2009-03-16, 15:53

NMHC Four-Point Capital Crisis Plan

By: Chris Iavarone
As we mentioned in a previous blog entry, there is a credit crisis looming that may cause a wave of bankruptcies in the coming years. Roughly $160-400 billion in commercial mortgages will be coming due in the next two years, of which $60-80 billion is multifamily mortgages.

Fannie Mae and Freddie Mac are virtually the only sources of debt financing for multifamily owners, accounting for nearly 90 percent of the funds provided to multifamily borrowers over the past year. With the credit markets still tightly contracted, multifamily borrowers are having trouble securing capital to refinance existing properties, despite the fact that default rates for multifamily mortgages held by the Fannie Mae and Freddie Mac reported at the end of 2008 were 0.21 percent and 0.03 percent, respectively.

To address this crisis, the NMHC is urging the Treasury and the Federal Reserve, under authority granted to that as part of TARP, to take the following actions:
  • Purchase multifamily mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac. Federal Reserve/Treasury purchases are important to invigorate the multifamily MBS investor market which has begun to show limited signs of activity.
  • Purchase longer term debt issuances by Fannie Mae and Freddie Mac so that the government sponsored enterprises (GSEs) can support their lenders’ funding needs without having to rely on mismatched short-term debt. This is essential to align the GSEs’ capital needs with longer-term multifamily loan products.
  • The Federal Reserve should purchase highly rated commercial mortgage-backed securities (CMBS). This would restore investor confidence, restart trading in the frozen CMBS market and establish a market-clearing price for a variety of real estate assets, including commercial and multifamily mortgages.
  • In separate action, the Federal Housing Finance Agency should exempt multifamily loans from GSE mortgage portfolio limits through December 31, 2010 or until a new secondary market structure for multifamily loans is operational, whichever comes first. Based on Fannie Mae’s and Freddie Mac’s strong multifamily loan portfolio performance, exempting these loans will have virtually no impact on the overall portfolio risk of the two enterprises.
More information about NMHC's plan can be found at here.

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