieve target stabilization within 60-120 days of rate lock, and be backed by strong sponsors with prior lease-up experience. Prior to the COVID-19 pandemic, the Near Stabilization program was unique in the lending industry, as it allowed lenders to fund full loan proceeds on properties that were still in lease-up with very little risk to the borrower. Having this valuable lending platform available again will clearly enhance Fannie Mae’s capabilities for the remainder of 2021.

FHA/HUD
The primary topic/issue relating to FHA multifamily remains the underwriting queue. The queue has been in existence for the entirety of 2021, but the hope and expectation was for it to gradually shrink as FHA worked through the pipeline. We have not seen an appreciable decline in the queue and, unfortunately, the queue has lengthened in a couple of regions (specifically the Southeast and Northeast.) There is a strong push from the FHA lending community to assist FHA in identifying measures that can be implemented to ease the queue. On a positive note, once a deal has been assigned to an FHA underwriter, we are experiencing standard response times and closings have also remained on a good schedule. NorthMarq is committed to assisting FHA in mitigating the queue while also actively guiding borrowers through this unprecedented period.

FHA is assessing the potential elimination of the debt service reserve (i.e. “Covid reserve”), but we do not anticipate a definitive response before the end of summer. The FHA fiscal year ends on Sept. 30, 2021, and this is a more likely timeframe for any decision relating to the Covid-reserve.

Total transaction volume for FHA remains on a record pace and is expected to surpass $30/B for the fiscal year 2021. The interest rate environment for FHA loans continues to be quite favorable as rates for a 223(f) refinance are currently 2.30%-2.40% and approximately 2.90%-3.00% for a 221(d)(4) c