From the Editor
BY TONY STASIEK, EDITOR
In the Past Month
EspEcially in thE world of commErcial rEal EstatE financE, lEvity cEr-
tainly has its timE and placE. that placE was not thE mortgagE BankErs
association’s commErcial rEal EstatE financE (crEf)/multifamily hous-
ing Expo Back in fEBruary.
Perhaps the issue with the whimsically titled CREF session “We’re from the Government and
We’re Here to Help You” (event recap: sctsm.in/3993) was that attendees felt less served than
miffed. And they let speaker Carol Galante, deputy assistant secretary for U.S. Department of
Housing and Urban Development (HUD)’s multifamily-housing programs, know that her announcement of proposed changes to the Federal Housing Administration (FHA)’s section Nos.
221(d)( 4) and 223(f) programs didn’t help.
At press time, HUD was expected to codify the proposal to increase the minimum debt-service-coverage ratio (DSCR) for most loans in the 221(d)( 4) program — one of few options for
multifamily development — from 1.11 to 1.2, with an additional DSCR increase planned for the
223(f) refinancing program.
As with many FHA changes in recent months, the issue comes down to risk. Galante said FHA’s
multifamily volume grew by 487 percent in the 15 months leading up to CREF. For fiscal year
2009, the administration insured $1.3 billion worth of mortgages through the 221(d)( 3) and
( 4) programs. As Galante mentions in our Q& A on Page 16, FHA nearly equaled that total for
the 221(d)( 4) program in the first six months of the current fiscal year alone.
Added exposure — plus the acceptance of shakier loans than the programs might’ve been
designed for — means HUD and FHA can get pickier.
During and after the CREF session, brokers and lenders have contended that the change would
force developers to put up more capital — and thus, wipe out 221(d)( 4) as an option for some
of these borrowers. They’ve said the program has become nearly necessary for new-construc-tion financing; Michael Zukerman of Whitestone Realty Capital outlines benefits of the 221(d)
( 4) program and others in his article on Page 24.
“We think that people have raised some good points, and we’re certainly willing to consider
those,” Galante said to Scotsman Guide associate editor Darrick Meneken. “We also do believe that fundamentally, these [proposed] guidelines are appropriate in this marketplace. And
in fact, we don’t expect to see a huge falloff.”
For updates on these potential program changes as they happen, follow us on Twitter (twitter.
com/ScotsmanGuideED) and Facebook ( facebook.com/scotsmanguidemedia).
tonys@scotsmanguide.com
NEXT;MONTH
… in July’s Scotsman Guide
• How bridge lenders can help
borrowers through the credit
crunch
• Why you should get to know
energy-use-disclosure laws
• When brokers can improve their
personal and corporate ethics
• Are sunny days in store for
Florida’s commercial real estate
market?
Online? Check out current and past editions of
Scotsman Guide at scotsmanguide.com.
5;YEARS;AGO
From June 2005’s
Scotsman Guide
“When the borrower wants to prepay, servicers field many questions about prepayment terms in
the borrower’s loan documents.
A focus on the prepayment terms
earlier in the process can alleviate
anxiety and even conflicts during
the prepayment itself.”
—;KATHY;MARQUARDT;AND
JAMES;GOODALL,;GMAC
“THE;BALANCING;ACT”
sctsm.in/0619
View this article and others in our free
article archive at scotsmanguide.com.
GDP shows 3.2-percent
growth in first quarter
WASHINGTON, D.C. — The U.S. Commerce Department
said the U. S. economy grew 3.2 percent in the first quarter of this year, reflecting growth in consumer spending
and business inventories.
“What this number means is that our economy as a
whole is in a much better place than it was one year
ago,” President Barack Obama said in an address from
the Rose Garden.
Inventory buildup — a sign that businesses expect consumers will spend more — added 1.57 percentage points
to the gross domestic product (GDP) in the advance report. The department said consumer prices increased
1.7 percent during the quarter, but consumer spending
jumped 3. 6 percent after increasing 1.6 percent in the
previous quarter.
The 3.2-percent growth is slightly less than the consensus forecast, which called for a 3.4-percent increase.
Next release:
Final first-quarter GDP: June 25
Factory orders increase
again in March
WASHINGTON, D.C. — New orders for manufactured U. S.
goods increased 1.3 percent in March, the U.S. Census
Bureau reported on May 4.
New orders have increased for 11 of the past 12 months.
The Institute of Supply Management (ISM) also reported
in early May that manufacturing activity had grown for
nine consecutive months.
The U.S. Census Bureau said new orders increased 1.3
percent, or $5 billion, to $391.5 billion. A month earlier,
new orders also showed 1.3-percent growth.
Next release:
ISM manufacturing index: June 1
Factory orders: June 3
SEC alleges fraud in suit
against Goldman Sachs
NEW YORK — The U.S. Securities and Exchange Commission (SEC) filed a civil suit against Goldman Sachs
and claims the firm sold securities that were stacked
against the buyer.
At the heart of the complaint, the SEC said Goldman
Sachs sold mortgage securities that included bonds
selected by John Paulson, a hedge-fund manager who
made billions betting against the housing market, The
New York Times reported. Paulson was not named in
the suit.
The complaint says Goldman advertised the securities
as “selected by ACA Management,” referring to the company managing the deals. Allegedly, Goldman also did
not reveal the trader choosing the securities was investing heavily on a market collapse, the Times said.
The lawsuit names Goldman Vice President Fabrice
Tourre, who allegedly helped create the instruments
known as Abacus 2007-ACI.
Detroit government mulls
casino-property purchase
DETROIT — The city of Detroit is discussing a purchase
of property previously used by the MGM Grand Detroit
Casino, a company spokeswoman said in mid-April.
The building, which MGM used from 1999 through 2007
and which the Internal Revenue Service occupied earlier, would have several potential uses for the city, including a crime lab or a new police headquarters, according
to The Detroit News.
