Impending Bailout Package To Have Little Impact on Multifamily Financing

By Anuradha Kher, Online News EditorWashington, D.C.–Days into debate and discussions on Capitol Hill regarding a $700 billion bailout package to stabilize the financial industry, the House of Representatives voted this afternoon against the bill in its current state. The vote against the measure was 228 to 205, with 133 Republicans joining 95 Democrats in opposition. One hundred and forty Democrats and 65 Republicans had backed the bill. Over the weekend, support for the bailout had seemed strong, with several politicians declaring it close to passing.  After Its failure today, the Dow plunged 778 points. The Dow closed down 6.89 percent, beating its previous record for an intraday drop of 721.56 points, set during the first trading day after the Sept. 11, 2001 terror attacks. However, in percentage terms, the decline measured well under the more than 20 percent drops seen on Black Monday of October 1987 and in the Depression.While the passage of the bill was expected to have had a calming effect on the economy, multifamily industry experts believe its impact on financing in the multi-housing sector would be small and indirect.“Whatever the bailout deal is right now, it has to be modified and tweaked. It will eventually be approved because there is no other solution,” Bill Hughes, a senior vice president and managing director of Marcus & Millichap Capital Corp. (MMCC), tells MHN.The bailout not passing today, he says, “will not have any impact on multifamily financing but Citi’s takeover of Wachovia will have some because Wachovia is a Fannie Mae DUS lender.” However, the cost of money for multifamily deals will go up due to an increase in perceived risk in the markets. “I don’t think this will change the way lenders look at deals–they will continue to be conservative. Even when the bailout package passes, there will be no direct impact on multifamily. It is not a panacea and won’t have an immediate impact other than calming the markets.”David M. Abromowitz is a senior fellow at the Center for American Progress, focusing on housing policy and related federal and state programs and issues. He is also a partner at the law firm Goulston & Storrs. Abromowitz tells MHN, “From everything I have seen lately, multifamily deal volume is down and there is difficulty in finding credit. The thinking was that if there is a quick enough bailout, it would have the same impact on multifamily financing as it would on the economy.” He says that the multifamily market thrives better when the homeownership market is not flooded with cheap and easy loans. Since those loans are never coming back, there is good news for multifamily, he says. “There is a lot of uncertainty nationally and internationally and there’s an atmosphere of fear in lending. The prolonged uncertainty is clearly bad for multifamily financing,” says Abromowitz.He believes that it is important to keep an eye on Fannie Mae and Freddie Mac to see if multifamily financing will continue effectively. “So far the understanding is that the GSEs will continue to do that. Having said that many deals just won’t get done because they won’t be economically viable till spreads return to normal,” Abromowitz says.John A. Courson, Chief Operating Officer of the Mortgage Bankers Association (MBA) issued a statement, saying, “We hope Congressional and Administration negotiators will immediately regroup and find common ground upon which they can build a new agreement.  Restoring liquidity to the credit markets is crucial to both stabilizing Wall Street and keeping the U.S. economy moving forward.  “The credit crunch is not only preventing financial institutions from being able to access capital but is also preventing large and small businesses from being able to borrow money, money they use to operate their businesses, upgrading facilities and equipment and hiring and paying workers. If businesses don’t have access to that capital, they will stop growing and the economy will stagnate.”