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Freddie Mac CME - A new kind of conduit loan

On June 18th Freddie Mac finalized the sale of the first securities under their new Capital Markets Execution (CME) program.    These securities were backed by over $1 billion in multifamily loans secured by 62 multifamily communities across the country.     The securities consisted of a variety of classes each having different cash flow rights and different risks.  The securities were sold to a variety of investors including large money managers, life insurance companies and pension funds.  Does this sound familiar?  It should, it's very similar to the CMBS business that is in so much ill repute.  However, while this is similar, it's also different in some critical ways. The reasons this is not your typical CMBS is because it's being issued by Freddie Mac with all that backing that implies and more importantly these loans were underwritten to current, relatively strict, standards.  These are all multifamily loans and most of the securities have the backing of Freddie Mac, giving them, in my opinion, the risk of a government security.     For the security holder these do not have the risk of typical CMBS, but it does have some of the same characteristics.  The issuance and acceptance in the market of these securities shows that the capital markets are still interested in securities with the cash flow peculiarities of CMBS.   This is an important first step in re-opening the capital markets to commercial real estate loans, particularly on the multifamily side. While this sale is interesting, does this do anything for the borrowing public?   In the short......
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Keeping the Circle Tight: Broker-Property Manager Relationships

As the economy keeps doing what it is doing (no need for explanation here, I am quite sure), relationships and trust within business circles become more and more critical. Investors need - more than ever - to be able trust in their broker's ability to navigate them through the daunting world of short sales, REOs, broken condo auctions, etc. Investors with access to hard cash have the upper hand and have become very adept to shopping their interests across multiple agencies to get the best "deal". Brokers, in turn, have had to step up their marketing and monitoring of existing relationships in efforts to keep long time clients from listing with the lowest bidder. And what better way keep up with an investor than by using the people with whom they talk with the most?As residential property managers, we have contact with the Owner or Managing Partner(s) on a weekly (sometimes daily) basis. We discuss options in regards budgets, market rents, evictions, vacancies, repairs, upgrades - you name it - and we talk bout it. In doing so, property managers are able to gain some useful insight as to what the Owner is thinking in regards to his/her property. More often than not, the property management company is the first to know that an Owner is thinking about selling, refinancing or converting their multi family investment. We know this because they ask us to begin substantial curbside improvements; or ask us to meet with an appraiser at the property; or maybe......
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HUD 223 (f) – Pros and Cons

Borrowers who never considered FHA/HUD are now being told they need a FHA/HUD 223 (f) loan.  However, most borrowers, and brokers who are selling this product, don't understand the issues relating to these loans.   The 223 (f) is FHA/HUD's acquisition/refinance program for conventional apartment projects.  With limited sources for apartment financing today, this program is being pushed by most mortgage brokers and bankers as the way to refinance your apartment project.To get a complete, but very dry, description of the program visit the HUD web site at http://www.hud.gov/offices/hsg/mfh/progdesc/purchrefi223f.cfm.   The summary of this program states that "Section 223(f) insures mortgage loans to facilitate the purchase or refinancing of existing multifamily rental housing."  So first things first, this is not an FHA/HUD loan, because HUD does not lend money, FHA provides insurance on the loan allowing the lender to sell a security to fund the loan.  So while FHA/HUD underwrites and approves the loan they do not fund it.  It's really the original conduit loan. FHA/HUD underwriting, loan terms and restrictions are not like conventional loans.  They look at the numbers differently and limit loans based on things other than just LTV and DSC.   Because of this you really need to deal with someone who has experience in HUD lending and knows how to process your loan.  There are many approved FHA/HUD lenders and a list can be found at the HUD web site.  Some lenders are just small shops and some are FHA/HUD departments of national or regional mortgage bankers.  As long as they......
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Peter Dean
Adam,Thank you for the overview on the 223(f) program. We were discussing it with our lender just yesterday! We will likely go tha... Read More
Tuesday, 09 June 2009 00:29
Guest — Camille
Our HUD audit runs $6K not $2.5K. Depends on how many CPAs in the area want to go to the trouble of all the training overhead, et... Read More
Friday, 07 April 2017 22:43
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Tips to make your lender happy...part 3

