Foong on Finance: Restructuring Fannie and Freddie

The past few months have seen a flurry of activities to do with the possible restructuring of Fannie and Freddie. Industry observers emphasize, however, that we are only at a very early stage of the process of reassessing the future structures, and roles etc., of the two Government Sponsored Enterprises (GSEs). Fannie Mae and Freddie Mac are now under conservatorship, under the control of the government. At this point, the government has to support the two organizations to keep them afloat. The thinking is that a better solution has to be found for the two mortgage financing organizations, long-term. “The…

INSIDE THE DEAL: Foreclosure Response Team Steers $1.15M Sale of Distressed Property

By Keat Foong, Executive Editor Ft. Lauderdale, Fla.—Here is one example of a distressed sale, of which the ultimate result may be newly constructed homes selling at $250,000 instead of $550,000. The 1.5-acre property consisted of nine assembled multiple family lots in the Poinciana Park neighborhood of Fort Lauderdale. The sites contain single family homes, duplexes and triplexes. The properties were purchased for a total of  $4.7 million in 2006. Originally, the developer’s intention was to redevelop the site: to demolish the existing buildings and build 33 new townhomes selling for $550,000 per unit. “The developer wanted to eventually assemble…

Foong on Finance: Initial Look at Financial Regulatory Reform

Last week, President Obama put forward his proposals to make changes to the regulatory oversight of the financial system. Among the proposals, the “ Financial Regulatory Reform Plan” would give the Federal Reserve and the Federal Deposit Insurance Corp. additional controls over financial institutions. It would require hedge funds and private equity funds to be registered with the Securities and Exchange Commission. And it would consolidate the agencies that oversee consumer debt banking into a regulator called the Consumer Financial Protection Agency. Where our industry is concerned, the plan would more tightly control banks that issue mortgage-backed securities. And it…

INSIDE THE DEAL: 10 Years Later, Love Funding Refis 1999 Loan with Favorable Results for Borrower

By Keat Foong, Executive EditorElkton, Md.—The owner of Apartments at Iron Ridge here has made a good deal on his 1999 development. The property was originally developed using a construction loan which rolled over into a 30-year permanent loan rollover financing under the FHA 221(d)(4) mortgage insurance program. Ten years later, the development company, MHTJ Enterprises LLC, which still owns the property, refinanced the original loan, dropping the interest rate from 7.75 percent on the FHA 221(d)(4) loan to a below-6 percent Fannie Mae 10-year fixed-rate loan obtained from Love Funding. As a result, the borrower was able to save…

Foong on Finance with Keat Foong: Worse Is Yet to Come

If you have been reassured by President Obama’s calm demeanor and are feeling more relaxed these days, there is an opinion article in a recent issue of The New York Times entitled “The Economy is Still at the Brink.” In case you miss the point, an illustration accompanying the article says, in big, black, artistic, letters, “The Storm Is Not Over, Not By A Long Shot.”   In the multifamily sector specifically, if the number of outfits being created that are specializing in turnarounds is any indication, players may be expecting the trickle of distressed assets and property owners to…

‘Foong on Finance’: Prognosis for TALF: Not Good?

The Term Asset-Backed Securities Loan Facility (TALF) was extended by the Obama Administration in February to provide government financing to private investors for the purchase of CMBS in addition to other types of asset-backed securities. At this point, signs that TALF would have a positive effect in reviving the conduits market may not be good.  According to Sam Chandan, president and chief economist of Real Estate Economics LLC, in his Monday report of April 13, the results of the second round of funding from the government “raise serious questions about the viability of the TALF program in its current form.”…

Foong on Finance: How Bad Can it Get in 2009?

How bad can it get? What a question to ask just before we head into the peak of the holidays. Nevertheless, here are some forecasts for the apartment industry for the new year. Among the industry experts we are in touch with, at worst there is the prediction that the vacancy rate next year may get as high as during the end of the recession of the late-1980s/early-1990s. Mark Obrinsky, chief economist of National Multi Housing Council (NMHC), says that the vacancy rate (for professionally managed apartments), now 6.2 percent, may head to at least the 7.9 percent level last…

Foong on Finance: Real Estate Bubbles

When reporting on multifamily finance in the 2000s, I came across a common refrain from desperate mortgage bankers again and again: “There is a surplus of money chasing a limited amount o f product.” This intensely competitive environment—for lenders, that is—went on for years, seemingly never-ending. But the capital “surplus” environment did come to an end. What Sam Chandan, chief economist of Reis, said recently at the company’s third quarter briefing throws light on the situation. He cited an essay about banking crises. Such a crisis happened, famously, in Japan in the 1980s. The cycle begins thus: There is some…

Foong on Finance: Real Estate Bubbles

By Keat Foong, Executive Editor When reporting on multifamily finance in the 2000s, I came across a common refrain from desperate mortgage bankers again and again: “There is a surplus of money chasing a limited amount of product.” This intensely competitive environment—for lenders, that is—went on for years, seemingly never ending. But the capital “surplus” environment did come to an end. What Sam Chandan, chief economist of Reis, said recently at the company’s third quarter briefing throws light on the situation. He cited an essay about banking crises. Such a crisis happened, famously, in Japan in the 1980s. The cycle…

Foong on Finance: Turning Point

The apartment sector had been holding out relatively well compared to other industries, but it too will succumb to the massive loss of jobs that is expected to accelerate as we go into 2009. Through the third quarter, the national apartment vacancy rate according to the Census Bureau was 10.7 percent, only 0.3 percent higher compared to the same period a year ago and still below the level in 2003-04, reported the National Multi Housing Council (NMHC). And rents continued to rise through September, albeit at a slower rate and less than the rate of inflation. The apartment fundamentals however,…

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