Capital Corner: Strength of GSE lending continues

GSEs well-positioned for robust finish to 2021

Transaction volume remains strong across all of the GSEs continuing to position multifamily borrowers to be competitive in acquisitions, cash-out refinancing, and value-add properties.

FHA/HUD
FHA continues to be a popular source of financing for multifamily financing. The combination of historically low-interest rates coupled with the longest loan terms provides FHA with a unique advantage in the market. Transaction volume continues to be robust as FHA heads toward the end of its fiscal year on September 30. We continue to see refinance rates (223f) in the 2.30 percent range and new construction/permanent rates (221d4) around 2.95 percent.

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The transaction queue remains the dominant topic as lenders and borrowers continue to manage timing expectations. There has been slight improvement in the queue (particularly in the Northeast region) and signs point to more progress in the coming months. Managing (and reducing) the queue remains a significant priority for FHA’s Multifamily group.

There are active discussions occurring regarding the alleviation of the “Covid Reserve” (i.e. debt service reserve) that was instituted for all refinance transactions in the spring of 2020. Most capital providers have recently eliminated this type of reserve requirement, and we expect FHA to follow soon.

Freddie Mac
With just over four months left in 2021, cap management is the number one concern for Freddie Mac. Despite several increases in spreads, Freddie’s pipeline remains robust. Therefore, they are prioritizing acquisitions and maturity refinances. What does that mean for your deals? Elongated quote times, higher spreads, and tighter credit parameters. At NorthMarq, we are advising clients that can push their deals into 2022 to do so, as the cap resets at the beginning of each year. Specialty products are still available, albeit for select sponsors/repeat Freddie borrowers.

Fannie Mae
Fannie Mae is well-positioned to offer competitive terms through the remainder of the year. While other capital sources are starting to slow down with Q4 right around the corner, Fannie’s pipeline remains robust, and terms continue to be very competitive. Capital Markets continue to be accommodating, with the 10-yr UST generally bound between 1.20 and 1.40 percent over the last 30 days, which has kept all-in rates low. And recent headlines surrounding the Delta variant, Afghanistan, and China’s economic slowdown, are all putting additional downward pressure on yields. Fannie’s strike zone continues to be 10-12 year, fixed-rate debt, as these structures tend to provide the best combination of loan proceeds, interest-only, an interest rate for our borrowers.

On the loan product front, Fannie has made some unofficial modifications to their sizing requirements. And as a result, we’ve recently seen more aggressive terms approved, with additional proceeds and/or interest only on both fixed and floating-rate loans. Fannie seems to be particularly accommodating on loans with strong property performance and experienced, repeat sponsors. We’re also seeing Fannie be more open to entertaining loans on properties on that are still in lease-up, which has allowed NorthMarq to execute on deals with longer windows to stabilization.