Tips to make your lender happy....Tips to make your lender happy....real estate taxes and utility bills.   to continue with the information you need to send your lender to refinance or acquire a multifamily property it is time to talk about real estate taxes and utility bills.Real Estate TaxesRefinances are pretty straight forward.  If you have the bill we will underwrite to the current year tax bill.  If you don't have the bill we will look at the previous years and try to estimate some reasonable increase.  It only gets tricky if the property is due for a new assessment and/or you plan to do some substantial rehab to the building which would bump the assessment.Acquisitions are tricky when the transfer of the asset triggers a new assessment.  That is particularly painful in states like Michigan.  The new assessment will most likely increase the real estate tax which will directly effect the net operating income.Utility Bills Newer buildings are typically individually metered and the tenant pays their own utilities.  Older buildings are often master metered and either the tenant pays a set utility allowance to the owner or the utilities are included in the rent.   I even have one client that was able to negotiate their gas bill in advance for a three year period.  This was a huge benefit when prices were rising.  It really doesn't matter how your building is set up you just need to let your lender know what utilities are in the rent, what utilities are paid directly by......
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Multifamily Rates - going up or down?

 Over the last month the 10 year treasury rates has moved up by over 30 Bps.  At the same time spreads on Freddie and Fannie multifamily loans have dropped (more for Freddie than Fannie) easing some of that upward interest rate pressure on multifamily loans.   Where they are going from here is any ones guess but many people believe this upward pressure will continue. In the long run we must all agree that rates will go up.  Treasury rates are at very low levels from a historical perspective.  They have maintained this low level because of the recent credit crisis, a flight to own safe treasury securities and government intervention to keep rates low.   At some point this must end.   I maintain that rates will not increase for, at least, a few months, but I have been wrong many times in the past.I recently read an interesting article; the history says the 10-year yields set for summer slide.    This article argues that the 10 year treasury will drop over the summer months.  OK the reasoning is a bit of "it happened before so it will happen again".  We know this is faulty logic, but that does not mean it's not true.   If that does happens we will see multifamily rates from Freddie, Fannie and HUD drop.   Most other lenders today are banks and they don't allow their rates to follow the treasury curve so these rates may not move    Also, Freddie and Fannie will probably not give you the whole treasury drop, if it occurs, but will......
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Joanne Davis
Part of the problem is the sheer number of short sales whereby banks have left owners in their homes for up to 2 years, before sta... Read More
Monday, 18 May 2009 12:15
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Which is more important? Price? Quality? or Service?

What is more important to you as an apartment investor, owner, or contractor doing a remodel in a rental property?

Is everyone only looking at price now because of our economy? Or do some people still give credence and importance to quality of materials, loyalty to the vendor they are getting a bid from, timeliness of receiving the bid, the delivery, and installation?

 I would really like to know what is more of the  driving force in the market. We have seen a large upswing in people wanting a bid, but putting more emphasis on Price than anything else. What does that say about the relationships you have built with your vendors? About our society as a whole?


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Denver Apartment Trade Show-May 20, 2009

How many of you apartment managers, apartment personnel, investors, contractors are going to the Denver Apartment Association Trade Show at the Merchandise Mart on May 20, 2009? Not many? A Few? None?With today's economy, it's more important than ever to get the best value for your money? Am I right? So IF you are going to the Trade Show; and IF you want a Reputable Vendor who can assist you with your cabinet, countertop, or custom casework needs, then you need to stop by our booth #414-Front Range Cabinets and visit us. At Front Range Cabinets, we offer over 8 Different cabinet lines, everything from Truckloads for Multi Family Projects to single kitchens. From Contractor cabinets to Semi Custom as well as Frameless cabinets. Are you looking for Countertops for a project? We do laminate in house and have access to Granite, Quartz, and Solid Surface materials as well.Custom Casework needed? We do that too. We build in house our own Frameless cabinets and have done MANY Teller lines for Banks, Custom desks, and cabinetry. Do you need cabinets, countertops, or casework delivered or installed? We can help you with that as well.Give us an opportunity to give you a competitive quote on your next project. Front Range Cabinets wants to work with you and will offer you not only competitive pricing, but exceptional service, delivery, and installation.Look us up and lets talk about how we can help you upgrade your property to get higher rents, remodel to sell a property, or just......
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GSE basics or how to find the right Freddie or Fannie loan

