Bud Malone, CEO of Mortgages USA

MHN interviews Bud Malone, CEO of Mortgages USA, who describes the current outlook for multifamily and explains why he considers rentals 'a great wake up from the American Dream.'

Dallas—National multifamily mortgage executive, Bernard P. “Bud” Malone, who founded Malone Mortgage Company in 1989 and sold the company in 2005, has reentered the multifamily industry.

Malone has recently joined Mortgages USA as CEO. Mortgages USA is a single-family and multifamily mortgage organization that specializes in selling homes directly to the public. In an interview with MHN, Malone describes why he thinks now is the best time to get back into real estate and explains the current outlook for multifamily.

MHN: Why did you decide to get back into the real estate industry now, especially in light of the struggling economy?

Bud Malone: Given my nearly 40 years of experience—as both a commercial real estate transaction lawyer and as a mortgage banker that specialized in HUD/FHA Multifamily Programs—it was easy to determine that “now” with our country’s struggling economy is precisely the time to bring my expertise to the fore in providing HUD/FHA-insured financing for multifamily. We should all remember that the National Housing Act, which brought the federal guaranty to the marketplace in the first place, became law in 1932—in the midst of a worldwide depression. There was no capital in the real estate sector then, and only by virtue of creation of a Federal Housing Administration to absorb risk and receive mortgage insurance premiums in turn, could capital even begin to come back into the real estate sector.

Today, the fall of 2011, albeit not quite a depression, there is no capital to speak of in the real estate sector of the economy. However, there is a capital window open for Ginnie Mae-guaranteed securities collateralized by HUD/FHA-Insured multifamily mortgages.

MHN: Describe your current venture.

Malone: In January, 2011, I joined Mortages USA in Dallas, Texas, a company that to the current time has been in the residential (single family) mortgage banking business for some seven years. My entry was as a partner and a co-owner with Jeff Morgan, president, and my primary function as CEO of the company is to set up and administer a multifamily finance division. We now have staffed this division, received approval from HUD as a MAP Lender and await approval as a Ginnie Mae (Government National Mortgage Association) seller/servicer, which is expected to issue imminently.

Besides staffing the new division, we have developed a multifamily pipeline of deals that, subject to our due diligence confirmation, appear eligible under various HUD/FHA Multifamily Mortgage Insurance Programs. Additionally, we have filled several applications with HUD/FHA for mortgage insurance on deals that have weathered the HUD/FHA “Concept Meeting” process, and been invited for the further processing that our filings represent. In short, we are off and running and are quite excited to do our part toward invigorating the economy with our financing while helping to bring rental housing to markets and communities in need.

MHN: What about Mortgages USA appealed to you the most, and why do you feel now is the best time to launch a multifamily division?

Malone: Mortgages USA had a very successful six-year run as a residential mortgage banker, avoiding along the way the lure and attraction of subprime lending. I believe that I came to admire their resistance to the seemingly easy and quick buck in the subprime market in favor of long-term prudent residential lending. Additionally, they had the corporate and office equipment set up, as well as office space to enable me to staff multifamily and obtain the necessary government approvals in an efficient manner. Finally, both Jeff Morgan and I agree that a paradigm shift has occurred in our markets as well as across the nation. That shift is a preference for rental housing over ownership—and this shift is readily discernible in the young adult age, and for a longer term among those in this group than ever before—as well as among the seniors of America who want to unburden from the travails of ownership and let future landlords fulfill the functions of ownership. This is not to say that owning one’s own home is over as an ideal in America; however, we see it as a delayed gratification to be enjoyed when one can afford to handle home ownership.

MHN: Are multifamily deals increasing? And are people still buying property?

Malone: It’s my perception that there’s been a paradigm shift away from ownership—given the debacle we’ve just been through with home ownership—and towards rental. You know, you gotta live somewhere. Rental housing is really taking a prime position. There’s always been a role for rental housing. This paradigm shift has enhanced its role, and what with the economic impact of commercial-backed securities, the failure of the banks to pick up and fund, the result has been for the past four years, or perhaps longer, that we are not building enough rental housing, even as replacements for the obsolete rental housing. We’re not even keeping up with the need to replace, never mind building for this new demand for rental housing that’s developed across the country. So, if you’re in rental housing I would say, development-wise, assuming you could find financing on both the equity and debt sides, that it’s a bright day ahead for housing and development.

MHN: Do you think this trend will continue?

Malone: Well the country needs to overcome the tremendous surplus of houses that never should have come into being. [There are] defaults on a national scale to a level we haven’t seen before, and as a result the country has to figure out an answer to that situation. What people are trying to do is get out of their houses and into rental housing. I think that’s going to be with us for several years. In my opinion it will be three or four years before the country begins to absorb the glut of houses on the market. House prices nationally are way, way down as a result. Eventually, just population growth alone will begin to address that situation in terms of numbers. We’ll begin to see home ownership is not forever gone. I mean, everybody would one day like to own their own homes. It’s a sobered-up market. They don’t want to own the home before they can meet the mortgage payments and all the costs associated with it. What we’re seeing is a great wake up from the American Dream. Homeownership is not necessarily an asset that inflation will ultimately make a profitable investment. I think that’s gone, that vision.

Today, homeownership is simply a desire to own your own home and improve your own property, etc. And that shift in the outlook for the market is the paradigm shift that I’m talking about. If you’re in the range of 20 to 30 years old, you’re not inclined to see how you could own your own home—that’s a deferred item. So that age group is what I call a delayed gratification. To delay it until you can in fact have a job for sure and a career and a spouse, etc. Marriages are being deferred until the participants can afford what they’re contemplating. I think that’s the big sobering up of America. The result is the housing industry has to recognize that and say, “Where are these young adults going to live?” And of course it’s going to be rental. That’s why, if I were a multifamily developer, I sure would feel good for the future, as far as market demand.

MHN: What changes have you seen within the multifamily industry, and where do you think the industry is headed?

Malone: The major change within the multifamily industry has been the lack of financing for new production, or to rehabilitate existing multifamily. This has resulted in the inability of the industry to address demand for new and rehabilitated rental units. The deals that are getting done through equity sources for the most part are upper-end, luxury rentals. The unmet need is for the affordable rental-housing unit. The industry has been attempting to adapt to the government-guaranty programs but still appears, for the most part, to be seeking government approval of upper-end projects rather than affordable market rents. This diversity of views, if not changed, could lead only to stagnant development in the years ahead.