SPECIAL REPORT: In the Wake of Government Takeover of Fannie & Freddie, ‘Business as Usual’ But Underwriting Remains Tough

By Keat Foong, Executive EditorDenver—The official word is that it is “business as usual” for Fannie Mae and Freddie Mac multifamily financing despite the recent government takeover of the two agencies, said Cheryl Higley, director of real estate mortgage capital at RBC Capital Markets.Higley was speaking at the session titled What is Happening in the Capital Markets and How Does it Affect Your Business at the Multi Housing World 2008 Conference and Exhibition. “The media hype” about the housing problems for the agencies falls on the single-family, and not the multifamily side, said Higley. Multifamily agency lending is “still operating fine,” she said.Speakers on the panel, nevertheless, described the various ways in which underwriting for multifamily financing, from agencies and other sources, has gotten tougher.And Higley noted that although Treasury rates have plunged in recent days, spreads often widen concurrently when Treasury rates fall such that there is no net decline in the interest rate for financing.Sean Fogarty (pictured top), director at Holliday Fenoglio Fowler, said that every investment sales transaction will be more challenging to execute. He said he has witnessed fewer deals this year.David Carlson, managing partner at Redwood Capital Partners LLC, said that lenders are asking more questions about how the owner can obtain the rents that are projected. “Lenders are becoming much more stringent. You got to have not just a story, but a real substantiated story, especially for value adds,” he said.Higley said the biggest change in financing is that “all the stars need to be aligned” in that both the borrower and the property need to meet the new lending criteria. Lenders will look for example at whether the borrower has a net worth at least of the loan amount. And they will examine every investor and who actually controls the property. “Over the years so many bad investors were hidden,” she said.And she said if the investors do not pass the test, the loan might not be approved “even if it is a great property.”