You hear a lot today that, with the exception of FHA-HUD, the GSE lenders (Freddie Mac and Fannie Mae) are the best, maybe only, lenders in today's multifamily market.  This isn't really true, but its often said.  However, with the exception of a sales call, there's very little discussion of the best way to access GSE capital. Today we will address that issue. Let's start with the basics. First, Freddie Mac and Fannie Mae do not make any loans.  They are not direct lenders and, by law, cannot make new loans. They buy (or credit enhance) loans or pools of loans from approved lenders. For multifamily loans these approved lenders are called DUS (delegated underwriting/servicing) lenders for Fannie Mae and Program Plus lenders for Freddie Mac. There are not many of these lenders and a list of approved lenders can be found at Freddie and Fannie's web sites. Some lenders represent both Freddie and Fannie and some just one or the other.  Second, the two agencies are very different in how they treat their lending partners and how they underwrite their deals.  Fannie, for the most part, allows the DUS lenders to make decisions on the loans they buy and Freddie makes their own lending decisions.  Fannie lenders also take part of the risk on the loan and in exchange for taking some of the risk they are allowed to make lending decisions. Underwriting is mainly done inside the lenders company with their own staff and not with Fannie Mae staff.   Freddie takes......
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Guest — Awell M.
Fannie Mae and Freddie Mac are known in financial services industry. The 5 biggest home loan lenders just settled with the governm... Read More
Tuesday, 24 April 2012 14:40
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Adjustable rate loans, a ticking timebomb?

comparison-ratesWouldn't it be nice if your mortgage rate was under 2%.  Well there are a number of borrowers who have lucked into that situation.  These are borrowers who had chosen adjustable rate mortgages over the last few years.   Adjustable rate loans have rates that periodically change, typically every one, three or six months, based on a set spread over an index.   The index on these loans is typically LIBOR, but the agency lenders use their own reference notes and some lenders use treasury indexes such as the CMT or MTA.  Up until about mid-2007 spreads for these loans on stabalized multifamily properties were 125-250 Bps.  When the loans were made the overall rate was usually a bit better than the fixed rate loan at the time, but there was risk, unless you purchased a rate cap the rate could go up.   Or, as we have recently seen the rate can go down. As we all know in the late 2007 the Fed began easing rates.  As shown below the Fed dropped the Fed Funds target rate from over 5% to 0-0.25% in about 15 months.  This caused other short term indexes to drop creating a winfall for adjustable rate borrowers.  30 day LIBOR has been at about 50 Bps and the Freddie Mac reference bill is under 25 Bps.  This means many of these borrowers have rates of 2% or less; thats lower than anyone ever expected.  As my mother always said sometimes its better to be lucky than smart. Now that these......
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Resident Retention: Recession-Proofing your Community

According to First Advantage SafeRent, year over year, 2008 vs. 2007, application volume has decreased nationally by 7.8% and this negative trend is consistent across A, B and C asset classes (http://fadvsaferent.com).  And RealFacts reported that rents decreased across the entire U.S., with occupancy dropping from 92.9% to 92.2%.  Talk about Gloom and Doom!  Things are not looking great. When faced with a shrinking applicant pool and net effective market rent decreases, retaining existing residents who are typically at higher rent levels becomes mission critical.   But check this out:   Annual Survey Respondent Renewal Intentions How Likely Will You Be to Renew Your Lease: Annual Survey Results   2008 2007 Change Very Likely 43.6% 43.6% 0.0% Somewhat Likely 28.0% 26.7% 1.3% Not Likely 16.4% 20.3% -3.9% Don't Know 11.5% 8.9% 2.6% Refused 0.2% 0.3% -0.2%  Source: SatisFacts Research (www.SatisFacts.com)   There’s an interesting opportunity presenting itself to those who will embrace it. The message that is loud and clear is that retention is the answer to recession-proof your community.  It is critical to hold on to the residents you have, as there are fewer and fewer prospects and rental applications coming through our doors.  With accelerated job losses and the subsequent move outs those losses produce, renters with job security become very valuable assets to property managers looking to reduce turnover costs and ride out the storm.  The national turnover rate has slightly declined, although it has been consistently high over the last six years ranging each year between 59%......
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