Financial Reform Bill Offers Pros and Cons for the Multifamily Industry
Washington, D.C.--The financial reform bill might increase the cost of borrowing for multifamily businesses.
Dees Stribling, Contributing Editor
Washington, D.C.–On the whole, the financial reform bill (“The Wall Street Reform and Consumer Protection Act”) passed by the U.S. House of Representatives and now pending in the U.S. Senate doesn’t directly address the multifamily property business. Considering the size and scope of the legislation, however, there will probably be some indirect impacts.
One thing the bill will manifestly not do is deal with Fannie Mae and Freddie Mac, which currently undergird such multifamily lending as there is in the current economy. Congress, in its wisdom, has put off the painful task of reforming, abolishing or otherwise changing the GSEs for now.
Still, the bill might increase the cost of borrowing for multifamily businesses. “There will be some measured cost to borrowers as financing will increase due to cost associated with regulations and capital requirements, and loan terms will not be as generous as they were over the past five or six years,” David Cardwell, vice president of capital markets and technology at the National Multi-Housing Council, tells MHN.
Mark Hillis, senior vice president of NRC Realty & Capital Advisors, agrees with that assessment, telling MHN, “there are some concerns that the law could negatively impact an already tight credit market for housing.”
Still, Hillis adds, there will probably be some benefits for the industry. “The reform bill should provide transparency to a sometimes murky financial market place,” he says. “This ought to be beneficial over the long run.”
Cardwell posits a more immediate benefit for the multifamily industry, perhaps an unexpected one. “Consumer protection provisions in the bill will reduce debit- and credit-card fees and permit differentiation in cash and credit pricing,” he notes. “That will probably benefit the efforts of apartment owners to automate all forms of payments and reduce their costs associated with third-party services.”
Less concretely–mainly affecting the realm of investment sales of multifamily properties and the securitization of multifamily mortgages–are the risk retention provisions of the bill. Generally speaking, that language would require entities that issue asset-backed securities (including MBS) to retain at least 5 percent of the credit risk (skin in the game).
Hillis doesn’t see that as an overwhelming problem. “Risk-retention provisions, provisions for end-users of derivatives products, such as interest rate swaps and hedges, and rating agency oversight changes shouldn’t prohibit revival of public commercial securities and use of variable-rate products,” he says.