Tuesday, February 7, 2017

RECI Reports Mortgage Lenders Flush With Funds

Jeanne Peck
Chicago, IL – Real Estate Capital Institute notes the 20,000-Dow-threshold has started 2017 on a hot streak.  Realty capital markets, however, are more subdued as
mortgage rates are slightly lower than the beginning of the year. 

After bouncing about a quarter point during the month, overall long-term rates are certainly higher than pre-election figures, but still within a comfortable
range.  Lenders are flush with funds per the following popular sources:
Agency/FHA:  Freddie/FNMA combined agency loan production for last year was
at a record level - in excess of $110 billion.  Significant liquidity
assures mortgages spreads will be tight and perhaps even compress more as
the year progresses.  On the legislative front, the new administration is
targeting tax reform, potentially impacting tax-credit driven deals.  New
construction/perm debt combinations (e.g., FHA/HUD 221(d)4) gain more
popularity as many banks pull back from new multifamily construction

Life Company:  Similar to agencies, mortgage spreads are on an even course.
LifeCos actively in the market with funding allocations similar to last
year.  Ideal underwriting focused on 65% or less leverage in return for very
attractive pricing of 150 to 180 basis points over treasuries.  Unique to
this funding sector, fixed-rate forward-delivery loans reach out to a year
at premiums of three to five basis points per month after the initial ninety

CMBS:  Securitized mortgage spreads, too, have been stable during the past
few weeks.  Risk Retention rules governed by the type of risk compliance
chosen by individual conduit lenders. Larger financial institutions issuing
conduit debt, and investing in each layer of the debt stack ("Vertical
Strip"), appear unaffected.  Alternative risk compliance formats
("Horizontal Strip") targeting the highest risk portions of the debt are
still defining securitization strategies. 

Bank:  Basel III regulatory requirements postponed to late in the first
quarter, giving banks breathing room for regulatory negotiations on some of
the more onerous provisions.  Even after considering regulatory issues,
construction funding is challenging, given the new inventory pipeline in
most markets.  Loans are limited to lower leverage and debt-yield thresholds
with strong sponsorship, mostly for existing clients. 

Ms. Jeanne Peck of the Real Estate Capital Institute, advises, "Most of the
attention is diverted from rates to how Trump administration will deal with
loosening tax and financial service regulations.  Lenders and borrowers
alike want more policy clarifications in order to formulate investment goals
and objectives."

For a complete copy of the company’s news release, please contact:

Jeanne Peck, Executive Director

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