Stay on top of underwriting
trends to keep deals flowing
If your clients are hungry to purchase or refinance a multifamily property using a conventional loan, you’re
probably already aware that Fannie Mae and Freddie Mac have changed some under writing guidelines this year.
The Federal Housing Finance Agency (FHFA) has tightened the belt on green loans issued through the
government-sponsored enterprises (GSEs), increasing the energy- and water-consumption savings standard to
25 percent. Additionally, the FHFA has created a new category for “extremely high-cost markets” as it attempts
to address moderate-income housing shortages.
Regardless of the loan types or property types you work with, commercial mortgage brokers should keep an eye
on underwriting standards. Jamie Woodwell, vice president of research and economics at the Mortgage Bankers
Association, spoke with Scotsman Guide about underwriting trends across the commercial real estate spectrum.
The GSEs’ multifamily lending caps shrank this year. What impact will that have on the market?
FHFA, the conservator for Fannie Mae and Freddie Mac, adjusted the cap. There are a number of exceptions to
those caps, so even though we did see the overall cap drop from $36.5 billion to $35 billion (for each agency),
the exceptions to those caps, most of them remain as they were last year.
There were some tweaks to the green-lending exceptions that tightened those up a little bit. So, there are
slightly different thresholds, and Fannie and Freddie have both adjusted their programs to adapt to that. But
then, there is a new exception that, in very high-cost markets, the GSEs will be able to exempt loans that haven’t
previously been exempted. So, I think, all that taken together probably means that the GSEs will have just as
strong an appetite this year for multifamily loans as they did last year — and a little bit more tailored, perhaps,
to some of those exception areas.
What are your thoughts about the regulatory and legislative proposals on the table that could redefine
high-volatility commercial real estate (HVCRE) loans?
What we and others are hoping for is that we’ll get some of the oddities in the rules ironed out. There are some
aspects of the initial rules that didn’t match the way the real world ran. With some fixes to those rules, we can see
more consistency from banks in how they’re treating HVCRE. The capital regime would more match what really
happens in commercial real estate lending, so all of those would be good things.
Many analysts expect issuances of commercial mortgage-backed securities (CMBS) to drop this year. Is this
still a viable path to financing for certain deals?
It’s a great question, and it’s sort of funny. The beginning of every year, one of the great prognostication games
is trying to guess what might happen with CMBS issuance. We put out a chart of the week (this past February)
that looked at where CMBS [credit] spreads have been over the last decade-plus, and where issuance was relative to those spreads. And the clear takeaway from that is [that] the tighter spreads are, the higher issuance is.
We’re still early in the year, but spreads are pretty darned tight in CMBS. So, based on that historical relationship,
that would make you think that issuance could be at a pretty decent level this year. One of the things that drove
the CMBS market last year was an awful lot of single-asset, single-borrower deals, so that’s a little bit different
than most previous years. And we seem to be following that same trend so far in 2018. But given how tight
spreads are — and investor demand — I wouldn’t write CMBS off for this coming year.
Are there any other trends from last year, such as lower-leverage loans, that may continue or shift?
There’s a very strong appetite from lenders to make loans this year. And I think there’s some question about how
many deals there will be to be financed. … What we’ve also seen is that the competition has tended to be more
on price than on underwriting, that lenders are tending to stick pretty close to conventions and terms of how
they’re approaching LTVs (loan-to-value ratios) and DSCRs (debt-service-coverage ratios).
I’d expect that to really hold true for the year, that lenders are going to be comfortable with certain types of
loans. They’ll figure out how to price those accordingly. But they’ll probably be more reluctant to really give on
some of the loan terms. n
Jamie Woodwell is vice president
of research and economics at the
Mortgage Bankers Association, where
he oversees the trade organization’s
research on the commercial and
multifamily real estate markets. His
work covers the macroeconomy and
commercial and multifamily property markets, as well as commercial
and multifamily real estate finance,
servicing, benchmarking and more.
Woodwell is recognized as an industry
expert and is regularly cited in the
media, on Capitol Hill and in regulatory settings. Reach Woodwell at
Neil Pierson is editor of Scotsman Guide Commercial Edition.
Reach him at (800) 297-6061 or firstname.lastname@example.org.
Vice president of research and economics, Mortgage Bankers Association
By Neil Pierson