Over the last several years the larger banks have dominated the multifamily lending market. It seems like Chase was the first lender on the list any time a multifamily deal came into our brokerage. If not Chase, then it was a similar large bank, and the smaller local banks were typically an afterthought. COVID has changed all of that. The big banks that previously had a bit of a stranglehold on the multifamily market are now busy dealing with forbearance and other issues brought on by the pandemic and are no longer offering the most aggressive terms.
Nowadays, agency loans (mortgages offered by Fannie Mae and Freddie Mac) are the hottest thing on the market. They are offering historically low rates and high LTV’s along with other attractive terms that make taking the agency route an easy decision. However, there is a void to be filled for multifamily loans that do not meet the agency criteria – and the community banks are filling that void.
9 months ago, those loans that couldn’t go the agency route but were still considered good, clean deals would be snatched up by a big bank. Now that those banks are no longer aggressive in the multifamily market, the community banks have an opportunity to step up and grab those deals. And for many borrowers, these community banks will provide some extra advantages. For one, community banks lack the strict rigidity of larger banks. They often have a little more wiggle room when making deals and will ……
Category: Apartment Investment
New Roles for Mortgage Brokers
Before the pandemic, the role of a mortgage broker was often overlooked. Most borrowers had access to capital and CRE professionals typically did not have much need for mortgage brokers either as their buyers likely had a lender already lined up for a given transaction. Overall, getting a loan was rather straightforward. Now, however, CRE lending has dramatically changed and the role of a mortgage broker has changed with it:
More guidance: with so many lenders still rejecting new deals or only lending on certain asset types or offering a specific product, mortgage brokers need to maintain continuous communication with a variety of lenders to provide the best service for their clients. For the borrowers that would typically work with a relationship bank for their commercial mortgage it is very possible that their bank will not finance their property now. Many borrowers are being forced to find new lending relationships, and a mortgage broker can help guide those borrowers to the right lender for whatever deal they are working on.
Extra work: due to COVID, closing a loan now requires more work and a broker can help carry the load. Lenders want to see collections reports and delinquency reports, especially if tenants have missed rent payments. Rent rolls and profit & loss statements need to be continuously updated throughout the closing process. More detailed underwriting is often required along with comps to support the numbers. Mortgage brokers can help with all the extra due diligence and properly present the right information……
Game Changing HUD Policy Revision!
HUD Delivers!
Last week, HUD issued a major policy revision to the 223(f) refinancing program’s multifamily eligibility requirements. Prior to 3/2/2020, HUD’s Three Year Rule look-back prohibited property owners from taking advantage of the 223(f) refinance program if a property was built or substantially rehabilitated within three years of application for HUD refinancing. With the elimination of the Three Year Rule, property owners can now take advantage of the 223(f) program after receiving the final certificate of occupancy.
Who Benefits?
Property owners with recently built or substantially rehabilitated projects, who are seeking to refinance into long term, self-amortizing, non-recourse debt at a low interest rate and end construction loan guarantees. Owners are encouraged to evaluate their entire portfolio and take advantage of this opportunity
Purchasers seeking to acquire recently built or substantially rehabilitated projects
Lenders with construction or substantial rehabilitation loans on their books looking for an exit for their borrowers
The New Rules
Projects submitted to HUD within three years of final certificate of occupancy issuance must meet or provide the following:
A minimum DSCR of 1.11 for Broadly Affordable projects and 1.176 for all other projects for a period of three consecutive months prior to loan endorsement
DSCR to be calculated based on actual revenue collected less normalized expenses
An income and expense statement from initial occupancy to application submission, and 12-month projection of income and expenses
Current rent roll supporting underwritten rents
Leasing history from initial occupancy to application submission, including history rent concessions, other discounts and short term leases……